Resources

A number of things to note if you have not bought or sold property lately:   Repairs or hiring of a contractor: If any work has been done on the property in the 120 days prior to the closing, unless the work is less than about $1000 in total, then each contractor or vendor of labor or materials (design/building/repairs/surveying) must now sign the lien waiver form. Title insurance companies require this now due to the recession; insurers used to allow the sellers or owners to sign the form by themselves to state that all laborers or materialmen had been paid no matter how much work had been done recently. The recession has cost these insurers many millions of dollars in mechanics liens claims for unpaid work (false statements on lien affidavits) so now the vendors of service and materials must sign off to state that they are paid in full. Likewise, if you are a buyer or are refinancing and have retained the services of a contractor who has done work in the last 120 days or who is ready to perform work in the near future, that contractor must sign off on the lien waiver form. Contact our office for more information as you cannot wait until the closing to address this issue.

Our office generally does not close short sales except by special arrangement. If our office agrees to close a short sale, we would need to see the short pay approval letter(s) from the seller’s first mortgage lender and any second or equity line lender, as well, prior to beginning our work. (This is easier said than done as these lenders tend to drag the process out for many months and only issue the approval letter at the last minute.) In addition, if there are any other liens or judgments against the seller (IRS or State income tax liens, money judgments, etc.), those lien holders must also issue approval letters agreeing to release the property from their liens before our firm begins work. (Property owned by husband and wife together is exempt from certain judgments. Call us for more information.) All the letters must be in agreement with each other as to how much money each lien holder will get from the sale, if any.

The reason for requiring these letters to be issued prior to our office agreeing to handle the closing is this: Often times the approval letter from the seller’s lender states that in order for the lender to cancel their mortgage lien off the property, in addition to the payment of the agreed (short) amount, there are other non-monetary conditions which must be met first before the lien will be cancelled. Sometimes those non-monetary conditions are unacceptable to the buyer’s title insurer and the buyer’s new lender. For example: A condition that the new buyer not sell the property for some period of time (whether the buyer intends to sell or not), a condition that the sales price is later found not to have been “fair market value” (and who can really say what that means) or a condition that the closing attorney swear under penalty that the buyer and seller did not know each other prior to the transaction, that the sales price is the “fair market value” and other things that the attorney cannot swear to.

The new buyer, new lender and new title insurer wish to know from the moment of closing that their interests in the property will be free and clear of the seller’s mortgage liens and other liens and such parties are not willing to just “wait and see” if the old lender will cancel their mortgage lien down the road. A mortgage lien that is not cancelled can later be foreclosed and thereby “cut off” or divest the new buyer and the new lender of all of their rights in the property. A short sale approval letter must be clean of any conditions other than the payment of money and whatever conditions can be met and proved with 100% certainty not later than the closing date. (An example of an acceptable condition would be that the seller must sign a promissory note at closing for the balance due on the loan.) Title insurance cannot be obtained for the new buyer nor can the closing attorney satisfy the new lender’s demand to be in first lien position if there are unacceptable conditions in the short pay approval letters.

Finally, buyers and sellers must be aware that it is mortgage fraud (a felony) to have something other than a true arm’s length transaction between them; that they must be unrelated by blood, marriage, business relation or otherwise; that there can be no side agreements; that there should be no plans to re-convey back to the seller or to pay funds to the seller other than on the closing statement, etc. and that the parties will be asked to sign a sworn affidavit as to such matters at the closing.