Buying a Property with Title Defects – Are the Liens Valid?

Many investors buy homes on the courthouse steps, with a quit claim deed, or otherwise take a property with all it’s title defects.  While it is good to have an expert title person check out all the issues, many times the investor does the initial looking at liens.

So what do you do when there is a first mortgage or deed of trust sitting out there from a few years ago without a release being filed, yet there is a new first mortgage in place.  Is it safe to assume it was released?  How can you find out.  Likewise if there is a lien that is so old that one would think it should be paid off, what do you do?

This seems to be a common occurrence, especially in today’s wild market.

Some liens can be usually be eliminated automatically from the running in Missouri if:

  • 10 years after the maturity date on the note.
  • 20 years after recited date, execution date, recording date, acknowledgement date
  • 40 years after a future advance date.

In Kansas the lien can be released on July 1 of the following year preceding the date 42 years after the date of initial recording of the mortgage and if no affidavit to continue has been filed by the holder or owner of the mortgage.

One would assume that since there are new mortgages or deeds of trust in place, that the mortgage had been paid.  But to find out for sure you can take some steps.

  • Call the lender and ask, but as many have gone out of business it might take a bit of investigative work to find out who took them over and then for the new company to locate the right information.

Call the title company that

  • filed the new lien, if they did the refinance, they should have paid the old lien and be able to indemnify you and have some kind of proof that the old lien was paid such as the HUD1, copy of the check and payoff letter.
  • If you are in contact with the owner of the property, they may also have the required documentation you need as many lenders will mail the lien release to the homeowner and leave it up to them to file.  As they don’t know what to do with it, they save it away in a box.
  • It is also important to note that because of privacy laws it may difficult to get an answer unless you have the loan number and the borrowers social security number.

As investors it is very important to have a good team in place to deal with these issues and look at them early on in the process.  For example if you just bought an REO with a quit claim deed or on the courthouse steps without title insurance, you may want to order title now, before you have a new buyer so you can deal with issues.  If you wait until the last minute, your closing might because you can’t locate all the releases and forms needed.

If not all can be found, it is important to note, they probably can’t be found to prove they are owed money either.  In which case you can file a quiet title suit and get these liens released.  But that could be time – that you may not have.  Quiet titles can cost on average $2000 to $2500 or even up to $3500 if it is a really tough one to clean up.

 Information provided by the Staff at Accurate Title Company