TRUST DEEDS:
These are common. Escrow will order a demand
from the lender(s) which will allow the title company to pay off
the existing loan(s) using the proceeds from the new buyer’s
loan (or proceeds if all cash).
RED FLAG:
Watch out for old trust deeds from a previous owner
(or sometimes the current owner if he has refinanced). If
you find a trust deed listed that has already been paid, or that
looks like it was taken out by a previous owner, call your title
officer immediately. He will research the trust deed, and take
the necessary steps to either remove it from the public record
(by working with escrow to get release documents) or by
acquiring an “indemnity” from the title company who paid off
the old loan. Old trust deeds with private party beneficiaries (an
individual acting as lender, such as an old seller carry-back) are
difficult to get removed, especially if several years have gone
by since the loan has been paid off. A bond will sometimes be
necessary in order to clear title of an old trust deed. These
bonds must be covering twice the face value of the deed of
trust, and will cost upwards from 1% of the bond amount
(usually around 2 or 3 percent, more for higher risk bonds),
depending on how much supporting documentation is provided
to the bonding company. Note: If you have a client/buyer who
is getting financing from the seller, or any individual, advise them
to contact you or their title officer when the loan is being paid
off. The release documents are much easier to get now rather
than in a few years when the lender may no longer be around.
ENCROACHMENTS:
Sometimes a structure (commonly a fence
or driveway) encroaches upon a property. This usually
means that a client will have to take the property subject
to the encroachment. Contact your title officer if you see
encroachment language in your prelim.
RED FLAG:
The lender will usually not want to lend on a
property where encroachments exist. In some circumstances,
an endorsement to the lender’s policy (usually with an extra
charge) can allow the lender to close. These are determined on
a case-by-case basis. Again, contact your title officer.
NOTICE OF VIOLATION:
These will sometimes be recorded by the
fire department, the health department or the local zoning
enforcement division in situations where the property violates a
local statute.
RED FLAG:
These are always a red flag. The lender will not
accept these conditions. The violation will have to be
eliminated and the local enforcement agency will have to
issue a release before closing. Escrow (or the seller or the
seller’s representative) will usually have to deal directly with
the appropriate agency to resolve these types of issues.
COURT ORDERS/JUDGMENTS:
These are not a standard item.
The most common type to show on a title commitment is
support judgments. These are issued by the courts when
child/spousal support is owed by the party named. (See
“Statement of Information”)
RED FLAG:
Any order/judgment is a red flag. Support
judgments can take up to six weeks to get a demand and
release from the creditor (usually the district attorney’s
office). If you see an order or judgment, contact escrow
immediately to verify that the demand has been ordered.
BANKRUPTCY:
While not unusual, bankruptcies are not
standard.
RED FLAG:
All open bankruptcies require the debtor to get
permission from the court to sell or encumber an asset
(the home) or to take on new debt. Chapter 7 and 13
bankruptcies against the seller are the most common found
in a sale situation. A letter from the bankruptcy trustee will
be required to close escrow. The trustee will sometimes
require that a payment be made to the court at close. We
sometimes find a Chapter 13 against a buyer, which will also
require a letter from the trustee allowing the debtor to take
on more debt. An open Chapter 7 against the buyer is rare,
and the buyer probably cannot get a loan as long as he is in a
Chapter 7. (See “Statement of Information”).
NOTE: Chapter 7 is a complete washout of dischargeable
debt, Chapter 13 is a reorganization of debt and Chapter 11
is a reorganization of debt for a company or corporation.
NOTICE OF PENDING ACTION:
This is also known as a “lis
pendens.”
RED FLAG:
This is a big red flag. This means that someone has
a lawsuit pending that may affect the title to the property.
These are often found in acrimonious divorce situations. A
demand (the aggressing party usually wants money before
releasing) and withdrawal (a “withdrawal of lis pendens” is
a legal document that must be recorded to release the lis
pendens) will be required before closing.
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© Ticor Title Company
RED FLAGS IN THE ESCROW / TITLE PROCESS




