Unrecorded deed of trust brainstorm

23 Replies

I have a lead from an attorney who wants to sell clients property to pay for Att fees. Property has an unrecorded deed of trust  (seller carry) according to seller. Title shows free and clear. Nothing was recorded to secure seller carry. What are some possible plays in this situation. Seller wants to sell for pennies on the dollar and I assume responsibility of negotiating seller carry unrecorded deed. @Rick H.  ? Other creative thinkers?

State frowns on attorneys taking trust deeds for legal services.  Could swap, buy on terms, promise to hire him/her next time you're sued, etc.

I think your primary concentration should be to get estoppel from Trustor. Once signed, you are golden.

When you say just "seller" I assume you mean the current owner who bought with a seller carry, and the previous owner(the one carrying the note) failed to record the deed of trust against the property.  Correct?  If so......unless I'm missing something whoever buys the property has it free and clear (assuming you record the new deed prior to him now/if recording the deed of trust).  The previous seller holding the unrecorded deed of trust is SOL as far as security in the property, and would only have personal recourse against the current owner.

@Rick H.  Am I missing something?

@Wayne Brooks   your assumptions are correct. However, I don't believe the one carrying the note is SOL. He doesn't have a secured lien, but I thought he still has a lien position he could make noise after close. Plus, is it moral to buy it knowing the guy has a position and screw him out of his position? 

And is it only the current owner (seller) he has recourse against?  Not me as the buyer even if I have knowledge of his lien existing through conversation with seller? Because that's the play the Att wants is for me to buy it cash at a steep discount and take on the risk of the guy carrying the note coming back with litigation. 

I was leaning more toward trying to get seller carry guy steeply discounted to go along with it and clear his supposed position. 

I wasn't speaking about moral or not.  I was speaking to legal.  He either has a Recorded lien against the property, or he has No lien against the property.  Is it moral to offer the guy 50cents on the dollar since has no legal standing against the property?  It appeared that was the direction you were going, in "negotiating" with him.

@Wayne Brooks  you are correct.  That was my thinking. And I wasn't criticizing your reply, I'm trying to learn. I guess my big question is: do I try to negotiate on the front end before purchasing or the back end after buying. I am not certainly what legality is in this manner and how strong a position he has without a recorded note. Is it different to buy as a bonified purchaser if I had no knowledge, and learn after the sale, or does it matter if I had pre knowledge and bought any way? I have a lawyer nudging me one way, but she is not representing me and doesn't have my interest at stake. She just wants her fees paid and sees a quick sale as a way to get paid. 

Best course, talk to a different RE attorney.

With all due respect, I'm so tired of the reply on this site to "talk to an attorney."  I'll call my attorney when I need legal advice. I post on this forum when I need outside the box thinking. What I'm looking for here is multiple ways and plays to creatively approach a problem. There are many brilliant minds with a wealth of knowledge on this site. ( And @Wayne Brooks  you're one of them) I'll take it upon myself to figure out the legality of each suggestion. Stepping off soap box now...

The note holder doesn't have a recorded "lien position".  He does have a note.  Do you know if there is an actual executed deed of trust, but it just hasn't been recorded?

Regardless, if the property is sold, the note holder is then totally unsecured as his borrower no longer owns the property.  But he can still sue the borrower and get a judgment.  Just because the collateral goes away does not mean the debt goes away.

It matters if you have "pre knowledge" of a loan against the property.  Escrow will ask you and the seller in the escrow docs if there are any outstanding loans.  Since both you and the seller know there is, and you sign that there isn't, you're treading in murky perjury territory IMO.  

How about you give me the name of the note holder?  I'll buy the unsecured note.  And you buy the property.  Then I'll show you and the seller what that kind of law suit looks like.  Just kidding.  

There are all kinds of things to consider when it comes to whether that note is collect-able.  How much does the seller owe the note holder?  Is the note holder alive?  Is the borrower in default?  When did he make his last payment?

Originally posted by @Derek Walkington:

@Wayne Brooks   

And is it only the current owner (seller) he has recourse against?  Not me as the buyer even if I have knowledge of his lien existing through conversation with seller? Because that's the play the Att wants is for me to buy it cash at a steep discount and take on the risk of the guy carrying the note coming back with litigation. 

I was leaning more toward trying to get seller carry guy steeply discounted to go along with it and clear his supposed position. 

Is this attorney really suggesting his client sell the property without paying the note holder? So as long as the proceeds pay his fee, he is ok if the lender goes unpaid.  Who is this guy?  Wait.  I think I know.  Unfortunately, I have a couple of ideas of who it might be.

Even though the note holder has no recourse against you as the new buyer, you'll be named in the lawsuit, along with the title company.  So budget for that. :)  

Ahhh.  There's the voice of knowledge and reason I was seeking. Thank you for chiming in. Yes, the attorney is seriously trying to pursued me to buy it as if it were free and clear. The numbers and facts: note carry back for $40k still has approx $35k owed. Property worth $40-45k in present condition. Owner has not paid on note for 3 years. Note holder "took back" property (verbal only, no deed of any kind or anything signed) and has now done a lease option to tenant, although as note holder, not owner, he can't legally do that. Note holder has been collecting rent money for over a year from tenant. Everyone is still alive. Owners are divorcing and divorce attorney wants to get paid through quick sale of the house. I was brought in as a potential buyer to try to sort the mess out. I have contact info for note holder and want to call him to see if I can work something out with him. I can't buy the note from him as he has nothing recorded. I'm trying to brainstorm my best play before calling him. Seller says they never signed anything with him. It was all verbal. I've yet to confirm this with note holder. Also nothing was signed with tenant toward lease option, this is verbal as well. 

With all this verbal stuff, have you verified the current "owner" actually has a recorded deed in his name (not a contract for deed).  Hard to imagine a seller signing an actual deed, but "verbally" taking a mortgage.  If so, when you talk the original seller and if he does have a signed but unrecorded deed of trust, my guess is the first he does is go record it.

OK.  Divorce attorney looking to get paid. Yuk.

You can totally buy a note that isn't recorded.  A note is a note.  A deed of trust secures the note.  So this note is not secured.  People buy unsecured debt everyday.  

What you do you mean when you say the seller says they signed nothing with the seller/lender?  If nothing was signed then there is no note.  Let's not call something a note if it isn't. So, this a verbal IOU for an installment purchase of real property? For reals? How much did the buyers put down when the seller deeded it to them? 

The statute of limitations on notes in CA is 4 years.  But it sounds like this isn't a note, so that doesn't apply.

The lease option tenant is screwed if they have been paying their rent on time and want to exercise their option.  The supposed note holder can't sell the property to them. For that reason alone I would not get involved.  Why contribute to the misery of truly innocent 3rd party bystanders? 

It just sounds like a lot of bad DIY paperwork, or lack of paperwork. But lack of note or installment agreement paperwork doesn't take away the previous seller's rights to be paid for the property after he deeded it to the new owners.  I think the divorce attorney knows this and knows the risk is huge. Even if the sellers give you the property for free, it would cost you money to protect your interest.

Think about it.  The previous owner deeded the property away with the expectation of being paid. The borrowers made payments and then stopped.  Then he took possession. Even with no note, do you really think he has no case? A crappy case maybe, but a case IMO.  Let the sellers deed the property to the attorney. :)

Love the idea of attorney buying it! I'm not sure if there was paper work on the note. I believe there was but will call note holder tomorrow and see.  There was no deed or any paper work (quit claim, deed in lieu) back to note holder, so seller is still on title. My play was to buy note at discount from note holder, then buy property for amount of attorney fees and get grant deed. Then sell to tenant who thinks he's buying it anyway and carry back paper. If I can be all in at less than 20k and sell legitimately to tenant, I think everyone wins. 

Well, let us know how it turns out.  

Ok, so I totally misread your original post, Derek. Thought the note was owned by attorney in lieu of payment of legal fees.

Suggest you re-post. Have you chained title? Do you have a copy of the note?

Attorney's client purchased property with what is essentially a purchase money note without recording the trust deed? So, it was an uninsured transfer, yes? 

You could buy property with defects and file QTA to offset claims. Someone's going to wake up someday and be unhappy. And you'll be the recipient of defective deed as your seller received acquisition deed pursuant to effect of purchase money debt. Benefit of the bargain not received by prior seller.  I'd argue consideration insufficient and get deed set aside. 

I'd be inclined to talk to everyone and engineer plan to clean up mess for a big chunk of change. Leave the tenant out of picture for now as their lease option only muddles the title facts and circumstances. Consider barter. Offer an equity stretcher. Got a big ugly yellow Motorhome to offer as a placeholder (or lovely parting gift, like on TV game shows)?

A lot of work for a POS property. 

Originally posted by @Rick Harmon:

Ok, so I totally misread your original post, Derek. Thought the note was owned by attorney in lieu of payment of legal fees.

Suggest you re-post. Have you chained title? Do you have a copy of the note?

Attorney's client purchased property with what is essentially a purchase money note without recording the trust deed? So, it was an uninsured transfer, yes? 

You could buy property with defects and file QTA to offset claims. Someone's going to wake up someday and be unhappy. And you'll be the recipient of defective deed as your seller received acquisition deed pursuant to effect of purchase money debt. Benefit of the bargain not received by prior seller.  I'd argue consideration insufficient and get deed set aside. 

I'd be inclined to talk to everyone and engineer plan to clean up mess for a big chunk of change. Leave the tenant out of picture for now as their lease option only muddles the title facts and circumstances. Consider barter. Offer an equity stretcher. Got a big ugly yellow Motorhome to offer as a placeholder (or lovely parting gift, like on TV game shows)?

A lot of work for a POS property. 

There is no upside on this IMO, as there is no big chuck of change to be had.  The original seller lender obviously doesn't care about his defective title or note. He isn't going to walk away from an income producing property for pennies on the dollar, regardless of defective title.  The sellers probably need $5-10K or more to pay off the attorney.  The lease option tenants, if they are paying ones, aren't just going to take this lying down.  And there might be only $40K or less in equity to work with.

I say that the original seller/lender will tell Derrick that he'll walk for no less than $20K.  

Let me get this straight, it's hard to follow from the posts.

A sold a property to B&C, seller financed it, 3 years ago or about. A did not file the deed to B&C, didn't file a deed of trust either. It sounds like a badly or attempted fraudulent sale by A as obviously he didn't go through a title company or a closing agent as they would have filed docs.

Then B&C defaulted, A tells them he took the property back, which is basically a lie as he never conveyed it so he can't take it back, so the seller (A) is pulling a fast one in a very slow track in his mind.

Then A does a verbal lease and collects rents.

At this point does B&C still believe they are buying or do they think they are renting?

A is unsecured. The time that has past and the activities that have gone on will most likely preclude the seller (A) to claim an administrative mistake in filing requirements. Seems to me his tail is flapping in the wind as to a predatory sale if not fraud.  I now have no sympathy for A.

If B&C have no paper work at all, no deed, no contract, note, security agreement or closing docs, what makes them think they are buying? A can simply claim he rented and no such deal was transacted. So, does B&C have a copy of any down payment or check to evidence their claim of a sale? Copies of checks paid monthly can be seen as rents or a mortgage payment, those won't show anything really.

If B&C have no paper work, are we just to believe they are buying it. they aren't in title so are they pulling a fast one too?

Now comes D, the divorce attorney, her clients are B&C and suggests they sell a property they are not in title to, to pay her fees. Is she aware that B&C have no docs or are not in title? If so, she knows better, even a divorce attorney should know that. Or, is the client of D the seller (A) who is in title with a sale/tenant? Does A agree that he sold to B&C?

Another issue, and with your plan, is that this note was exempt from Dodd-Frank, it's seasoned prior to the Act, the seller was and still is exempt if he owned the property as an owner occupant. If you "buy the note" (if there is one) you as the new note holder will not be exempt under the same provisions as the original lender. You may fall into another exemption to modify the note but any modification is a new extension of credit subject to compliance with the Act. So, B&C may need to see a RMLO to have a new note or modification accomplished.

I don't see any defective deed, not at this time, the deed was never effected as nothing was ever filed to cloud title, A still owns it. A failed to follow the requirements to sell and convey title, was this intentional as in fraud or is he a real idiot, my thinking is that a property owner knows they have to jump through hoops to buy a property as they have done it before or they wouldn't be the owner, so I lean toward fraudulent dealing. Seems to me he has his tail in a sling if the buyer (B&C) can show they were buying.

This could be a simple subject to purchase from A who is in title, subject to the purchase and seller financed agreement made by B&C.  Without title being transferred by A, this could be nothing more than an installment agreement, you can buy a property sold under an installment agreement subject to that agreement.

Several paths to take. One, get a new settlement with docs, on the HUD-1 state that the closing is to cure administrative filings of a prior sale, make a new deed of trust listing the old note, not a new note! A grants a current deed and on that deed, state that the conveyance is accomplished arising from a previous sale to cure filing requirements, state the old date in the body of this statement, but the date of the deed will be the current date. Going this route means you'd be buying the note newly secured.

If you closed on an installment sale instead of conveying title you could then buy the property from A subject to the installment agreement.

I would not try to replace the old note with a new one, if there is a note, as you will have advantages with the note being created prior to Dodd-Frank.    

As KMP mentioned, what's the upside here? I'd want at least 10K to clean up this mess and I really don't care if the attorney gets paid, that's her issue with her client.....if she gets a judgment and places a lien on the property prior to all this getting to closing, then pay her her due, I wouldn't involve her in the RE matter. She's an unsecured creditor, it's up to her clients to work out her payment not you. Now, if the deal came to you through her you might accommodate her in all fairness, I'm not saying screw her out of her pay, but she has no interest in the RE other than it being a source of funds to pay her.

I'd start with B&C, I'd tell the story of what's going on. I'd ask them to show proof they were buying it. I would not say the seller was pulling a scam but that he failed to do things properly, that it needs to be done over, that they can't just stop paying and keep the property as they can be evicted. The motivation for them to play along is that they can't buy until the matter is taken care of.

Then I'd go to A, I'd tell him his error certainly makes it appear that he was pulling a fast one not filing docs as required by law and that he can be in deep stuff, which is totally true. I'd explain to clear up the mess that we need to head to a new closing. Which way, take your pick, I'd go with a new installment agreement so I could buy the property subject to that agreement. If A grants title and conveys all you can do is buy from B&C or buy the note from A.

I also suggest you get another attorney involved to draft the docs as they need corrections made as mentioned. Take your strategy to your title company before you contract to assist in the best course of action as that pertains to what docs you can dig up. If your title company wants a new contract and sale you can credit past payments, but you may have Dodd-Frank concerns now.

Other options may exist depending on what docs you dig up with A, B&C. First you need to motivate the parties to act. You could do a purchase and repurchase with B&C, for consideration of buying the note from A and other consideration having A clean up the title with a memo of sale under an installment agreement accomplished back when.

You need to involve your title company, how you structure this will depend on what they will insure. Begin by getting with the parties, when you have evidence of what went on, see the title folks, then map out your strategy with another attorney. What a mess! 

Originally posted by @Bill Gulley:

Let me get this straight, it's hard to follow from the posts.

A sold a property to B&C, seller financed it, 3 years ago or about. A did not file the deed to B&C, didn't file a deed of trust either. It sounds like a badly or attempted fraudulent sale by A as obviously he didn't go through a title company or a closing agent as they would have filed docs.

Nope.  A sold to B&C, and the deed was recorded.  B&C are the current owners of record.  A carried back a note, but did not record a deed of trust or any security instrument.  B&C defaulted 3 years ago.  A then took possession of property.  No deed was executed granting the property back to A.  A is currently controlling the property and has lease optioned it to his current tenants.

This is a typical DIY installment sale snafu for one of my areas, and the areas where the OP works. I usually encounter messed up contract-for-deed agreements though.  This one's a hybrid. 

It's likely a very low valued POS property. 

A needs to rescind deed to B & C.  Delivery and acceptance was conditional. 

If he's got possession, that's a big plus. 

A can indemnify, if later required by title company for next transaction.

Worst case is QTA to perfect unwinding of deed. 

@Derek W.  Any update after talking to the parties involved?

It's getting more interesting now. The note holder is a guy that is holding paper on another house I own. So it turns out I know him pretty well.  But attorney told me she forbids me from going around her and talking to him direct. Red flag red flag! You and Rick are correct that it's a pos property and not worth the time, but my curiosity and love of real estate detective work is having a hard time dropping it. I'm dying to contact loan holder, but don't want to cross attorney and make this a problem for me. 

Originally posted by @Rick Harmon:

A needs to rescind deed to B & C.  Delivery and acceptance was conditional. 

If he's got possession, that's a big plus. 

A can indemnify, if later required by title company for next transaction.

Worst case is QTA to perfect unwinding of deed. 

Rescission deeds require the notarized signatures of both the grantor and the grantees.  The divorce attorney is trying to use the grantee's deeded interest in the property to get paid.  What are the chances of the grantees agreeing to sign a rescission deed?

Update: seller called me today and wants to sell house for $5,000 if I'm willing to buy with knowledge of all problems and solve them myself. Ooh, it will be so fun to try to sort this all out, I'm tempted. Just wish there was some decent money on the other end...

I'm going to call the note holder tomorrow and see what his spin is. I'll post that response. 

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