Five Schedule B Items, One Closing Date, and a Seller's Bad Math
Closing is set for March 14 on a $310,000 house. The title commitment lists five Schedule B items: (1) a 2019 deed of trust securing $180,000, to be paid from sale proceeds; (2) a 2021 judgment recorded against the seller for $22,000; (3) a 15-foot city drainage easement along the rear 8 feet of the lot; (4) a $9,500 mechanic's lien recorded in 2023 for work the seller says was 'already paid'; (5) a lis pendens from a neighbor's boundary lawsuit filed 60 days ago. The seller tells the buyer, 'These are my problems, not yours - you'll just need about $211,500 extra at closing.' The lender has issued a clear-to-close subject to title.
1. Which items must be cleared before closing, which can remain as exceptions, and why?
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Must be cleared (monetary liens).
- Deed of trust, $180,000. Paid and released at closing from seller proceeds; the payoff letter must show a good-through date past March 14.
- Judgment lien, $22,000. A recorded judgment attaches to the debtor's real property in the county where it is enrolled. It follows the land until released, satisfied, or bonded around. Get a payoff or a release.
- Mechanic's lien, $9,500. 'Already paid' is not a release. Demand a written payoff and release. Check the date labor or materials first began; mechanic's lien priority generally relates back to commencement of the work and can prime a later-recorded deed of trust. If the work predates the deed of trust, the lender will require payoff or subordination.
Usually acceptable as an exception.
- Drainage easement. Review the survey and the easement instrument. If it runs along the rear 8 feet and no structure, pool, or fence encroaches, it is a standard permitted exception. If the house, septic system, or driveway sits inside it, object.
- Lis pendens. This is the sleeper. A pending boundary suit clouds title. Most title insurers will not insure over an active lis pendens, and a lender will not fund. You need a dismissal, a release, a court order, or an acceptable indemnity from the insurer - get a written commitment before March 14.
2. Correct the seller's arithmetic: what does the buyer actually need at closing?
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The seller is confusing whose debts are whose.
Buyer's cash to close = down payment + buyer's closing costs + prepaids/escrows. It does not include the seller's mortgage, judgment, or lien. The buyer does not need 'about $211,500 extra.'
Seller's side. $180,000 + $22,000 + $9,500 = $211,500 in payoffs. From $310,000, the seller nets $98,500 before commissions, excise tax, and closing costs. On a $310,000 sale, a 6% commission alone is $18,600, plus other costs - the seller may be bringing cash to the table, not the buyer.
When the buyer's number changes. Only if the parties renegotiate price, seller concessions, or repair credits. Otherwise the buyer's cash requirement is unaffected by the seller's liens.
3. Suppose the mechanic's lien is valid and predates the deed of trust. What is the risk and what do you recommend?
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The risk. If the lien primes the mortgage, a foreclosing lienholder could wipe out both the lender's interest and the buyer's title even after closing. Title insurance may exclude it or require a special exception.
Recommendations.
- Do not close with an unreleased mechanic's lien unless the title insurer affirmatively insures over it.
- Have the seller pay the lien at closing from proceeds, with the payoff and release delivered in the closing package; hold funds in escrow if the release is not in hand.
- If the seller disputes the debt, negotiate a hold-harmless/indemnity agreement, but understand it is only as good as the seller's balance sheet.
- Get the owner's policy with the appropriate coverage and confirm the lender's requirements in writing before the closing date.