Short Sales and Title Defects: Be Prepared!


I am in the final stages of a short sale closing.  There is a problem because when the first and second mortgages were originated in 2004, the mortgage company made a mistake when they assigned the first mortgage to Countrywide. Because of the mistake, they actually assigned the second mortgage, not the first. Technically, the mortgage company still owns the first mortgage. Yes, Countrywide and then Bank of America have been collecting payments all these years. Yes, Bank of America agreed to the short sale. But, they technically did not own the mortgage.

So…

The title insurance company for my closing said, “No problem. Easy fix. We just need the mortgage company who originated the loan to sign a correction affidavit saying they MEANT to assign the first mortgage. That way, when Bank of America signs the release of the former Countrywide mortgage after the short sale closes, it will be effective.” Simple, right?

EXCEPT…

The mortgage company refused to sign the correction affidavit unless they received some CYA document from Bank of America. Try getting that done in the half hour between learning about the problem and the deadline to wire funds to Bank of America to complete the short sale. (Yes, I knew about the problem much earlier, but the mortgage company said they would sign, and then changed their mind at the last minute!!!!!!)

AS A RESULT, MY ADVICE FOR SHORT SALES:

  1. Get title work done early so you can identify problems and get them fixed early. After all, who is surprised that mortgage originations (and assignments) were sloppy “back in the day?”
  2. Actually read the title work, to see if there are any problems.
  3. If you need a correction document from the originating mortgage company, pray they are still in business. Otherwise, it could get very complicated trying to make the title insurance company’s underwriter happy.
  4. Whatever correction document you need, get it long before closing, so if somebody changes their mind, you have time to deal with it and figure out a work-around, if possible.

Good luck!  Problems don’t kill us, surprises kill us!