Did the File Record?

It all started out with what seemed like a simple refinance. Prior to close of a refinance escrow, the fundamentals of obtaining a current and valid demand for payoff of the existing deed of trust were followed. The borrower supplied all but one of their credit card statements for payment in the escrow, the escrow papers and loan documents were signed without hesitation, the new lender funded the loan and escrow closed.

The lender’s instructions stated the amount due for each of the identified credit card holders. The amount shown for payment due to the one creditor for which the borrower had not supplied a statement to escrow was $80.00. Based on a promise from the borrower that the one last credit card statement would arrive shortly, escrow closed. With escrow holding the $80.00 for the credit card, the audit calculated a $100.00 refund due the owner.

While escrow continued to remind the borrower of the need to provide the last credit card statement, escrow held the combined $180.00. Several months later, after much badgering from escrow, the borrower provided the credit card statement. Escrow remitted the $80.00 payment to the credit card company and forwarded the $100.00 refund together with the HUD statement to the owner.

Shortly after receiving the HUD and cashing the $100.00 refund check, the borrower requested a certified copy of the recorded deed of trust from escrow. Much to the dismay of the escrow officer, the recording information was not in the escrow file. A title search of the property determined that the deed of trust never recorded. The escrow file did have a copy of the deed of trust. Escrow contacted the borrower several times to obtain a new signature on the deed of trust.

One day rolled into several months when the escrow officer received a call from the lender. The lender explained that the borrower was no longer making the mortgage payment and the lender was attempting to initiate a foreclosure. In processing the foreclosure the lender had been unable to locate the original deed of trust or the recording information. The escrow officer told the lender about the many unsuccessful attempts to obtain a signature on a duplicate copy of the deed of trust.

The escrow officer then received a letter from the Department of Insurance (DOI) requesting a response to a complaint filed by the borrower. The borrower's complaint included various accusations focusing on escrow negligence for the un-recorded deed of trust. The borrower's complaint included assertions that the terms of the loan were not the originally agreed upon terms and the borrower felt forced into signing the loan documents. The borrower declared that based on these issues, no mortgage payments would be made pending resolution. Escrow's response to the DOI stated that the borrower had made no mention of any issues concerning the terms of the loan during the escrow. Escrow had contact with the owner before and after close of escrow. Escrow submitted conversation logs concerning the belated receipt of the last $80.00 credit card statement, enabling escrow to remit the $80.00 payment to the creditor.

Further evidence of contact with the borrower was the copy of the cover letter to the borrower which included the closing statement with a $100.00 refund check. By cashing the $100.00 check, the borrower verified having received the closing statement. A copy of the many letters to the borrower requesting a signature on the deed of trust were provided to the DOI. These letters were an indication of escrow’s attempt to obtain a recordable deed of trust.

Before you close escrow - do not:

• Pay bills late

• Change jobs

• Leave town or fall off the planet

• Be a big spender

• Open/close new credit card accounts

• Move big amounts of money

Letters to the DOI suggested that the borrower was simply using the un-recorded deed of trust as a leverage tool against the lender, and to hinder the foreclosure. Countless letters and phone calls between the borrower, the lender, the DOI and the escrow company, over the course of nearly two years, amassed many hours of work by escrow, and created a very thick claim file.

The DOI took an advocate position in favor of the borrower. One letter from the DOI demanded that the escrow, title and recording fees be returned to the borrower. The DOI argued that since the deed of trust never recorded:
1. There was no recording fee.
2. There was no title insurance; hence no title fee should have been collected.
3. Escrow did not perform the duty of releasing or obtaining recording confirmation prior to distribution of the funds and the closing statement.

The lender continued their suit against the borrower under the terms of the note. The lender sued for recovery of the unpaid balance, their legal fees and all the interest which continued to accumulate on the remaining loan balance. The court ruled in favor of the lender. There are a wide variety of details in processing an escrow transaction, including checks-and-balances, to ensure that a file is ready for closing. One of those details is double checking, during the audit of the file prior to recording, that the recording was released. Another detail is the verification of receipt of the recording confirmation prior to the release of funds from an escrow. These practices will help the escrow close successfully and minimize potential claims.