What do you do when a seller fails to reconvey the title to property following payment of the loan, then dies? Failure to reconvey puts a cloud on the title that must be quieted. However, a quiet title action can be a drawn out and expensive matter. Is there a way to obtain a quiet title without a quiet title action?
Failure to Reconvey
Recently, a client called in a panic on a Friday afternoon. She was selling her home and it was closing day of her sale. The former owner had failed to reconvey the property and then died. The old title company’s solution to the failure to reconvey fell through. The new title company had just informed my client that they would not issue a title insurance policy without a hold-back of hundreds of thousands of dollars. They also said that she needed a quiet title, that this would require a quiet title action, which would take six to nine months, and the costs would be her responsibility. However, the sale could not close without the title insurance policy. My client obtained an extension of the closing date, granted the buyers a rental agreement at no cost to them while she worked to enable the sale to close. However, she was frustrated, angry, and afraid she was about to have no house, no money, months of litigation she could ill afford, and all the liability of having renters with no money for the rent.
My client had purchased the home with seller financing nineteen years earlier on a five year Note backed by a Deed of Trust. The Deed had been properly recorded with the County. The seller engaged a loan servicing company for the payments. My client made the payments and, before the end of the term, paid off the Note. The loan servicing company sent the original documents to the former owner for reconveyance.
Seven years later, the loan servicing company, following its document retention policy, destroyed all remaining documents in the matter except its electronic payment history. They affirmed that the loan had been paid in full and that they had returned documents but could no longer tell what documents had been sent or where they had been sent.
The seller, in her 90s when the loan was paid, failed to reconvey the property and passed away within a few months. The original Note, original Deed of Trust, and the instructions for reconveyance were somehow lost and, consequently, the matter was not handled during the probate of her estate. At the time my client came to me, probate had been closed for over a decade. The former owner’s daughter was her Personal Representative and sole heir. The daughter was still living but was very careful and was skeptical of anything that might be a scam.
Prior to closing, the old title company had the escrow agent send the daughter their standard form Indemnification for Lost Note and/or Deed of Trust with Request for Full Reconveyance. However, this form contained extensive indemnity language to protect the title company from any liability for reconveying in the absence of the original Deed of Trust. It also had been drafted to appear as though the orignal sale had been between my client and the former owner’s estate. This language did not match the Deed of Trust and the dates preceded the seller’s death.
On the morning of closing, the daughter refused to sign.
Quiet Title without a Quiet Title Action
In order to resolve the issue, the first thing that had to happen was to prove that my client had actually paid off the Note. Following my client’s personal visit to their office and a few telephone discussions and emails from me, the loan servicing company was willing to provide a printout of my client’s payment history. After reviewing a copy of the loan servicing company’s payment history, the new title company became much more flexible and invested some effort in helping to find a solution.
At this point there were four possible solutions, before resorting to a quiet title action.
The simplest solution was to persuade the Personal Representative to sign the document sent by the old title company. My client was willing to indemnify the daughter if she would sign the form from the title company. The old title company was inflexible on any changes to their standard form, even those that would clarify the actual status of the sale and the estate. Consequently, the daughter remained unwilling to sign.
A second solution was to reopen the former owner’s estate for one day and reconvey the property under the supervision of the court. My client was willing to cover the cost, if necessary. The daughter was unwilling to do this for a number of reasons. She was not comforted that the Court would oversee the transaction. This option was also unattractive because it was unlikely to result in a quiet title before the end of the extension for closing.
The third option was for me to prepare a notarized “declaration of payment” that met the statutory requirements of RCW 61.24.110 (3) and record it with the county Auditor. In this situation, a copy of the recorded declaration must be sent within two business days to the beneficiary and trustee of record, who have 60 days to record an objection. This option was attractive to my client. However, the new title company read subsection (3) as conditioned on subsection (2). We both agreed that subsection (2) required the attorney to have paid the demand. Although I knew the client at the time the Note was paid and remembered the payment, I had nothing to do with any payment on the Note. While the title company was willing to accept this as a possible solution, due to the sixty day wait and their interpretation of the statute, the title company would still retain a hold-back and require my client to file a quiet title action prior to closing.
The final option was to have the daughter appoint a substitute Trustee for the original title company who would be willing to reconvey the property without the indemnification language and with a correct representation of the sale and estate positions. RCW 61.24.110 requires the Trustee of record to reconvey the property to the person entitled to it upon written request of the beneficiary, or upon satisfaction of the obligation and written request of the beneficiary. The challenge with this option is that the substitute Trustee takes on the risk of the original Trustee. The daughter, the new title company, and my client were excited about this option. The old title company did not care. The daughter asked if I would act as substitute Trustee and the new title company thought that was a perfect solution.
As the proposed Trustee, I was less excited. I had two main concerns. First, the Trustee must act in good faith toward both the grantor and the beneficiary. This would require a careful conflicts letter and explanation to both my client and the former owner’s daughter. Because the daughter’s concerns had been, all along, the wording of the reconveyance request and the indemnification, not actual opposition to reconveying the property, her interest was not adverse to my client, and a carefully drawn conflicts letter was possible.
Second, I was not wildly enthusiastic about taking on the liability of a Trustee. However, in this case, I did feel the risk was minimal. I had a long history with the client and remembered when she had paid off the Note. The loan servicing company had a record of the payments showing the payoff by cashier’s check as well as a notation that the documents had been returned for reconveyance. The loan servicing company had held the original Note and Deed of Trust until the loan was paid, meaning that the Seller could not have assigned or sold it during that time. Further, this particular seller represented almost no risk of having fraudulently assigned the Note or Deed between the time they were returned to her and her death a few months later. Further, if either had been assigned, my client would, no doubt, have heard something from the new holder in the fourteen years that had passed since the documents had been returned.
After explaining these concerns to my client and the daughter, both were willing to sign a conflict letter and my client was willing to indemnify me for taking on the role of Trustee. Upon this, the new title company was willing to issue a policy without holding back any proceeds. The title was cleared with no quiet title action and the sale closed within the extension period.
In this case, substitution of Trustee worked. In another case, the sixty-day provision of RCW 61.24.110 would resolve the problem, perhaps before it became a problem. However, the entire situation might have been avoided if the original title company had more carefully worded their form and the escrow agent had prepared the daughter for what she would be receiving. Ultimately, however, it always pays to be sure that your property has actually been reconveyed by asking for a copy and the recording number of the reconveyance.
Failure to Reconvey: Quieting the Title without a Quiet Title Action