Title company Didn't Pay Off Equity Line--Now What ?

My niece in Seattle has been emailing me about her big problem. She sold her first home about 2 years ago. Then took the proceeds and bought some investment property.

The buyer of her house called her last month to tell her that she can’t get an equity line BECAUSE MY NIECE’S LOAN IS STILL RECORDED ON THE PROPERTY. Oh, and the buyer is an attorney. And she’s mad. She wants my niece to pay off that $14,000 loan right now and get it off the property!

My niece called the escrow company. Sure enough, she paid $676 for an Owner’s Policy on that $235,000 sale. The escrow officer said, “Why didn’t you disclose that you had a second mortgage? You better just pay off that loan!”

My (by now) emotional basket-case niece calls me, “I DON’T HAVE $14,000! But I’ve been making all the payments, just like I was supposed to! WAAAAH! What do they want me to do?! I didn’t know that loan was a mortgage on my property, I thought it was an EQUITY LOAN!”

I told her to just take a deep breath. That it was an (OH SH…!) problem of the Title/Escrow Company. Everyone wants her to just magically come up with the $14,000 to make THEIR problem go away. That she is just an ignorant first-time seller. That they got PAID to clear all liens off the property. “Sit tight,” I told her, “I’ll get back to you.”

Anyone encountered this one before? How should the Title Company make it right for the buyer?


Your niece should take this problem to an attorney.

I see two opportunities here. First is the title insurance itself. A claim against the title insurance policy may be all that is needed to clear title.

The second is the title company itself. The title company may have an insurance policy for its own acts of negligence. If she has a cause of action, perhaps the attorney’s threat of a lawsuit will give her just the leverage she needs for the title company’s E&O policy to pay to remediate the title company’s blunder.

Problem is now solved. It turns out that the lender was at fault. The loan had been taken out in December, property sold in the Spring. The lender (National City) didn’t record the Home Equity Loan until 10 days after the property was sold.

Now escrow says the lender has now cleared off the loan. I told my niece to get a copy of the release of lien. National City then will have an unsecured loan but she is, of course, continuing to make the payments.

Thanks for the advice, Dave T. This is a good lesson for any starting investor who thinks it’s safe to buy without title insurance.