“There must be some mistake….”
David and Roshan were the first owners of this house in San Marcos, California.
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 searched the title but failed to find the problem deed of trust because of an error in its description of the property. Mainly, the deed of trust showed 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.
In its search the title company relied on a geographical index in their automated (computer) database, and the deed of trust was missed since they entered Map No. 13915 in the search field. If instead the searcher had used the grantor-grantee index in the San Diego County recorder’s office, they would have found the deed of trust and it would have been taken care of when Kirk bought the house.
The recording laws in California, like other states, provide that a recorded document imparts constructive notice of its contents. So, legally speaking, Kirk acquired the property subject to the deed of trust and it was enforceable (by foreclosure if necessary) against his interest.
In other words, Kirk was stuck with the 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 satisfy customer expectations title companies have attempted to streamline real estate transactions through computerized processes and new procedures. There may be new risks involved, but hidden risk has always been a reason for title insurance.