During the current downturn in the real estate market we are seeing more sales by bankruptcy trustees “free and clear of all liens.”

Sales under this procedure are suspect and often open to later challenges.  It is always recommended that such sales are reviewed by the title insurance company before insurance is issued if there are any questions or uncertainties.  The following factors should always be considered when insuring a sale from a bankruptcy trustee free and clear of all liens:

1. All interested parties must receive personal notice and an opportunity to be heard.
2. Hearing must be at least 20 days from the notice.
3. The order authorizing the sale states the section of the Bankruptcy Code which provides authorization for the sale.
4. The order must provide for the payment of all real estate taxes which are owed.
5. Liens in favor of the State must be paid.
6. One can not rely upon any provision waiving the payment of transfer or intangible tax.
7. A certified copy of the order (and usually the motion to sell as well) must be recorded as an attachment to the trustee’s deed.
8. Voluntary releases of all liens should be pursued.
9. Ten day appeal period for the order to sell must pass and one cannot necessarily rely upon a provision in the order shortening or waiving that ten day period.

Deeds In Lieu of Foreclosure

We are also experiencing an increase in the use of the deed in lieu of foreclosure by lenders.  There are a few things to remember when dealing with deeds in lieu of foreclosure:

1. A lender’s interest in the property under the deed merges with the interest in the property under the security deed unless the deed in lieu expressly states that merger will not occur.  If merger has not occurred a release of the security deed is required when the lender re-conveys the property.
2. A deed in lieu of foreclosure does not wipe out any liens, including liens junior to the lender’s security deed, as a foreclosure of the lender’s security deed would.
3. No transfer tax is due on a deed in lieu of foreclosure.
4. The creditor’s rights exclusion in the title policy will generally not be deleted if a deed in lieu of foreclosure has occurred within the last year.

Source:  Security Union Title Insurance Company  www.sutic.com

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Since individual circumstances can differ, the information contained herein does not constitute the provision or receipt of legal advice by the attorneys at Roach, Geiger & Caudill and should not be relied or acted upon without consulting a qualified professional