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RED FLAGS IN THE ESCROW/TITLE PROCESS (cont’d)
CHICAGO TITLE CALIFORNIA BUYER & SELLER GUIDE
improvement agreements, and will bind the owner to certain actions. If the agreement is recorded, a copy of the agreement should be requested from title and provided to the buyer. It is the buyer’s responsibility to contact their own counsel if they do not understand how the agreement would affect them.
DEED OF TRUST: These are common. Escrow will order a demand from the beneficiary which will allow the title company to pay off the existing loan(s) using the proceeds from the new buyer’s loan (or proceeds if all cash).
RED FLAG: Watch out for old deeds of trusts. If you find a deed of trust listed on the preliminary report that has already been paid, or that looks like it was taken out by a previous owner, call your title officer immediately. They will research the deed of trust, and take the necessary steps. Old deeds of trusts with individual people acting as
or the seller’s representative will have to deal directly with the appropriate agency to resolve these types of issues.
COURT ORDERS/JUDGMENTS: These are not a standard item. The most common type to show on a preliminary report is a support judgment. These are issued by the courts when a child/spousal support is owed by the party named.
(See “Statement of Information”)
RED FLAG: Support judgments can take up to six weeks to get a demand and release from the creditor (usually the district attorney’s office). If you see an order or judgment, contact escrow immediately to verify that the demand has been ordered.
BANKRUPTCY: While not unusual, bankruptcies are not standard.
RED FLAG: All open bankruptcies require the
lender are difficult to get removed, especially if several years have gone by since the loan as been paid off. A bond will sometimes be necessary in order to clear title of an old deed of trust.
ENCROACHMENTS: Sometimes a structure (commonly a fence or driveway) encroaches upon a property. This usually means the proposed insured will have to take the property subject
to the encroachment. Contact your title officer when encroachment language appears in the preliminary report.
RED FLAG: The lender may not want to lend on a property where encroachments exist. In some circumstances, an endorsement to the lender’s policy (usually with an extra charge) may satisfy the lender. These are determined on a case-by- case basis. Again, contact the title officer.
NOTICE OF VIOLATION: These will sometimes
be recorded by the fire department, the health department or the local zoning enforcement division in situations where the property violates a local code.
RED FLAG: The violation may have to be eliminated and the local enforcement agency may have to issue a release before closing. The seller
debtor to get permission from the court to sell or encumber an asset (the home) or to take on new debt.
NOTICE OF PENDING ACTION: This is also known as a “lis pendens.”
RED FLAG: This means that someone has a lawsuit pending that may affect the title to the property. These are often found in acrimonious divorce situations. A withdrawal of lis pendens will be required before closing.
If you find something on your preliminary report that is not listed here, it is probably a red flag
and you should contact your title officer. They will be happy to provide you with copies of recorded documents and advise you as to what is needed in order to remove the item (if necessary). Contact your own legal counsel for additional advice.
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