“There must be some mistake….”
David and Roshan were the first owners of this house in San Marcos, California.
A buyer stuck with his sellers' debt
Within two years the couple refinanced three times, and took out a home equity credit line. Then Roshan filed for divorce.
The court ordered that the house be sold. Since Roshan was uncooperative, David handled the details.
The buyer, Kirk, was quite happy with the home, but puzzled by letters he was getting about an old credit line deed of trust. It seemed the credit line remained open, and was in arrears. Worse, the deed of trust continued to encumber Kirk’s property and the lender threatened to foreclose.
Kirk notified his title company, and within days the mystery was explained.
When it handled Kirk’s purchase, the title company had searched the title but failed to find the problem deed of trust because of a typographical error in its description of the property. Mainly, the document described the correct lot number, but an incorrect map number. Instead of referring to Map No. 13915 (the correct number) the deed of trust made it Map No. 13925. Otherwise, the deed of trust had the correct property address and assessor’s parcel number.
The title company had relied on a search of their proprietary (privately owned) computer database. This database is programmed with a geographical index. So in this case the mysterious deed of trust was missed because the searcher entered Map No. 13915, the correct number, in the search field. If instead they had searched the grantor-grantee index in the county recorder’s office, the title company should have found the deed of trust and it would have been taken care of when Kirk bought the house.
In California, as in other states, recording laws state that a duly recorded document imparts constructive notice of its contents. So, legally speaking, Kirk acquired the property subject to the deed of trust, and it could be foreclosed against his ownership.
In other words, he was stuck with his sellers’ debt.
Title insurance paid $110,000 to obtain a release of the deed of trust, and the insurance company has only hopes of recovery from David and Roshan.
Moral: To meet customer expectations title companies have had to expedite real estate transactions through computerized processes and streamlined procedures. There may be new risks involved, but hidden risk has always been a reason for title insurance.