Short-Sale Alert: Shifting the Title Problem to the Borrower

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Editor’s Comment: In reviewing some documents for a proposed short-sale it appears to me that the reason why the banks are willing to do it is hidden in the legalese contained in the multiple forms that the borrower is asked to sign.

It is important that you have an attorney licensed in the jurisdiction in which the property is located review those short-sale papers before you sign them, thinking your problems are over.

The first big problem that I see is that it appears to be common practice for the borrower to warrant title and lack of encumbrances that others might assert claims. This is a warranty that properly should be made by the servicer, the trust and the trustee on the deed of trust (where applicable) since the information necessary to make such an assertion or acknowledgment or warranty is solely within the care, custody and control of the pretender lenders.

The fact is that the satisfaction of mortgage or release and reconveyance may be executed by a party lacking the authority to do so, just as the wrongful foreclosures are based upon robo-signed fabricated documents. If the Seller in a short-sale makes such a warranty and a claim arises later that the title is corrupted it is the Seller who made the warranty to the new buyer and the title company, and both the buyer and the title company could sue the Seller who thought they were putting an end to the foreclosure nightmare.

The fact is that depending upon the actual money trail and the the documentary trail that preceded the short-sale, there are many parties who could assert a claim, although it appears unlikely they will do so.

If the asset pool (trust or REMIC) actually acquired the loan legally then it should say so and join in the release and reconveyance or satisfaction of mortgage. Which brings me to the second point of concern: when the package is delivered to the Seller in a short-sale, it typically does NOT include the forms that will be used to release the mortgage, waive the deficiency etc. It is entirely possible that a trusting Seller in a short-sale might themselves tied in knots because the satisfaction or reconveyance contains statements, warranties and assertions that are not true and potentially binding the Seller for all responsibilities on title and even deficiencies.

If the onus of potential title problems is not being covered by the title company and disclaimed by the parties executing the release or satisfaction, then the Seller is stuck with a problem he didn’t have before: corruption of title caused by the fake scheme of securitization is transferred to the Seller’s doorstep. It is even possible that you might be inadvertently signing up for a deficiency judgment when in a foreclosure (particularly in non-judicial states) the deficiency is ordinarily waived. This can force the Seller into a bankruptcy they were seeking to avoid. Be Careful!

Tags: corruption of title, release and reconveyance, satisfaction of mortgage, short sales, title problems
Posted in bubble, Corruption, Eviction, securities fraud |