BiggerPockets

The title pretty much says it all. I hired a law firm to foreclose. I received a letter in the mail yesterday from the attorney handling the estate. Now what? What should I do if I want the property? Any comments, suggestions, helpful hints, or words of condolences to me as the lender?

Thanks!
MGJohn

No doubt! What if I want the property? What is the best way to approach it? Anyone ever had this happen to them?

Thanks!
MGJohn

The debt is still the responsibility of the estate. Because there was real estate involved, this may be a probate situation. Or, may not, if there is other ownership of the property. In any case, your claim against the property (which is properly recorded, right?) is still in effect. Your lawyer should continue with the foreclosure. He or she should know how to handle this situation.

Yes, it is recorded. I received a letter from the attorney handling his estate. I called them but didn't get a return call yet. The property is assessed at 95K. I hope to get it for around 40K. That would give me plenty of room to flip or rehab and then flip. I dont know, I might even want to hold it, but I am getting way ahead of myself. First, I need to find out what the estate wants to do with it. I already had an attorney hired, so I would guess that legal process is underway to foreclose. Out of about ten hard money loans I did last year, two defaulted. One just paid up 3 days before sale, and this one. That seems like a pretty high rate --20% of my loans! Most are at 15%, with about 20% LTV...and all first position.

Thanks for the advice...got a call in to the attorney....will wait and see what happens. I do hope I get the house!!

MGJohn

Almost all my loans are at 15% with an average LTV of 20% or less. I had four pay me off last year. Still have the rest of them. I am doing those with my Solo 401K and hold real estate outside my 401K.

thanks
MGJohn

As the lender, you can only foreclose for the amount owed (plus late fees, attorney fees, etc.). If it's offered at foreclosure sale, the starting bid would be that amount. You would only get the property back if no one else bid. Or if you were the highest bidder. If it's really worth $95K, and your loan is small and in first position, there will be lots of interested buyers bidding at sale. IMO it is unlikely that you would get the property for $40K.

Other options include settling with the estate by offering to buy out their equity and getting the deed. Since the estate has an attorney, my experience says they will act to preserve the asset and equity. They may even have the funds to bring the loan current (or could do so by finding a lender willing to do loan in jr. position or refi and pay you off entirely. I would find out the estate's intentions asap if it were me.

Originally posted by Wayne Brooks:
I hope this doesn't double post.
If you take it back through foreclosure, I believe you are Only entitled to what you are owed. Even after repairs/resale, any overage from your "basis" would go the estate, assuming no other liens.
If however, the estate gives you a deed in lieu, I believe you are entitled to the full value/equity in the property. Just my opinion, ain't no lawyer.

Wayne: this post didn't make any sense to me. If you take property back at sale, you get collateral instead of getting paid off. A lender can do anything they want with a property after they take it back, regardless of basis. Does it work differently in FL? Are you saying the lenders selling REOS can't sell for more than what they are owed?

Whoa really? They charge by the minute? I have never encountered that. Most detailed I have seen from attorneys or CPAs has always been at least rounded to the nearest 1/4 hour. Strange.

There are several possible outcomes:

1) The estate sells the property and pays off your note. You will get the principal, interest and any other charges you're owed. If the estate gets more than enough on the sale to pay you off, they keep the excess. If not, they come out of pocket to pay you off. They cannot sell without paying you off unless you agree to a short sale.

2) The estate gives you a deed in lieu. You get the property. You wouldn't pay anyone anything. I've done this with a defaulting borrower on a hard money loan.

3) The estate refuses to give you a deed in lieu or sell. You foreclose. Around here you start the bidding at what you're owed OR LESS. I see lender start the bidding lower and file a judgment for the shortage. You could do that if you think the estate has assets.

3a) Nobody bids. You get the property. You don't owe anyone anything.

3b) You start the bidding at what you're owed and someone else wins. You get what you're owed and the estate gets the excess (after fees.) If the winning bid is below what you're owed, you might be able to go after the estate for the shortage.

3c) You keep bidding and win. I don't see this happen here, but perhaps its allowed in your area. You would pay the foreclosure trustee the full amount and get the property. The amount you're owed would come back to you and the excess would go to the estate. So, you would be out of pocket, on net, the amount of the excess. If the winning bid is below what you're owed, you might be able to go after the estate for the shortage.

You're lawyer is charging you $180 an hour. That's a pretty typical rate.

It sounds like the OP has a first position lien at 20% or less of value. Unless there are other issues with the property, the estate has no reason to let the equity go. It would be a pretty clueless lawyer and exec/admin that couldn't figure out how to either bring the loan current or refi and payoff the OP. With that kind of equity, even if the estate has no cash on hand, there are plenty of short term loan options.

I'm assuming the OP is aware that lending at 20% or less of value is not usually going to lead to acquisition of properties. However, if the estate/heirs need immediate cash, the OP might be their best and quickest buyer.