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RED FLAGS EXAMPLES
ENCROACHMENTS: Sometimes a structure (commonly a fence or driveway) encroaches upon a property. This usually means that a client will have to take the property subject to the encroachment. Contact your title officer if you see encroachment language in your prelim.
RED FLAG: The lender will usually not want to lend on a property where encroachments exist. In some circumstances, an endorsement to the lender’s policy (usually with an extra charge) can allow the lender to close. These are determined on a case-by-case basis. Again, contact your escrow officer.
NOTICE OF VIOLATION: These will sometimes be recorded by the fire department, the health department or the local zoning enforcement division in situations where the property violates a local statute.
RED FLAG: These are always a red flag. The lender will not accept these conditions. The violation will have to be eliminated and the local enforcement agency will have to issue a release before closing. The seller or the seller’s representative will have to deal directly with the appropriate agency to resolve these types of issues.
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COURT ORDERS/JUDGMENTS: These are not a standard item. The most common type are support judgments. These are issued by the courts when child/spousal support is owed by the party named.
RED FLAG: Any order/judgment is a red flag. If you see an order or judgment, contact escrow immediately to verify that the demand has been ordered.
BANKRUPTCY: While not unusual, bankruptcies are not standard.
RED FLAG: All open bankruptcies require the debtor to get permission from the court to sell or encumber an asset (the home) or to take on new debt. Chapter 7 and 13 bankruptcies against the seller are the most common found in a sale situation. A letter from the bankruptcy trustee will be required to close escrow. The trustee will sometimes require that a payment be made to the court at close. We sometimes find a Chapter 13 against a buyer, which will also require a letter from the trustee allowing the debtor to take on more debt. An open Chapter 7 against the buyer is rare, and the buyer probably cannot get a loan as long as he is in a Chapter 7. NOTE: Chapter 7 is a complete washout of dischargeable debt, Chapter 13 is a reorganization of debt and Chapter 11 is a reorganization of debt for a company or corporation.
NOTICE OF PENDING ACTION: This is also known as a “lis pendens.”
RED FLAG: This is a big red flag. This means that someone has a lawsuit pending that may affect the title to the property. These are often found in acrimonious divorce situations. A demand (the aggressing party usually wants money before releasing) and dismissal of the case and (a “withdrawal of lis pendens”) will be required before closing.
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