Ask the Titleman™ - Bankruptcy; Loan Amount 100% Plus; Quit Claim Deed
by John T. Lotardo aka TITLEMAN™-Sr VP/General Counsel, Stewart Title & Trust of Phoenix
Q. One of our title examinations has a seller who filed Bankruptcy in another state. We asked for proper proceedings because we didn’t have the details of the bankruptcy. What we got was an instruction that the Bankruptcy Trustee must convey from this Chapter 7 case. They need all documents, including escrow and deeds to name the bankruptcy trustee for the benefit of the title holder with the bankruptcy case number and district as the seller. So, I have to ask, does this make sense to you?
A. Yes it does make sense to me. If the trustee will be the entity that will actually be transferring the property, then it makes sense to vest the title in the Bankruptcy trustee. That said, you still need proper documentation that establishes this- maybe even an order from the court. By the way, don’t be surprised when the Bankruptcy Trustee insists on signing only a Special Warranty Deed. That is not unusual since they typically want to limit their liability under the deed.
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Q. Our Escrow Company just requested an updated title commitment. The original title order request came in with the purchase price and loan amount of equal value. The purchase price is now 15,000.00 lower than the loan amount. I suppose it is possible that the loan fees are going to be this high, considering who this lender is, but is there any additional liability that the title officer should be addressing in the title commitment?
A. Have you inquired into the reason for this change? You’ve heard of 100% financing, but this is for even more. There are some lenders, especially in an appreciating market, to loan 110% of the value to the borrower. As you say, the loan fees could be high since there is added risk for the lender- they like to have security for the loan. But this extra amount could be a partial construction loan for say repairs or even a new pool. (You know how we Arizonians love our pools.) But we don’t know, do we? If so, you have to consider whether there is any ongoing repairs/construction occurring that may cause a break in the priority of the chain of title. A few more questions may be in order. And it will be a lot easier to get answers and cooperation now - before the transaction closes- than after.
Q. I am working on a refinance for a non-institutional lender. The property has been bounced back and forth between a mother and daughter through the use of quit claim deeds. I am having to call for identity statements to clear up possible marital status questions on those deeds. The last Deed shows that the mother was apparently trying to gift the property to her daughter. I have found out that it was not until right before this last deed that the daughter had gotten married. In this last deed, the mother did manage to get the words “for love and affection” on the deed. Does this qualify as a Gift deed?
A. I am assuming you are asking whether or not it is a gift to prevent the need to inquire into the spouse of the daughter considering that property acquired by gift is intended to be the sole and separate property of a marred person. Did they state on the affidavit of value that it was a gift? Do they have any other evidence to establish the intent of the deed was a gift? How about a will of the mother? Does her will refer to the daughter and the property at all? Some of this information will help to decipher the gift status of the deed. Good luck!
The information supplied is of a general nature and should not be relied upon as comprehensive legal advice. Please consult with your own local legal counsel. To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.
Copyright John T. Lotardo. All rights reserved. John Lotardo (aka the TITLEMAN™) is Senior Vice-President and General Counsel for Stewart Title & Trust of Phoenix, Inc., and State Underwriting Counsel for Stewart Title Guaranty Company. He is a member of the National Advisory Councils for GoGetEscrow.com, GoGetLoan.com, GoGetNotary.com and GoGetRealEstate.com. The information supplied is of a general nature and should not be relied upon as comprehensive legal advice. Please consult with your own local legal counsel. For more about John, visit: www.GoGetEscrow.com/Get/Titleman or www.AskTheTitleman.com.