Title Insurance and Short Sales
Short sales are probably the hardest residential transaction to get to the closing table. The short sale process is not uniform among banks and inevitably changes halfway through the transaction. All in all, short sales are a source of REALTOR (R) headaches. However, they are a way of life in this area. My partner and I have found that we are actually quite good at handling the short sale system and manuevering through the red tape. But, there seems to be a new road block. This was first reported to me by Derek Massey, President of Mid-Atlantic Settlement Services.
When a bank accepts a short sale, they issue a Short Sale Approval Letter that outlines the conditions in which the bank will accept the short sale. These conditions include a closing date, parties to the contract, sales price, commission for REALTORs (R), minimum proceeds to the bank, and that the seller is to receive no proceeds from the sale including escrow reimbursements. The newest trend in these Short Sale Approval Letters is to include a condition that “the bank has the unlimited right to revoke this short sale payoff approval within 30 days of receiving purchase documents.” If this condition appears in your Short Sale Approval Letter, most settlement companies can NOT issue title insurance.
Title insurance is an insurance policy against financial loss from title defects to real property and from the invalidity or unenforceability of mortgage liens. It helps protect an owner’s and/or a lender’s financial interest in real property against loss due to title defects, liens or other matters. It will defend against a lawsuit attacking the title, or reimburse the insured for the actual monetary loss incurred, up to the dollar amount of insurance provided by the policy. Lenders require title insurance be purchased to insure their loan amount. Owner’s title insurance is optional. (I always recommend getting owner’s title insurance, it is worth the money, especially when you need to use it!) If title insurance can not be issued then the lender will not release the purchaser’s loan, therefore the buyer can not close on the property. The title insurance company will only issue title insurance once the condition that permits the reversal of the transaction is removed.
This new bank provision is making it even more important to read over all bank documents carefully.
