On Christmas Eve, I and another Realtor diligently worked to put my Encino condo in escrow.   But upon receipt and review of the preliminary (prelim) title report, there was a problem, a big problem.  There is what is considered a cloud on title:

 “The effect of a document entitled “Notice of Default”, recorded November 14, 2008 as Instrument No. xxxxxxxxx of Official Records”. 

So what the heck does that mean?  The condo was a probate sale, the owner had passed away, and I was selling the condo for his heir.  Neither the heir nor the attorney were aware of any loans.  Apparently when the market was much higher a cash out refinance was made for $200,000 by Washington Mutual/WAMU  (the condo was listed for $159,000).  WAMU lost the deed of trust  thus it was never recorded.  Therefore there is no valid loan and the lender can’t foreclose.  



In the stack of paper a borrower signs is a compliance agreement, which states that the borrower will assist the lender with any clerical errors. Prior to my real estate career, I was a Vice-President for Sterling Bank’s mortgage subsidiary, we once lost a trust deed; I contacted the borrower and went to his place of employment with a traveling notary and had a new deed of trust signed. What happens next? 

*The attorney is attempting to negotiate the amount of the payoff with WAMU's successor hoping that the heir could walk away with some money.

*Unless the lender releases the cloud, the property can’t be easily sold. A new lender would not grant a loan because of the cloud. There is about $20,000 in tax liens and back HOA dues.  A cash buyer would expect a very steep discount in order to accept the condo with the cloud on title.…. maybe I can find a cash buyer.

*The heir can walk away from the property and I could muddle through a short sale with probate court confirmation.

*The heir could keep the property as a rental and never pay the bank back. 

It will be interesting to see how this one plays out..