Regarding:

The lender is now unable to sell the loan on the secondary market – and is incurring a loss of somewhere around $ 15,000-$ 17,000 with that figure climbing each day due to per diems. That is why there is a loss Mr. Franko – there is a loss because the lender’s counsel is suing me because they can’t sell loan. Just because there is no ALTA policy does not mean there is no remedy.  

I still do not see a loss here.  I do see that the lender might be unable to sell the loan, however, they still hold the note and would potentially still be able to receive the payments.  The value of the note is still there.

My concern is that if you, or Mr. Martinez were to pay the balance what happens?  Either the lender keeps the money AND collects on the note, or the lender accepts the payoff in satisfaction of the note.  Either way, the lender gets a windfall and potentially collects twice, or the homeowner gets to keep the money they borrowed and they do not have a mortgage to repay, in which case they receive a windfall.

If the lender decides to force the issue, the only resolution I see is that you or Mr. Martinez would have to buy the note.  In which case, one of you would have to service the loan and collect the payments.

The next question I would have for the lender is why didn't this "missed mortgage" show up on the credit report, or why did the borrower not include the loan on their application?  You would think that the lender should have been aware of this mortgage, regardless.

In any case, I do agree that you should both put your E&O insurers on notice of a "potential" claim.  Perhaps, the insurer would be willing to buy the note and take everyone off the hook - though it would likely cause an increase in premiums. 

Best,
Robert A. Franco
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