Who’s Responsible for Prior Mortgage Payment?

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homesQ: In 2008 I obtained a reverse mortgage on my home in California. There was a lien on the home in the amount of $50,000 that was not reported by the title insurance company. Thereafter, the lien holder threatened to foreclose. A lawsuit followed and ultimately was paid by the insurance company.

However, now the insurance company wants its money back from me and has filed its own lien in the amount of approximately $75,000. Why would “I” be responsible for any of this when it was title insurance that did not find the original $50,000 lien?

A: While you didn’t mention it, we’re assuming that the lien you are referring to was probably a mortgage you had on your property that had not been paid off at the time you took out the reverse mortgage. Why else would the title company go after you for payment unless it thought you were benefiting from the transaction at the title company’s expense? We will also make the assumption that you may not be responsible for it and will go through that a little later in our answer.

Without going into the specifics of reverse mortgages, the basic issue is the homeowner’s responsibility to a title company when the homeowner purchases, sells or refinances a home. The title company will have the buyer, seller or homeowner in a refinancing sign certain papers and declarations to the title company. Among those papers is a statement that the person signing the document is not aware of any issue or matter that contradicts the information in the commitment for title insurance or other title insurance company documents.

If you had a prior mortgage on the home and the title company missed it, you shouldn’t benefit from their mistake. You should still have the obligation to pay that mortgage off. Presumably, the title company issued a lender’s title insurance policy to your reverse mortgage lender and had to protect them from the foreclosure lawsuit. Ultimately the title company paid off the lender that was attempting to foreclose on the property and had attorneys’ fees and costs to pay.

We certainly don’t know if or when you decided to stop paying your prior mortgage but you must have received numerous messages notifying you of your default in your failure to pay on the prior mortgage. At some point, the $50,000 lender started foreclosure proceedings and gave notice to your reverse mortgage lender. It was at this point that the reverse mortgage lender tendered defense of the litigation to the title company. The title company defended the reverse mortgage lender and was left in the hole for $75,000.

Then, the title company decided to enforce the representations that you gave the title company and went after you for payment of the amount they paid out. And, if these are indeed the facts of the case, you might be in for a rude surprise to know that the title company may ultimately prevail against you.

Now, if the $50,000 lien wasn’t due to a mortgage you took out and you had no knowledge of that lien (Perhaps you purchased the property recently, a prior title company missed that mortgage and that prior owner is long gone.), then you’re an innocent bystander in this situation and we don’t see how the title company can come after you for payment.

The basic issue in determining whether you should be responsible to the title company is whether you benefited unjustly from the refinancing at the expense of the title company. If you did, you probably owe the money. If you didn’t, you probably don’t owe the money. But keep in mind that it could be more than just you who benefitted from the refinancing at the expense of the title company.

If you are now the owner of the home, but other family members owned the home before you and they benefited at the expense of the title company, you might still be responsible.

You might want to seek counsel from a real estate attorney to get a better idea of whether you will owe the money or not.