Bulletin: NY000355

The purpose of this memorandum is to advise you of some general guidelines when asked to issue a Stewart Title Insurance Company policy insuring the purchaser/lender out of a short or distressed sale.  Stewart Title Insurance Company (hereinafter referred to as the "Company") considers this type of transaction to be high liability and you are required to get approval from Stewart Agency Legal Services prior to closing on each transaction. 

A short sale/distressed transaction (also known as a short payoff) occurs when the proceeds received from a sale are less than the outstanding balance of the mortgage(s) encumbering the property and the seller is unable to pay the shortfall.

In order to avoid the costs attendant to the pursuit of a foreclosure action and the acquisition of the foreclosed property, the existing lender agrees to release the mortgage in exchange for an amount less than the outstanding balance of the mortgage debt. The terms of the short payoff may be negotiated by the seller directly with the existing lender or through a third party (e.g., a foreclosure consultant).

General Guidelines Relating to Short/distressed sale transactions in New York State

1. Obtain a written payoff letter from the existing lender. It must state the reduced amount and under what conditions that the existing lender is willing to accept in full satisfaction of the loan. 

2. Follow closing instructions. Pay close attention to the existing lender's closing instructions and special conditions, if any. There can be no variation from the short lenders payoff instructions.

3. All payments, whether made at closing or outside of closing, must be disclosed on the HUD-1 Settlement Statement.  The Buyer and Seller must provide you with a Copy of the approved HUD -1.  Said statement must be made a part of your file.  If the sale does not involve a new lender, a closing statement must be prepared by the buyers attorney's and signed by all parties to the transaction including all attorneys, advisors and other third parties associated with the conveyance. 

4. If as a condition of sale the seller may not receive any proceeds, the Company will require copies of the proceeds check and an affidavit from the settlement agent, if applicable, and buyer acknowledging that Seller has not received any proceeds. 

5. All junior mortgages and other liens must be satisfied and releases/discharges must be obtained.  You must have written confirmation or actual releases/discharges/satisfactions of all junior liens.  If you do not have the necessary documentation, the junior lienor must remain and exception to the coverage of the policy.

6. If foreclosure proceedings have been commenced, the "payoff" letter from the foreclosure attorney must state that upon tender of the amount stated in the "short" payoff letter, the attorney will discontinue the foreclosure action and discharge the Lis Pendens, with no additional fees or costs.

7. After the closing, promptly follow up and record all satisfactions or releases, as applicable, of all mortgages and other liens.

You must provide to company Stewart Agency Legal Services with evidence of Items 1-6 prior to closing together with a full copy of your title report for approval. 

You must disclose to Stewart Agency Legal Services all facts and circumstances relevant to the proposed transaction.  If you become aware of the "flip" of the recently sold short/distressed you must contact Stewart Agency Legal Services for approval of the second sale.

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