Stopping a foreclosure and subject 2 deal

27 Replies

I have a house under contract in Metro Atlanta where the seller is in foreclosure with a 2/3/15 auction date. Purchase price is $75k. ARV is $150k. Repairs $30k. My intent is to rehab and sell retail.

I was going to purchase sub2, but with the near-term foreclosure.  I think I'll purchase for cash.

First question, I assume cash purchase stops foreclosure.  Right?

Second question, if I go thru with the sub2 and catch up the loan ($20k), how can I be assured the loan is reenacted?  I really need 90 days to get the flip done and if I could avoid the additional $55k cash outlay, that would be ideal.

Thanks for any thoughts.

Rick

Technically, once all the back payments, fees, penalties and additional interest are paid off, the loan should revert to an active status. But, I have also seen that usually multiple departments are handling the same home. You payoff the foreclosure amount and that department forgets to notify the one handling the auction and *Bam* house sells at auction.

You just have to stay on top of them every minute before the auction and have written proof that the auction has been cancelled. 

The bank should give the seller written reinstatement sheet that will include back payments, penalties, attorney fee's, etc. You still have time to do a sub-to but you need to be certain that the amount you're given by the seller is a true picture of what the costs will be to reinstate. 

Hey Rick -- as far as I know @Simon Campbell is right on the money -- make sure you get all the information to the people handling the auction as well as the people taking the money.  I know of a couple of deals that fell through exactly like he said, due to right hands being clueless that left hands had already taken care of the situation.

Make sure your talking to the right department at the bank.  Make sure your talking to the foreclosure department and NOT the collections department. You have to ask specifically for the foreclosure department.  I have had TONS of issues with this in the past in dealing with Wells Fargo.  

I'd you pay it off in full, no issues.  It may be state specific, but here a lender is Not required to simply accept all the monies in arrears, and reinstate the loan, since the entire debt was accelerated prior to filing foreclosure.

Do you have a closing attorney or a foreclosing trustee/attorney you can consult with? Depending on the time frames in your state, you may be able to bring that loan current. Get an authorization to release information  from the borrower so you can talk to the lender and/or foreclosing attorney to find out if you can reinstate and for how much.  I'd never let the possibility of cheap leverage (short term sub2 for a rehab) pass me by without trying a little harder.  :)

thanks for the great advice.  I'm getting the written reinstatement sheet.  Great closing attorney and I will follow thru and make sure the right hand of Wells knows what the left hand is doing.

Make sure you don't put the property in your name if you reinstate or, you may subject yourself to another acceleration of the note for the ilegal transfer of ownership. I've seen many situations where people think "What does the lender care who is making the payments"? We care. We do accelerate the note.

@Ron S.  Yes, but most here don't care if they're flipping, since they'll be out in a few months, usually before foreclosure could be completed.

Originally posted by @Wayne Brooks :

@Ron Scribner Yes, but most here don't care if they're flipping, since they'll be out in a few months, usually before foreclosure could be completed.

Good point Wayne. As always, you pay attention to the detail!

Originally posted by @Ron S. :

Make sure you don't put the property in your name if you reinstate or, you may subject yourself to another acceleration of the note for the ilegal transfer of ownership. I've seen many situations where people think "What does the lender care who is making the payments"? We care. We do accelerate the note.

In CA there is typically plenty of time to rehab and re-sell before a lender could call the note due in full and complete a foreclosure. I do not know the particular process for noticing of violation for DOS (as opposed to default). But it must include some kind of notice and time to cure (pay in full), correct? Then the NOD and NOTS. So that's a minimum 5 months. Of course a recorded NOD may be harmful to the seller/borrower and may be in violation of whatever sub2 purchase agreement was made.

@Dion DePaoli What's your experience with foreclosing because of DOS? What's the noticing process like, compared to noticing for default?

The Mortgagee must deliver to the Borrower a breach letter, we commonly refer to those as the Notice of Default in casual conversation. The letter states what has been breached in the mortgage (DOT) contract. Any performance mandate can be breached and that includes payments, transfers, insurance and tax obligations along with suitable upkeep. There is no discernible difference for a payment breach or a transfer breach outside of the notice given to the Borrower which must say what was breached and how it can be remedied. The breach is the default. Default does not just mean lack of payment.

Wayne's point is spot on.  If the loan has been breached the default letter will go out and state the breach and how to cure it.  Typically 30 days is given to cure.  After that time has passed the acceleration occurs.  Once accelerated the foreclosure process starts ticking off depending the state.  If the Mortgagee has accelerated they have no duty to take less than the entire amount due on the note including all principal, interest, advances and fees. 

So with this asset, we have a sale date in less than 30 days.  The foreclosure process is pretty far along.  We are past acceleration and notice.  The entire balance is due to stay the foreclosure not just interest arrears.  Might they take a lesser amount and reinstate?  Sure, you might also win the lottery.   The Mortgagee is under no obligation to do so.  There does not seem to be a need to worry about any additional or alternate breaching event from a Mortgagee stand point, it is already done.  If another matter caused the breach and that matter was resolved then a transfer would be a new breach creating a new process mandating certain times for cure, etc.  Like I said, that doesn't seem warranted here.  

With the sale dale where it is, unless you can payoff the whole balance, just go to auction and bid.  Don't get involved unless you get title clear of this lien. 

I have a letter from the Bank which is dated from last week ...

  • (Mortgage Bank) recently received an inquiry regarding a reinstatement of your mortgage.  Below is the total amount due to reinstate your loan from Foreclosure.  If you have question s...

@Dion DePaoli  Should I still be skeptical the foreclosure will be stopped?  

I think I'll close on this Wednesday paying the reinstatement fee and with closing attorney insuring clear title.  As a fall back, I've let the attorney know that if foreclosure isn't stopped, then I'll pay off the rest of the mortgage before the auction. 

Sound like a good plan?

As said, when you buy it sub2, you take the $ to the attys office and they give you paperwork showing it's out of foreclosure. Gotta check title before you pay of course.

Originally posted by @Account Closed :
Originally posted by @Ron Scribner:

Make sure you don't put the property in your name if you reinstate or, you may subject yourself to another acceleration of the note for the ilegal transfer of ownership. I've seen many situations where people think "What does the lender care who is making the payments"? We care. We do accelerate the note.

In CA there is typically plenty of time to rehab and re-sell before a lender could call the note due in full and complete a foreclosure. I do not know the particular process for noticing of violation for DOS (as opposed to default). But it must include some kind of notice and time to cure (pay in full), correct? Then the NOD and NOTS. So that's a minimum 5 months. Of course a recorded NOD may be harmful to the seller/borrower and may be in violation of whatever sub2 purchase agreement was made.

@Dion DePaoli What's your experience with foreclosing because of DOS? What's the noticing process like, compared to noticing for default?

Hi. Same exact process. You stop making payments and the lender notices you of the default and demands payment. Files NOD at the 120th day. You transfer title ilegaly, lender notices you of the default and demands cure. Files NOD at the 120th day. Wait 90, publish, go to sale in 30 after that....in a nutshell.

Originally posted by @Ron S. :
Originally posted by @K. Marie Poe:
Originally posted by Ron S.:

Make sure you don't put the property in your name if you reinstate or, you may subject yourself to another acceleration of the note for the ilegal transfer of ownership. I've seen many situations where people think "What does the lender care who is making the payments"? We care. We do accelerate the note.

In CA there is typically plenty of time to rehab and re-sell before a lender could call the note due in full and complete a foreclosure. I do not know the particular process for noticing of violation for DOS (as opposed to default). But it must include some kind of notice and time to cure (pay in full), correct? Then the NOD and NOTS. So that's a minimum 5 months. Of course a recorded NOD may be harmful to the seller/borrower and may be in violation of whatever sub2 purchase agreement was made.

@Dion DePaoli What's your experience with foreclosing because of DOS? What's the noticing process like, compared to noticing for default?

Hi. Same exact process. You stop making payments and the lender notices you of the default and demands payment. Files NOD at the 120th day. You transfer title ilegaly, lender notices you of the default and demands cure. Files NOD at the 120th day. Wait 90, publish, go to sale in 30 after that....in a nutshell.

Do you know if there are any exemptions to the federal 120 day noticing period for a DOS breach? Non owner occupied loan? Multi unit/commercial? 120 days noticing plus CA's 90 days after NOD and 21 days after notice of sale is almost 8 months minimum to get the property to trustee's sale.

Kristine Marie Poe  Lenders will give reinstatement figures with a written request by the borrower. 

Originally posted by @Jay Hinrichs :

@K. Marie Poe  in GA you can do a foreclosure in 60 days period. I have done it.

one of the reasons I loved lending in GA... MS is very quick as well as Texas.

West coast is as you state 5 to 7 months.

but reality is if you bring the lender current they will not be right on top of it and one would have 120 to 150 days or more most likely. 

@Rick Baggenstoss   Lenders will give reinstatement figures with a written request by the borrower. 

Jay:  pretty sure this has changed since Jan 2014 and the new Dodd Frank/CFPB regs.  The federal law now requires that no foreclosure action can start until the loan has been delinquent 120 days.  @Dion DePaoli   Can you please confirm?

Kristine Marie Poe we are talking about different things I am talking about time to foreclose from the recording of the NOD... I wonder if that law is universal or only Owner occ purchase money loans ?

Originally posted by @Jay Hinrichs :

@K. Marie Poe we are talking about different things I am talking about time to foreclose from the recording of the NOD... I wonder if that law is universal or only Owner occ purchase money loans ?

Sorry to not be clear. My understanding of the federal law is that it requires the loan to be 120 days past due before you can file the NOD. I'm also wondering which loans, if any, are exempt from the 120 days. I'm also wondering if a lender foreclosing for DOS gets any special acceleration.

Originally posted by Kristine Marie Poe:
Originally posted by @Jay Hinrichs:

Kristine Marie Poe we are talking about different things I am talking about time to foreclose from the recording of the NOD... I wonder if that law is universal or only Owner occ purchase money loans ?

Sorry to not be clear. My understanding of the federal law is that it requires the loan to be 120 days past due before you can file the NOD. I'm also wondering which loans, if any, are exempt from the 120 days. I'm also wondering if a lender foreclosing for DOS gets any special acceleration.

The regulation amended the defualt on 'payments' to 120 days past due. This applies to all loans secured by resudential real property. A DOS breach is specifaclly exempt along with certain other situations since payment is not the breach. To be clear, the reg specifaclly says a loan can be breached at the moment a DOS breach is discovered. All breaches require a cure time usually around 30 days, some are are less by a week.

The OP question back to me with the reinstatement statement would still be of concern.  Having the statement and delivery of funds does not mandate reinstatement and funds from a third party could cause confusion in all that.  Delivery of the statement has governing influences of other rules.  Bridging the department gap sometimes doesnt work.  If you deliver funds for the borrower the mortgagee can ask for affirmation of retaining title, amongst other things. 

Originally posted by @Dion DePaoli :
Originally posted by @K. Marie Poe:
Originally posted by @Jay Hinrichs:

@K. Marie Poe we are talking about different things I am talking about time to foreclose from the recording of the NOD... I wonder if that law is universal or only Owner occ purchase money loans ?

Sorry to not be clear. My understanding of the federal law is that it requires the loan to be 120 days past due before you can file the NOD. I'm also wondering which loans, if any, are exempt from the 120 days. I'm also wondering if a lender foreclosing for DOS gets any special acceleration.

The regulation amended the defualt on 'payments' to 120 days past due. This applies to all loans secured by resudential real property. A DOS breach is specifaclly exempt along with certain other situations since payment is not the breach. To be clear, the reg specifaclly says a loan can be breached at the moment a DOS breach is discovered. All breaches require a cure time usually around 30 days, some are are less by a week.

The OP question back to me with the reinstatement statement would still be of concern.  Having the statement and delivery of funds does not mandate reinstatement and funds from a third party could cause confusion in all that.  Delivery of the statement has governing influences of other rules.  Bridging the department gap sometimes doesnt work.  If you deliver funds for the borrower the mortgagee can ask for affirmation of retaining title, amongst other things. 

Dion: Thanks so much for clarifying. So DOS breech is exempt from the federal reg of 120 day noticing.

Moment of discovery of a DOS breech seems like it could be in the 120 day range (or longer), no?

Originally posted by Kristine Marie Poe:

Dion: Thanks so much for clarifying. So DOS breech is exempt from the federal reg of 120 day noticing.

Moment of discovery of a DOS breech seems like it could be in the 120 day range (or longer), no?

 It is not 120 day noticing.  The 120 is 120 days past due for payment only.  120 days delinquent.  The 120 has zero to do with anything else.  If we are not talking about payments specifically then there is no 120 anything.  When we are talking about 120 it is ONLY for 120 days past due or late or delinquent.   

For a DOS breach there are no days past due since it has nothing to do with a payment. A DOS can be used as a default event when the loan is current or delinquent, it does not matter. (contrary to some Sub2 promoters)


I get the impression you are thinking of the 120 days past due incorrectly. The 120 days is no different than being 30, 60 or 90 days past the due date for a payment. 120 days must elapse prior to a Mortgagee issuing a Notice of Default for payment on the account. The Mortgagee can issue the NOD any time after the account is 120 days past due for that specific payment due date not before unless a different type of breach/default occurs. Payment due dates are fixed in time. Payment 145 is specifically due on January 1, 2015 that payment is not in default until May 1, 2015. If no payment is received then on June 1, 2015 the January 1 payment is now 150 days late and the February 1 payment is 120 days late. If no NOD was issued on May 2 then one can be issued for either date on June 2 since both January and February payments are past due at least 120 days. Only one date needs to be used for the default notice to initiate the foreclosure process.

For a DOS breach the Borrower's payments can be current or delinquent it does not matter at all. Defaulting the loan based on a DOS breach is not time sensitive. There are no days involved at all. Now, if the loan is past due 120 days plus with a proper NOD and the DOS breach is discovered then the Mortgagee would have to issue a new breach/default notice to the Borrower and state the breach and give time to cure. The Mortgagee could then foreclose based on the payment default or the DOS breach. If the payment default is cured the Mortgagee can still foreclose on the DOS breach. They are independent breach ideas. Every breach must be specifically identified to the Borrower and the Borrower must be given time to cure. Breach/default events do not automatically combine, they stand on their own.

I think I have hit it from a bunch of different angles.  I hope that clears up the idea.

Originally posted by @Dion DePaoli :
Originally posted by @K. Marie Poe:

Dion: Thanks so much for clarifying. So DOS breech is exempt from the federal reg of 120 day noticing.

Moment of discovery of a DOS breech seems like it could be in the 120 day range (or longer), no?

 It is not 120 day noticing.  The 120 is 120 days past due for payment only.  120 days delinquent.  The 120 has zero to do with anything else.  If we are not talking about payments specifically then there is no 120 anything.  When we are talking about 120 it is ONLY for 120 days past due or late or delinquent.   

For a DOS breach there are no days past due since it has nothing to do with a payment. A DOS can be used as a default event when the loan is current or delinquent, it does not matter. (contrary to some Sub2 promoters)


I get the impression you are thinking of the 120 days past due incorrectly. The 120 days is no different than being 30, 60 or 90 days past the due date for a payment. 120 days must elapse prior to a Mortgagee issuing a Notice of Default for payment on the account. The Mortgagee can issue the NOD any time after the account is 120 days past due for that specific payment due date not before unless a different type of breach/default occurs. Payment due dates are fixed in time. Payment 145 is specifically due on January 1, 2015 that payment is not in default until May 1, 2015. If no payment is received then on June 1, 2015 the January 1 payment is now 150 days late and the February 1 payment is 120 days late. If no NOD was issued on May 2 then one can be issued for either date on June 2 since both January and February payments are past due at least 120 days. Only one date needs to be used for the default notice to initiate the foreclosure process.

For a DOS breach the Borrower's payments can be current or delinquent it does not matter at all. Defaulting the loan based on a DOS breach is not time sensitive. There are no days involved at all. Now, if the loan is past due 120 days plus with a proper NOD and the DOS breach is discovered then the Mortgagee would have to issue a new breach/default notice to the Borrower and state the breach and give time to cure. The Mortgagee could then foreclose based on the payment default or the DOS breach. If the payment default is cured the Mortgagee can still foreclose on the DOS breach. They are independent breach ideas. Every breach must be specifically identified to the Borrower and the Borrower must be given time to cure. Breach/default events do not automatically combine, they stand on their own.

I think I have hit it from a bunch of different angles.  I hope that clears up the idea.

I''ve been incorrectly calling the 120 days past due "noticing".  Sorry about that. Indeed you've made clear what I wanted to know.  Thanks!

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