SOURCE: National Homestead

April 07, 2006 11:03 ET

More Home Sellers Face Huge Headaches as Hidden Title Defects Ruin Closings

Missing Mortgage Releases Are a Time Bomb in Sales, Refinancings -- But Can Be Defused

WELLESLEY, MA -- (MARKET WIRE) -- April 7, 2006 --Two days before John Wagner was to sell his Ashland, Mass., home, he got a rude shock.

He'd paid off three previous mortgages -- one going back to 1992 -- but he learned the lenders never filed discharges, and meanwhile, had gone out of business. Unable to prove clear title, Wagner had to put up $7,000 in escrow to close.

In March 2006, 14 months later -- after dozens of phone calls and some hefty legal fees -- the mess has been cleared up, and he expects to get his money back soon. "It's been nerve-wracking," he says.

Problems like Wagner's are cropping up more often, in every state.

Stan Kaplan, of Commonwealth Title in Sudbury, Mass., who researches 40 to 50 titles a month for home sales and refinancings, says "at least a third" have problems.

"You cannot sell or refinance unless your title is clean. It's a ticking time bomb for a seller that will explode the deal," he says.

When title problems can't be resolved, and the closing is delayed for more than a few days, people panic about where they'll live in the interim, says agent Jeff Simon, owner Sales Approach Real Estate in Stow, Mass.

Refinancing Boom's Legacy of Errors

Kaplan says the problem is far worse than when he started his firm in 1999. Millions of homeowners refinanced their homes multiple times to take advantage of plummeting rates. Overworked lenders and lawyers often failed to file discharges (which prove a loan has been paid off) and/or assignments (which document that a loan has been sold from one Lender to another). Either one can sink a closing; Wagner's sale had both problems.

Overburdened registries of deeds made mistakes too, sometimes attaching a mortgage to the wrong property.

"It will take many years to work the problems out of system," Kaplan says.

Lawyers Don't Help But This Does

Surprisingly, hiring a lawyer doesn't solve the problem. Lawyers typically just review the sale contract and documents at the time of closing. Researching the title isn't part of their service, and if they were to find something then it would probably be too late to fix it. It's up to the seller -- or homeowner seeking a refinancing or home-equity loan -- to make sure his or her title is clean and unencumbered.

Real estate lawyer Howard S. Gold -- who straightened out Wagner's problem -- created National Homestead in Wellesley, Mass., to offer a clean solution to the growing title-defect mess.

The firm's "Ready to Close" Title Guarantee service at uncovers erroneous mortgages, assignments, liens and other title defects.

"This service is so vital and costs so little that anyone who is looking to sell a piece of real estate should use it," Kaplan says. "You have to know you have a clean title upfront, not at the end."

Simon adds, "It offers a level of security so you don't worry about the deal falling through. It's like having your home inspected before you buy it."

A little more than half the time, the homeowner gets a clean bill of health within 15 days. About 45% of the time, National Homestead detects one or more title defects. It then clears them and records all necessary documents with the county recorder or registry within about 30 days.

Since it can take that long, Gold recommends signing up when you first put your house up for sale or well before a refinancing.

The one-of-a-kind service costs $295, and it takes just a few minutes to order it online.

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