Departing sellers play “the Gap.”
Not so many years ago this house in Rockville, Maryland, was owned by Elizabeth and Charles.
Elizabeth and Charles offered the property for sale and accepted a buyers’ offer of $388,000. In April, an escrow was opened with a local title company.
The house: You could say they sold it twice
But while it was in escrow, Elizabeth and Charles arranged to take out a new loan against the property. On July 9, they gave a second deed of trust to secure a loan of $135,000 from First Guaranty Mortgage. This second deed of trust was recorded in the Montgomery County Clerk’s office on July 20.
Meanwhile, the pending sale came together and, on August 25, it closed. Escrow disbursed about $208,000 to pay off the first deed of trust, plus sale proceeds of $150,000 to Elizabeth and Charles. The deed to new owners and their purchase money deed of trust was recorded on September 22.
But what about that second deed of trust, for $135,000? It went unnoticed, and unpaid through closing, because it wasn’t posted on the county’s online database until August 27–two days after the closing. It should come as no surprise that Elizabeth and Charles neglected to mention the recent loan when they got their check.
Montgomery County Judicial Center, where the County Clerk was backlogged
The gap between recording of the document and its appearance in the county database was due to a “backlog” at the Montgomery County Clerk’s office. So the only way the title company could have known about the document would have been to visit the clerk’s office and rummage around. And, of course, since it had not been paid the “second” became a first deed of trust against the property.
Title insurance paid more than $140,000 to release the missed deed of trust.
Moral: There are roughly 3,400 county recording offices throughout the United States, and each is its own fiefdom. Mostly they do a pretty good job, but it’s up to local government and, occasionally, time and chance.