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Though this is a hypothetical HORROR STORY; it happens all the time. The Kings buy a property from Mr. and Mrs. Jones for $300,000.00. The down payment is $50,000.00 and the seller, Jones, carries back a first Trust Deed in the amount of $250,000.00. Mr. and Mrs. King, being very conservative, followed my “pay more” advice and paid the loan off in 10 years instead of the 20 years original term. The Kings mailed the last payment 3 years ago and celebrated with a bottle of champagne. Thirty days ago they sold the house for $950,000.00 and celebrated again with a bottle of champagne. The next morning, suffering from a hang over, Mr. King received a phone call from escrow that went something like this:
“The title company shows you have a $250,000.00 first Trust Deed on your property. No, no, says Mr. King. We paid that off years ago. Did you receive a Reconveyance? What is a Reconveyance? Mr. King, Escrow is ready to close in one week, it can’t close until we get a Reconveyance from Mr. and Mrs. Jones. Do you have a telephone number? No, they moved to Hawaii two years ago. WHAT DO WE DO NOW?”
Can you imagine trying to find Mr. and Mrs. Jones in Hawaii? I purposely used a common name for this example. If Mr. King could actually find Mr. and Mrs. Jones this problem could easily be solved, with either the original documents or a “Substitution of Trustee and Deed of Reconveyance.” Unfortunately, beneficiaries often cannot be located. Even if they can be located it usually takes time and escrow usually doesn’t have the luxury of time.
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In the above example a bond can be obtained if the beneficiaries cannot be located. The required bond is TWICE the original Trust Deed, i.e. $500,000.00 in the above example. That bond can easily cost anywhere from $4,000.00 to $10,000.00. Believe me Mr. and Mrs. King should have not celebrated with the first bottle of champagne.
The solution is very, very simple. If you are making payments to a mortgage company or a conventional lender, you should not have this problem. Approximately three months before making your final payment merely contact your lender and ask about the Reconveyance process. Make certain to write down the name and telephone number of the person you spoke with.
Now for PRIVATE BENEFICIARIES and (or) banks and servicing agents collecting payments for PRIVATE BENEFICIARIES. DO NOT – DO NOT – DO NOT pay the last payment or balloon payment without verifying that the beneficiaries are still alive and have THE ORIGINAL DOCUMENTS. I usually recommend meeting with beneficiaries when making the final payment and exchange your payment for the original documents and proper release signatures. You have no idea how many private beneficiaries mishandle, misplace or lose original documents. This is not a problem if you discover this BEFORE your final payment. It can become a MAJOR, MAJOR problem two or three years after the fact. Please pass this advice on to friends, relatives, and business contacts. This will save a lot of unnecessary hardship.
Peter Rosenthal
VIP Trust Deed Company |