KW Default Solutions
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A few terms first. A lien is a legal claim against a home for money owed. Some liens may need to be paid or released at closing. Proceeds are what the seller walks away with after the sale.
KW Default Solutions (KWDS) helps Keller Williams agents get and handle default-related listings. We also train agents to do it.
A first mortgage statement may show a balance well below the expected sale price. That's a good sign, but it isn't the full closing picture yet. An early title and closing review helps find what else needs to be handled. A title review is a check of the recorded documents tied to the home.
01Ask about more than the first loan
A second mortgage is another loan backed by the home. A HELOC (home equity line of credit) lets the owner borrow against a credit line backed by the home. A homeowner may have stopped using a HELOC years ago. They may still not know if the account or its recorded lien was ever closed and released.
Ask about both. A zero balance, no recent bill or no online account doesn't mean title work can be skipped. The closing professional can tell you what proof, payoff or release is needed.
Other possible issues include unpaid property taxes, homeowner association claims, court judgments and liens from work done on the home. Whether a claim applies, how much it is and how it's handled are questions for title and legal professionals. Don't try to decide which lien gets paid first from a list of recording dates. These rules vary by state.
02Ask for the title review early
A title review can turn up documents that don't match what the homeowner remembers. A paid loan may still show a recorded lien. A name or ownership issue may need attention. A disputed claim may need an attorney instead of another phone call from you.
Finding a problem early gives you time to ask for records and decide the next step. Finding it right before closing can put the sale and the homeowner's plan under pressure they didn't need.
Ask the closing professional:
- What review can start now?
- What permissions do you need?
- How will you share what you find?
Keep sensitive documents in the approved file. Don't attach them to a general marketing form.
03Keep homeowner estimates separate from verified numbers
Fictional example: The first mortgage payoff is $220,000 and the expected sale price is $280,000. The homeowner mentions a $15,000 second loan. The title review also turns up another claim that still needs to be looked into.
You can't call the $60,000 difference the homeowner's equity or estimated sale proceeds. Other amounts owed, like the second loan, still count against equity, and selling costs also come out before you get to estimated sale proceeds. And the open claim needs an answer first.
Label each number in your notes:
- Homeowner estimate, not verified: anything the homeowner tells you from memory.
- Verified: a payoff or other figure that arrives from its source. Write the source and date next to it.
- Unknown: anything still being looked into, like the open claim in the example.
An estimate is fine for an early conversation. Just don't present it as the final settlement statement (the official closing numbers).
Quick self-check: In the fictional example, which items are not verified yet? (Answer: the $15,000 second loan is a homeowner estimate, and the extra claim is still unknown.)
04Why a short sale can need more than one agreement
If the sale won't bring in enough to pay everything, a short sale may come up. That's a sale where lenders agree to take less than they're owed. The first loan's servicer (the company that handles the loan) agreeing to review a short sale doesn't settle the other liens. Each lienholder can have its own requirements. And releasing a lien isn't always the same as releasing the homeowner from personal responsibility for the debt.
Take those questions to the closing team and a qualified local legal adviser. Don't promise that a small payment to a second lienholder will settle everything. Also don't promise that a finished sale wipes out the remaining balance. These rules vary by state.
Your next step: Add one question to your next intake (your first fact-finding talk with the homeowner). Ask: "Is there any other loan, line of credit, tax issue or claim you know of on this property" Then set up the early title review that can check the answer.
If you find more liens than you expected and aren't sure what's next, reach out through the KWDS contact form. We're happy to help.