A $9 Million lien on a $729,000 home?

Yes, I had to read it twice too! It sounds crazy but this did just happen to me and what an educational adventure it was!  At first look, when this came up for a home that I was helping my clients buy, I thought the $9 million lien was a typo. It was in their Preliminary Title Report document and this bazaar issue made it clearer to me why it is important that a buyer of a new home thoroughly reads said document.  Most buyers (as well as sellers and realtors) would not know what this item on the report is.  So I discussed this with some other agents and they, too, thought it must be a typo.  But upon further investigation, I confirmed it was not.   

I enlisted the knowledge of a very seasoned realtor and he informed me that there are corporations that buy multiple properties/houses out of foreclosure. They buy them all in one big package, requiring a large payment, in this case, $9 million. Then each house in that “package” is used as a separate piece of collateral for the $9 million loan. When each house is then sold, at the close of escrow, a demand for payment is made in order to clear that individual house off of the $9 million lien, thereby making the title free and clear of that issue for the new buyer.  

So here is my advice: the first thing to do when looking at your preliminary title report is to call the title company so that they can help explain anything that does not make sense, this is part of their job. They will most likely have access to additional documents that can help clarify any issues that you do not understand. They are able to send these documents to you. If any of the statements on the title report or additional documents do not make sense, have a conversation with your realtor to see if they have ever come upon this issue before and can provide some background and/or then speak with your lawyer.

Then make sure that you are cleared from title at the close of escrow. This demand for payment cannot be accomplished until the close of escrow. Discuss with your realtor and/or lawyer to have a clause stating that the removal is contingent on receiving a clear and marketable title at the close of escrow.


Posted on June 27, 2013 .