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When I met Ibanez

E-mail|Link|Comments (2) Posted by Rona Fischman November 4, 2009 02:00 PM

Boston.com/renow readers know about, US National Bank vs. Ibanez, the decision that was decided twice about foreclosures. Judge Keith Long ruled that US National Bank could not foreclose without the proper papers on record. He upheld his decision on October 14th . Expect an appeal. Meanwhile, about 40 percent of Massachusetts titles that have been through foreclosure are clouded, according to this court decision.

Now that the dust has settled, I can tell the story of how the Ibanez decision has affected one of my clients. I have a client who had a Purchase and Sale on a property after the first decision and before the second on October 14th. The current owner bought it as a foreclosure before the first court case was heard.

Before making an Offer to Purchase, the agent told me that the title was clear and insured. Before working on the Purchase and Sales Agreement, the buyer’s attorney was told by the seller’s attorney that the title was clear and insured. It was after the Purchase and Sales Agreement was signed when the buyer’s attorney started examining the title. There it was: the hallmark title defect that clouds the title under the US Bank vs. Ibanez decision.

Legal advice comes from attorneys. My buyer’s attorney advised my client to not buy this property. He is a cash buyer. He intended to do major renovation to the property. In the opinion of the buyer’s attorney, the seller could not get a clear title. The transaction collapsed; my buyer has his deposit; the house is under agreement with another buyer.

Since then, I have asked other real estate attorneys about this matter. They are divided. Some think these Titles are clouded and should not be accepted for transfer. Others think that the chances of the defaulted owner being willing or able to make restitution and reclaim the property is remote. Title insurance companies will continue to insure titles that they have insured previously and are taking indemnities from other title companies. If there is no title insurance, they would be unlikely to take it on.

So is a title clouded in accordance with the US National Bank vs. Ibanez decision a title that you would buy?

Also, title examination costs a few hundred dollars. Was it a mistake to hold the title exam until after the P & S is signed? Would it be better to know right away, or is that a waste of money?

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2 comments so far...

The title you describe that could be offered to your buyer is 'insurable title' - a potentially much less valuable title than the Massachusetts standard of 'marketable title'. This is not a title I would be interested in buying or a title I would recommend my client to buy - even if the title insurer were to offer a title policy with coverage for the defect. Although this coverage may protect the buyer for damages arising from the defect (after a successful claim under the coverage) - it will not protect the buyer from a market that is unwilling to purchase this title from him in the future. Therefore, I would tell my clients to wait until the Massachusetts appeals courts get this house in order.

As to the title exam; that is an out of pocket cost typically advanced by the attorney once the attorney is reasonably sure the parties have reached a final agreement. Otherwise, the attorney will be out of pocket the few hundred dollars plus time spent with no one to reimburse him or her. I suspect attorneys will be unwilling to proceed with the out of pocket cost of a title exam where a foreclosure issue is involved. The best thing a lisitng agent could do in these cases is to be proactive and have the seller's attorney perform a title exam up front and try to resolve any Ibanez issues in advance of entertaining offers. Perhaps the seller's attorney would be able to obtain coverage from the title insurer that may satisfy some buyers and their attorneys. This coverage could be presented with the listing so nobody is wasting their time with blind offers.

Posted by JPD November 4, 09 02:50 PM

A title exam costs a few hundred dollars, signing a P&S costs even more. Doing the title exam first is probably a good idea in general, but certain red flags (a foreclosure or disputed estate in the last few years, for example) make doing the title exam first absolutely necessary.

If I were buying the foreclosure directly from the bank, I would insist on the bank re-foreclosing on the house, properly, to clear the title, before I bought it. If I were buying from a third party (e.g. after that person bought the clouded-title house from the bank), if it had title insurance, I'd consider it, but I'd be reluctant. Getting a quitclaim deed from the foreclosee could also be a good idea.

It's interesting seeing an Ibanez post coming so quickly on the heels of the how-to-lose-your-deposit post. It seems like the core issues in both posts have the same root cause: people (or banks) playing fast and loose with the rules about what deadlines they have to meet, and when, and expecting everything to be ok afterwards.

Posted by James November 4, 09 04:05 PM