While the following is not a huge risk, I can see scenarios where back end vulture investors collect rights of lenders on prime properties and then force the issue into court on the unsuspecting property owner and hold them hostage to endless litigation unless they conveniently pay the vulture investor to go away. Remember it is not necessarily the validity of the claim that forces payment it is the threat of endless litigation that prompts payment from the new owner.
Saturday, September 18, 2010
Latest Real Estate Time Bomb: Title of Foreclosed Properties Clouded; Wells Fargo Dumping Risk on Hapless Buyers
In the event that the loan goes into foreclosure at a later date, the then-current owner of the loan files the foreclosure and sells the property to a new owner, often at auction. The land records would show a deed of transfer from the investment bank to the new owner. This creates a break in the chain of ownership of the mortgage rights. In many cases, the transfer of ownership of the mortgage loan has gone from the original lender, through several owners, and then to the foreclosing bank, none of which is recorded on the property title history. Technically, the foreclosing bank has no recorded title rights to foreclose in the first place...
There are reports that some title insurers are indicating that they will not insure for this title defect.
Some readers may take this all to be unduly alarmist. But confirmation that this problem is real and potentially serious comes via a new "gotcha" practice by Wells Fargo on foreclosure sales. Wells is sufficiently concerned about the risks of selling properties out of foreclosure that it is springing an addendum on buyers, shortly before closing, which effectively shifts all risk for any title deficiency on to the buyer.
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