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   ARTICLE   |   From Scotsman Guide Residential Edition   |   April 2008

The Deal May Go On

Brokers can resolve many title encumbrances by conducting research or reaching settlements

r_2008-04_masslink_spotImagine you are halfway into a refinance or purchase transaction. The title policy arrives, and you have no reason to believe there will be any issues because your clients did not reveal any -- nor did the credit report.

While reading through the title policy, however, panic sets in. There is an unexpected judgment, lien, unpaid tax or other encumbrance on that supposedly golden title report. The loan can’t move to closing unless this problem is cleared up.

It’s easy to get frustrated when such unforeseen problems arise. This is why it’s important to have a game plan ready for these types of situations -- a process for investigating the encumbrance and working to resolve it. Remember, making this effort is part of your responsibility to your clients.

Waving a magic wand won’t make title issues disappear. But the right approach can help you keep the deal moving. Here is a step-by-step plan for attacking encumbrances.

1. Get a grip on the situation: Try to think logically and rationally about what’s before you. You should rid yourself of any anger or frustration or you will risk alienating yourself from your client and everyone with whom you need to work to get the loan back on track. Don’t assume your clients are “playing dumb” because they did not reveal this encumbrance; they may have been unaware or forgotten about it, or the issue could be on the report in error. Also, keep in mind that many title encumbrances can be handled with surprising ease and efficiency.

2. Research the encumbrances: Request a copy of the judgment or lien from your clients or the title company. If neither can provide this, you can always get a copy at the courthouse where the encumbrance was filed. That document will tell you the amount for which the judgment was entered, as well as the date and the party for whom it was granted. Also, check your state’s statute of limitations. It’s possible the judgment has expired as a matter of law. Many garden-variety money judgments are valid for six years, but there are exceptions. For example, creditors can renew their judgments.

3. Check the status: Contact the holder of the lien or judgment or the representative attorney to determine if it was paid, satisfied or if the encumbrance can be compromised. Sometimes judgments and liens are incorrectly noted as outstanding on the public record because a record wasn’t filed when the debt was satisfied. Your clients can assist you with this. Also, look to see if the judgment was discharged in a previous bankruptcy. If so, you may need to get a copy of the bankruptcy discharge to show the lender or title company. Some jurisdictions require an additional bankruptcy-court motion after the discharge to expunge the judgment or lien from the public records. This motion process will take about two or three weeks. Some judgments or liens, however, are not dischargeable. These include student loans, Internal Revenue Service (IRS) debts, wages, child support and criminal restitution.

4. Determine the payoff: If the judgment is legitimate, it’s time to think about how to take care of it. You must find your numeric operating parameters -- only then can you figure out your options. Don’t be afraid to contact the creditor’s attorney about the payoff. The attorney’s office should be able to give you the information you need to determine if you can settle the debt. You may find that your clients have enough equity in their refinance to increase the loan amount in order to pay off the encumbrance.

5. Try negotiating: Don’t automatically offer the creditor or its attorney to pay the full amount owed -- you may be able to obtain a short payoff. It’s important that you or your clients start the negotiations with the creditor, because the title company usually will not. Start your offer low and leave some negotiating room. Remain persistent and vigilant on follow-up, but keep the rapport positive. It may take more than one phone call, e-mail or snail-mail exchange; therefore, patience is required. If the encumbrance is dischargeable, however, many creditors will accept less than what is owed.

6. Know when to fold: After following the steps above, you may find that your clients are in a “red flag” situation -- the worst-case scenario that seemingly does not have an immediate resolution. The most-difficult lien and encumbrance situations can be large tax liens, IRS liens and student-loan liens. Those liens are not going away, and they can destroy your loan closing by exceeding the lender’s combined-loan-to-value limits if your clients try to pay them off in full. With an IRS-tax lien, you should check to see if it has passed its self-expiration date or you may consider an offer in compromise. Student loans, if reduced to a lien or judgment, as well as restitution claims, are difficult to settle because they involve a governmental agency, which usually will not agree to anything less than what is owed.

7. Reach a resolution: If the situation can be fixed, you must work with the title company and its counsel to determine what they will accept to clear the encumbrance. A payoff confirmation written on the creditor’s or its attorney’s letterhead, along with a contact number, often will do the trick. Your client will surely thank you for being so efficient in resolving the matter.

Although you may first panic when you encounter an unexpected encumbrance on a title, it’s important that you start on the path to resolving the situation calmly. Although some encumbrances will make closing the loan nearly impossible, many other judgments and liens can be cleared in a fairly expedient manner without disturbing or causing delay to your closing time. And with a diligent, professional and smart approach, you can confront most encumbrance situations head-on with a resolution that may wow your clients into a mortgage relationship with you for life.

DISCLAIMER: Nothing in this article is to be construed as the dispensing of legal advice.


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