Texas Commercial Law Firm

3. Bankruptcy. Title should be reviewed to determine if a bankruptcy has been filed which would affect the interest of anyone with an ownership interest in the property. The bankruptcy stay will prevent foreclosure when any bankrupt entity has an ownership interest in the property of which they would be deprived through the foreclosure. 4. Stranger in title. When reviewing the title report, it is necessary to determine if the original owner/mortgagor continues to hold title to the property. It is not uncommon for financially distressed individuals or corporations to transfer title to mortgaged property to another entity without consulting the lender. Any third party who has title to the property without the lender's knowledge and consent is not entitled to notice of the foreclosure. However, in the event the third party is in bankruptcy, the stay will prevent the foreclosure from proceeding or void a sale which occurs even when the lender and trustee were unaware title to the property was held by one in bankruptcy. 5. All necessary assignments. Title must also be reviewed to determine if the necessary assignments of lien have been recorded to show the current note holder as lienholder of record. In the event such assignments have not been filed, they should be obtained and recorded prior to appointing the substitute trustee.

6. Federal tax liens. When ordering a title report prior to foreclosure, it is critical to specifically request that the title company also search the mortgagors' names to determine if there are any federal tax liens filed against them. The IRS must be provided notice of the impending foreclosure sale at least 25 days prior to the foreclosure sale date. IRC §7425(b)(1) (see discussion below at §IIJ).

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