Investor Loses $80,000 on Poor Title Examination of Legal Description

This does not happen all of the time, but we have witnessed cases where the property investor or 1st lien investor has lost a percentage of equity in the home due to either a lack of title examination or an error during due diligence. As some savvy investors know, the property is not defined by address or parcel number; rather, the legal description of the land which is the most accurate description of the property. As a part of the due diligence, an investor typically hires a third party due diligence vendor to review the legal description across all title documents and to compare the legal description of the mortgage and related documents to the vesting deed and title policy. It’s important to make sure that the property is correctly described precisely the same way for each document at the origination of the mortgage, as well as start and end of the foreclosure process (Lis Pendens and Trustee’s Deed). The legal description may not only have multiple parcels for a single property, but it may also contain a land description from multiple, frequently adjacent, counties. This is a common detail for the property that overlaps the boundaries of two or more counties. The property may even be in two counties from separate states. The legal description would typically break properties from different counties in separate paragraphs of the legal description on the same property. If such case arises, it should generate a due diligence flag or exception to verify the property records in the county the title search was NOT ordered. Rarely, the real estate documents are recorded only in one county and taxed in the same county for multi-county legal description (inter-county agreement exists to only assign a parcel in one of two counties), while in many cases the same set of documents are recorded in both counties and two separate searches on different parts of the same property need to be ordered and examined.

The case we will review here is for a property part that was in a separate county under a separate and dedicated parcel number. For mortgage document to secure both pieces of land with separate Tax IDs assigned to each piece, the real estate documents must be filed in both county records referencing the individual legal description in the corresponding county. Therefore, two deeds and two mortgages should be filed, one in each county. We see many times that documents are filed in one but not the other county, making the missing documents break the assignment chain or even worse unsecure the mortgage in that county if the mortgage document itself is not filed against the correct legal.

The example we present is a property bordering Harris and Fort Bend counties in Texas. In Harris county, the deed and mortgage were filed. The rest of the assignment chain and foreclosure documents were filed in Fort Bend county. The foreclosure was successfully completed in Fort Bend county while no documents except the mortgage and deed were recorded in Harris. Therefore, the piece of land in Harris county was still in the name of the borrower who moved out after the foreclosure, and with delinquent taxes piling up in that county, that piece of property was lost to tax sale.

A Quite Title Action case was filed to establish the ownership rights of the Harris property land; however, in our opinion, the settlement will be very expensive for the investor.

Lessons learned should be hiring a knowledgeable title exam team to catch these errors, and examining your current workflow and exceptions for these types of corner cases.