"RUSH" is a word which often results in the opposite effect. It is a word which can make people stop dead in their tracks, especially since everything seems to be RUSH or URGENT these days. For settlement agents RUSH almost always raises a red flag. It causes you to ask: Why is this transaction a rush? Is it because someone is trying to hide something?
Settlement agents have excellent instincts. Lynn Brown, escrow specialist, is no different. She had a file where the seller was in a very big RUSH to close on the sale of his home. Turns out he had at least 95,000 reasons to close quickly.
Lawyers Title Company in Indiana opened a sale transaction. The sales price was $95,000 and the seller was in a very big hurry to close. The title report was ordered. Once it was received, Lynn began working on clearing title. The report revealed the property had only one mortgage recorded against it, but there was also a recorded promissory note in favor of an individual. Lynn contacted the seller for the information necessary to order a payoff demand and ask about the recorded promissory note.
The seller provided the loan number and contact information for the mortgage. When asked about the note, he told Lynn his friend would sign whatever was needed but would not be demanding any payment. Lynn went to work ordering the payoff and contacting the private party about releasing his lien. When she spoke to the private party she learned the seller had borrowed the money from him in order to purchase the property.
Shortly thereafter the private party learned his friend (the seller) also obtained a mortgage from his bank, but did not use the funds to repay him. That is when he recorded his note against the property. The seller did make some payments to the private party, but he was still owed $55,000 and was not willing to release his lien without payment.
The payoff demand came in from the lender which stated the unpaid principal balance was $92,314.61. Since the sales price was $95,000 Lynn decided to call the listing agent to discuss the transaction. She explained the seller would have to bring in a substantial amount to close since the beneficiary of the recorded note told her he was going to demand the balance due to him.
The real estate agent slipped and mentioned there was also an outstanding unrecorded contract for deed the seller entered into. When Lynn asked him what he was talking about, he tried to brush over his comment. She pushed further and discovered the seller entered into a contract for deed and already received $40,000 from the previous buyers, but he said the contract had expired. Lynn asked him to send her the contract.
The contract seemed a little odd because it was originally written in black ink, but then a change was crossed through and written in blue ink. At the direction of her title officer, Lynn told the seller and listing agent the buyers named on the contract would have to sign a quit claim deed to clear up any interest they might have in the property.
The buyers called Lynn to schedule an appointment to sign the deed. During the conversation, the buyers indicated the seller was pestering them to sign the quit claim deed and they felt he was taking advantage of them. They said they just wanted to sign off so he would stop bothering them.
Lynn was concerned any documents signed could be challenged, as she felt they would be signed under duress. She advised the buyers to consult an attorney to review the contract and prepare the quit claim deed for them, then to deliver it to her for recording.
In the meantime, the new buyers of the property ordered a survey for $1,590 and a termite report for $50. The original buyers on the contract for deed never called back to indicate they had spoken with an attorney. Ultimately, the seller could not convince his friend to release his $55,000 note without payment and there just was not enough money in the deal to make it work. The property was over–encumbered with liens and as a result this transaction never closed.
MORAL OF THE STORY
Not knowing the note holder had recorded his promissory note, the seller was clearly desperate to rush the sale to a successful closing before the outstanding note for $55,000 or the equitable interest of the contract buyer was discovered.
Lynn trusted her instincts and followed through with all possible clouds on title. Had she allowed the seller to rush her she could have missed details which could have resulted in claims by the new buyer against our Company. If this transaction had closed, the Company would have issued an ALTA Homeowner's Policy insuring the new owner against off–record matters.
Had the contract buyers not relinquished their equitable interest by a valid quit claim deed and later sued to regain their equity or possession of the property, the Company would be in a position to defend the new buyer and their valid ownership. For her efforts, Lynn has been rewarded $1,000.