I have questions about my rights/responsibilities in a short sale when we found out title was not clear.

I have a home that is in short sale in SC. We found out at close that the title isn't clear. I bought it several years ago & PO had a mortgage + equity line of credit. Both were paid off, but equity was not closed (atty error), and the former homeowner continued to use it. In the short sale, the bank accepted an offer but we were unable to complete the short sale. The agent/paralegal are seeking "resolution" from the former closing attorney via his E&O insurance. I don't understand specifically what this means. Agent represents me and the buyer. Who technically has the title to the home now? What are my responsibilities now if title did not pass clear to me? If the home did not transfer, wouldn't the mortgage company prefer filing with their title ins for the full balance of loan?

Charleston, SC -

Attorney Answers (1)

Michael T Millar

Michael T Millar

Real Estate Attorney - Toms River, NJ
Answered

You received title to the premises. The issue is not who is the owner - the issue is priority of liens. The general rule is first in time, first in line. Since the prior owner's HELOC was not paid off, it would be superior to the mortgage that your Buyers would obtain. It was the duty of your closing attorney to see that it was closed - and it is likely fraud by the prior seller to continue to take advances. However, you cannot sell the property until that HELOC is paid off or otherwise discharged.

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