A problem in a recent transaction suggests my topic for this post. My seller represents a trust selling a property. After a few false steps we are in escrow with an all-cash buyer and scheduled to close in a week.
Ha. Not so fast.
Among other title issues one surfaces which could happen to me. Or you. A thirty-year-old loan appears on title. It is not for a lot of money, but the lender was a private party. One family member says the note was paid off with a refinance. All well and good but no reconveyance was recorded. All we have is a receipt for the payoff from the new lender. With an institutional lender such as a bank or a credit union, this is no big deal. Records exist showing the payoff and a reconveyance can be signed now and recorded. But what if you can’t find the old lender? What if all you know is that it was Aunt Tilly, or an old acquantance of your mother, or a neighbor who may or may not still even be around and certainly doesn’t still live next door?
What happens is that you can have an expensive problem. There is such a thing as a “lost lien bond.” And a bonding company can issue one and the title company will accept this. Unfortunately these bonds are expensive. By California statute they are twice the face value of the note. Most bonding companies charge between two and four percent of this figure. So if that loan was for $100,000, even if it was paid down to $5,000 before being paid off, if you can’t find Aunt Tilly and have her sign and record the full reconveyance, the bond will be two to four percent of $200,000. That could be $8000. Not chicken feed.
Bottom line: if you have borrowed money from a friend or private party that is recorded against your property, be especially careful that when you pay it off a full reconveyance is signed AND recorded by that lender. If it’s a private party be sure she knows how to do it.
And on that (unrecorded) note, have a very happy Thanksgiving.