Wednesday, May 9, 2007

Reconveyance of previous loans on real property.

We went to close and our old loan still showed up … what happened?

When you have Title Insurance in a transaction these things can happen … thankfully. That is why you get Title Insurance. Old loans that have not been reconveyed show up quite often on Title Reports, and can cause havoc in your escrow. The situation is becoming more prevalent with the rampant refinancing that was going on over the past few years. Lenders were exceptionally busy and details, like sending your reconveyance document for recording, were overlooked or missed.

Two documents are generated to memorialize and secure your real property loan. The first is a Promissory Note, your promise to pay. This specifies the loan amount, interest rate, term, and other special features. This is between you and the Lender, it isn’t public information. The second document is a Deed of Trust. This is the security instrument. It references the Promissory Note, and describes the property securing the loan, i.e.- your primary residence. This is recorded and gives the public constructive notice of the encumbrance against your title.

When you pay your loan off the Deed of Trust should be “reconveyed”, given back to you, the borrower. This is where things break down and your title can be clouded. It is particularly dicey these days as loans are sold and sold again in a National arena. Instead of needing a document from a company in Reno you might find yourself talking to a computer on the East Coast. A good title officer will work with you. If a sizeable new loan is currently in place the title officer knows that the old loan had to have been `paid off before the new loan would be funded. They still prefer the proper documentation, but they understand that the risk of the underlying loan not having been paid off is minimal. Title Insurance, like any other insurance business, is a study of risk. The perspective of risk is where your agent can help you mitigate the impact on your escrow closing if there is a title problem involving reconveyancing.

Our Advice: When you pay off an old loan follow up to make sure that the lender recorded the Notice of Reconveyance. They got their money – you deserve your documentation. Work with a knowledgeable, flexible title insurance company. Some are rigid and won’t adapt to reality … at your emotional and potentially financial expense. Most will work with you to minimize their exposure, that of the Buyer, and to close in a timely manner. Be proactive – make sure the details are handled in your transaction, don’t assume that they have been just because they were supposed to have been.

Title Insurance is the “dry” part of the real estate business, but it the essential core. Many people, including agents, ignore/neglect title issues. What is your property value if you’ve a defective title? Title problems can truly render a property worthless so pay close attention to your title matters because … title matters!

When it comes to choosing professionals to assist you with your real estate needs… Experience is Priceless! Lisa Wetzel & Jim Valentine, RE/MAX Realty Affiliates,, 775-781- 5472

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