No annotation = clean?

Once upon a time, a buyer was just about to purchase a property that was mortgaged with a small regional bank.

When he procured certified copies of the title, he was surprised to discover that the title didn't have any annotation on it. The mortgage, which the seller pointed out, wasn't annotated on the title!

"How is that even possible?" both the seller and buyer wondered.

As it turned out, while the bank held on to the title and the mortgage had been active for a few years already, the bank's back office had not annotated the mortgage on the title.

End of story.

Lessons:

1. As the story clearly points out, the absence of annotations on the title doesn't ensure that the property is clean. Other factors come into play, such as:

+ Possession of the title – Having a title on hand is another way to determine that the title is clean.

In the Philippines, it's common to use the property as collateral for informal loans. In these transactions, lenders typically do not have the loan annotated to save on taxes and to keep the transaction off-book.

Imagine what would happen if a buyer pays a sizeable amount of earnest money without checking if the seller has the title on hand. It could even be as simple as the seller misplacing the title. Believe me; it's more common than you think.

+ The date when the certified copy of the title (CCT) is procured is another essential factor to consider. Buyers should want to secure the CCT as close to the closing date as possible. A deceptive seller could borrow against the property between the time the CCT is obtained and the closing date. If the buyer wants to be extra sure, he could get a copy just before the payment of earnest money and another copy just before the payment of the balance.

2. When choosing which bank to borrow from, this story suggests sticking with the reputable ones. While smaller banks may offer more favorable rates, they have a severe back-office problem. I'm still unsure how the bank could miss having the mortgage annotated. What's next, they misplace the title?