From the Vested Land Services LLC newsletter Title Topics - Deeds in Lieu of Foreclosure
How is the deed in lieu transaction approached by a title agent? This is from a recent edition of our client newsletter:
We’ve
been asked to insure a title that was obtained by deed in lieu of foreclosure. Are there any
special requirements when insuring a title which was obtained by deed in lieu
of foreclosure?
Well, yes, there are. And there are some underlying legal issues, too.
First, is the creditors’ rights problem. If we are insuring the grantee under the deed in lieu of foreclosure’s title and we are issuing the ALTA 2006 Owner Policy, the pre-printed Creditors Rights Exclusion will cover this concern and no additional exception need be added; but, if we are using the ALTA 1987 Residential “Plain Language” Policy, we must include the following exception on Schedule B:
Consequences of an attack on the estate or interest insured herein under the Federal Bankruptcy Law or any creditors' rights law or state insolvency law.
Second, the mortgage for which the deed in
lieu of foreclosure was given may remain open until the grantee in the deed in
lieu of foreclosure conveys title. In
that subsequent transaction, the mortgage must be cancelled of record.
Third, we cannot insure a title being
conveyed by a deed in lieu of foreclosure which had been previously executed and
held in escrow in case of a future default.
Only deeds in lieu of foreclosure which have been currently executed may
form the basis for owners’ title coverage in favor of the grantee in the deed
in lieu.
Fourth, the realty transfer fee must be paid upon recording of deed in
lieu if the underlying mortgage is not discharged.
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