who would I foreclose on?

29 Replies

This house has been empty for four years.  Well upside down on the mortages.  It took me a long time to find the owner - and actually I am still one step away:  presently talking with the previous owner - the aunt of the present owner.

The ower of record  (name on the deed)  declared bankrupcy and that was recently concluded.  The house / mortgage in question was included.  The owner is reluctant to get involved as she thinks that she will some how 'get financially involved' and then owe some money.  

So a short-sale is likely impossible - without her cooperation I mean.  

Maybe I could buy the loan at a discount from the bank which holds it?  Conveniently;  my bank.  Although I don't know if that make a difference.

I think I can get her to quit-claim the property to me.  But would that elimnate the possibility of a bank short sale?  I would be the OOR while the previous owner would be the name on the mortgage note.  How would that work? <g>

 But if buy the mortgage directly from the bank - then I would only need her to quit claim the deed - in lieu of me foreclosing on her?

I'm confused.  How would all you Smart Guys handle this one? <g>

stephen

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Buying that specific loan is of course a long shot, but.....as it is now you'd have to foreclose on the original owner/mortgagee and the current owner since they have an interest in the property, and of course any other lien holders, HOA, etc.. Without any other liens, a DIL from both would work. Usually in a short sale the lender will require the title to be back in the original mortgagee's name.

I think going to the bank to buy the mortgage and then foreclose will probably be more trouble than it's worth. If you're willing to catch up the loan, maybe a subject to would work. If there isn't any equity, I would walk.

You would have to know if the OOR's debt during the bankruptcy would stay with them or the house and how it was settled during the bankruptcy itself, who actually owed the debt. Title work would probably bring all the debt etc to light for you but would be an expense before knowing if you can buy it at all. The best way I see here would be to offer the OOR an incentive to let you help her sell it to you. Let her know that you MAY pay it off and relieve her worries, put money in her pocket, and she can walk away. If I am reading correctly above the OOR is the one who is financially involved in the first place or is it the niece/nephew? 

 Does the aunts name appear on the deed but the debt/mortgage is owed by the niece/nephew who filed bankruptcy? Sorry the story line is a little confusing but if I am reading it right this is the situation? It sounds like a family affair that went bad and the aunt doesn't want to talk about it b/c she feels uncomfortable with the situation in the first place. She may just be trying to put it aside and not talk/deal with it b/c of the stress but at the same time wants relief and out of the situation.

If you could get everyone involved to cooperate then you could probably solve this equation with their help. Its difficult to say exactly what might work until you know more about the debt and status. The OOR may have an attorney handling this and she may be foreclosing on the property herself? 

I would go talk to someone at the bank about buying the property and see what info you can get. If they dont want to give info tell them its public record anyway but they could save you some trouble b/c you want to buy it and may be able to catch up the debt? 

Pretty tough call really b/c of the loops involved. I would have to lean toward @Andrew Syrios  answer here also but I would keep an eye on the status of the property b/c it may go into an different status to where you could buy it. I would definitely keep following up with the people involved and keep offering to help to see if they will be willing to do anything else. Maybe you could have your attorney explain to the aunt she wouldnt have any financial obligation b/c you have agreed to pay the expenses if you buy it.  

If you can get the bank to sell you the note at a price you can live with, buy it.  And then get a deed in lieu from the borrower/owner.  You'll have to do a title report and see what else might be in the owner's name against title since the BK filing (judgements, etc.).  If it's ugly, you might have to foreclose to get clean title.  

Without the cooperation of the seller, you can't do a short sale.  There is nothing in it for her, so she has no reason to cooperate on that.

If it the mortgage is upside down, there's no point in taking it over sub2.  You need to find a way to satisfy the lien for less than owed.  

Can't give you legal advice in Florida.  (Have to say that because they watch other attorneys)  As a Florida investor and buyer of notes, I will tell you that you need to run a title search on the property to discovery what liens exist.  You'll have to make sure all those liens are resolved, particularly the mortgages.  Florida does have an anti-Equity skimming statute - be careful if you take ANY property there and not pay the underlying mortgage as it is a felony.  (Guess who got that piece of legislation passed - the banks).  In most cases the bank can't sell you the mortgage because its been sold off to a mortgage-backed security and they may not have actual control of it.  Its probably the hardest thing to do and I've tried many.  It works ok with commercial property, but residential is another story.  Run that title search - and start there and see if its worth it.  If you can't buy the mortgage notes cheap cheap cheap, its not worth it.

Run a title search. If you can even get the loan and there are seconds or subordinate liens get the DIL in the name of another LLC and and then FC on that to clear the seconds.

@Bob E.  

HUH?

If a DIL is given, the debt is extinguished, there is no longer a security to foreclose on.  You're now just the title holder with junior liens.  I'm also pretty sure the DIL has to be given to the party holding the note, not a third party.  What's the purpose of these machinations anyway, as opposed to just foreclosing, if there are junior liens?

@Wayne Brooks The debt is not extinguished if the DIL is not recorded. Just take the DIL in another LLC, don't file the DIL, so the debt is not extinguished. Then FC on yourself, wipe out the junior liens and go on your way.

Actually, I don't think the debt is extinguished until the Release of Mortgage is filed and you probably would have to record the new owner so you could file FC on the new owner, you.

I deal with people that do this on a regular basis so I know it can be done, I just haven't had the chance to do one myself yet.  I did sign two Release of Mortgage documents today and sent them to my lawyer so I am pretty sure that will play a key part in this.

Originally posted by @Bob Estler:

@Wayne Brooks The debt is not extinguished if the DIL is not recorded. Just take the DIL in another LLC, don't file the DIL, so the debt is not extinguished. Then FC on yourself, wipe out the junior liens and go on your way.

I still don't get it.  What's the point of getting the DIL if you're going to foreclose to extinguish jr. liens?  I'm missing something.

So let me understand this.  When you take the DIL, the debt(note) is extinguished, but you don't record the satisfaction of mortgage.  So then you foreclose, by way of the mortgage, for a note that has been satisfied.  Yeh, that makes sense.  All the while you've done all these gymnastics with taking the DIL in a third party name, so you can foreclose on yourself and junior lien holders, on a note that's been satisfied.  Sounds like Guru double speak BS to me.

Equity?  I said originally that the property is well underwater.  At least double the loan amount versus the retail value.  There isn't any equity.  If I walked away from every property that had no equity I sure wouldn't buy very many. <g>  And "catching up the loan" would have ME underwater to the tune of maybe 200%.  I'm not in this business to arrange that for myself. <g>

stephen
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 rOriginally posted by @Andrew Syrios:

I think going to the bank to buy the mortgage and then foreclose will probably be more trouble than it's worth. If you're willing to catch up the loan, maybe a subject to would work. If there isn't any equity, I would walk.



i already have the title search - the single mortgage I mentioned buying is all the lien there is.  

The aunt inherited the property in 1982.  The aunt sold it outright to her niece in 2002.  The aunt has no visible legal or financial interest in the property.  The niece continued to borrow the equity of of the property until 2007 - which when she got to mortgage which survives now.,

My bank provided the final mortgage and still owns the debt/mortgage/note.

Now that the niece's bankruptcy is concluded - the road to the bank foreclosing on the property would seem inevitable.  But at that point I am in a bidding war with the likes of you all - and that's not an interest of mine. <g>

stephen
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   Originally posted by @Jared Kemper:

You would have to know if the OOR's debt during the bankruptcy would stay with them or the house and how it was settled during the bankruptcy itself, who actually owed the debt. Title work would probably bring all the debt etc to light for you but would be an expense before knowing if you can buy it at all. The best way I see here would be to offer the OOR an incentive to let you help her sell it to you. Let her know that you MAY pay it off and relieve her worries, put money in her pocket, and she can walk away. If I am reading correctly above the OOR is the one who is financially involved in the first place or is it the niece/nephew? 

 Does the aunts name appear on the deed but the debt/mortgage is owed by the niece/nephew who filed bankruptcy? Sorry the story line is a little confusing but if I am reading it right this is the situation? It sounds like a family affair that went bad and the aunt doesn't want to talk about it b/c she feels uncomfortable with the situation in the first place. She may just be trying to put it aside and not talk/deal with it b/c of the stress but at the same time wants relief and out of the situation.

If you could get everyone involved to cooperate then you could probably solve this equation with their help. Its difficult to say exactly what might work until you know more about the debt and status. The OOR may have an attorney handling this and she may be foreclosing on the property herself? 

I would go talk to someone at the bank about buying the property and see what info you can get. If they dont want to give info tell them its public record anyway but they could save you some trouble b/c you want to buy it and may be able to catch up the debt? 

Pretty tough call really b/c of the loops involved. I would have to lean toward @Andrew Syrios  answer here also but I would keep an eye on the status of the property b/c it may go into an different status to where you could buy it. I would definitely keep following up with the people involved and keep offering to help to see if they will be willing to do anything else. Maybe you could have your attorney explain to the aunt she wouldnt have any financial obligation b/c you have agreed to pay the expenses if you buy it.  

Originally posted by @Bob Estler:

Actually, I don't think the debt is extinguished until the Release of Mortgage is filed and you probably would have to record the new owner so you could file FC on the new owner, you.

I deal with people that do this on a regular basis so I know it can be done, I just haven't had the chance to do one myself yet.  I did sign two Release of Mortgage documents today and sent them to my lawyer so I am pretty sure that will play a key part in this.

Bob - There is a technique I am aware of where one owns the first lien note but takes a DIL from the borrower (which leaves the liens in place).  In this situation, you deed the property to an entity which you own and foreclose on the first lien note to wipe out the juniors.  It would be used in a long FCL state as a way have possession of the property through the FCL process.  Is that what you are thinking of?

@Stephen S. -  If the owners bankruptcy was chapter 7 they no longer have a personal obligation to repay the loan, and the bank has no recourse against the owner.  The owner could check with their BK attorney to verify this.   The loan is still a valid lien against the property however, and the bank can still foreclose.  Because the owner currently has nothing to gain by helping with a short sale, you might offer some cash for helping you complete one successfully.  And I think @Divina Westerfield is correct.  You need to get a title search ($75 online) to find out about any junior liens.  If there are junior liens of any significance which are not currently held by the bank which holds the first lien, its probably a no-go.  You will also likely need the help of a good RE agent to get the short sale submitted to the bank.  Its a long shot at best IMO.

Originally posted by @Wayne Brooks:

Perhaps I'm dense, but does a DIL not satisfy the debt, the note. Wouldn't you then be foreclosing on a satisfied note, perhaps fraudulently?

@Dion DePaoli  What say you?

Deed in Lieu will satisfy the debt if the bank agrees accept the deed as full consideration for the loan, and that is general practice, but it only applies to that specific loan.  It would not satisfy junior liens.  So for example, if I am holding a first note and you are holding a second note on the same property, and the borrower conveys title to me via DIL, the first lien is satisfied but now I hold deed subject to your note which is now in first position.   

Exactly.  You hold the deed, and no outstanding note to foreclose on.  So how do you foreclose?  Foreclose for what?  You don't own the second mortgage.

@Wayne Brooks  buzzed.

A borrower can give a DIL and a Mortgagee can take the DIL with junior interests and not require an immediate satisfaction of the mortgage.  In that case, DIL serves to release the Borrower from liability.  

It is not as simple as taking title to the property in a separate name nor is that allowed in all states but that is the idea.  Take one set of interest, those of the Borrower and hold them separate from those of the Mortgagee.  Preserving the Mortgage which is what holds the right to foreclose.  The risk in all of that is merger of those interests.  Where the Mortgagee merges their interests with those [other] interests held by the Borrower creating a single fee interest.  The Mortgagee becomes the property owner and loose rights granted through the mortgage, aka, foreclose.  As such, there are details to ensure the interests do not merge that need to be attended to. 

 In regards to the OP, the disposition is not clear as some details are missing related to the BK.  If the BK was done properly, the Borrower has nothing to fear by doing a DIL.  If you can convince her of that, you may perhaps have a bargaining chip with the bank.  It could help them clean title up faster and it could make you the first potential buyer they talk to.  Not sure that get's you any 'leg up' but it gets you a swing at bat. 

Originally posted by @K. Marie Poe:
Originally posted by @Bob Estler:

@Wayne Brooks The debt is not extinguished if the DIL is not recorded. Just take the DIL in another LLC, don't file the DIL, so the debt is not extinguished. Then FC on yourself, wipe out the junior liens and go on your way.

I still don't get it.  What's the point of getting the DIL if you're going to foreclose to extinguish jr. liens?  I'm missing something.

Actually, Bob is correct. Taking a DIL in the name if another entity is the best practice. Here's why:

You are trying to acquire the asset which is held as collateral. Getting a deed in lieu is an effective estoppel against owner claiming any interest. Acquiring the DIL in another entity name preserves your ability to foreclose on the collateral in the event that you later discover that you need to perfect title via foreclosure. Were you not to, you might be prevented due to the merger of interests created by a deed in lieu given to lender/assignee as vested in beneficial interest in security instrument. 

Thus, with a little planning, you've provided yourself an option to use foreclosure should it be necessary. It's just smart practice. Estler's advice is correct.

In this case, the DIL is not releasing any measurable equity belonging to the owner, however it may also solve some noticing issues later, too. 

I'll be damned. You learn something every day. I stand corrected.  Thanks guys.  My apologies to Bob.  When you think you've got a grasp on things, there's always something new to learn.

@Stephen S.  Thanks for the clarification on the story, should help all understand better. Hopefully you will get it all sorted out and find out the best way to buy it. Interesting story/discussion as well and I look forward to reading future suggestions of resolution.

Best of luck

Originally posted by @Rick Harmon:

You are trying to acquire the asset which is held as collateral. Getting a deed in lieu is an effective estoppel against owner claiming any interest. Acquiring the DIL in another entity name preserves your ability to foreclose on the collateral in the event that you later discover that you need to perfect title via foreclosure. Were you not to, you might be prevented due to the merger of interests created by a deed in lieu given to lender/assignee as vested in beneficial interest in security instrument. 

Good discussion, I'm learning a lot!  I'm still trying to wrap my head around getting a DIL in a different name/entity than the note holder.  Apparently it is legal and done all the time as evidenced by this thread but it just seems weird to me.  I need to think about it more...

Here is how I see it, correct me if I'm wrong.  The ultimate goal is to get clear title. After buying the 1st lien note you can either foreclose to wipe out junior liens or do this DIL strategy.  The advantage of the DIL strategy is it speeds up and allows you to control the foreclosure process since you are foreclosing on yourself.  But either way you will foreclose.  I'm confused when you say Acquiring the DIL in another entity name preserves your ability to foreclose on the collateral in the event that you later discover that you need to perfect title via foreclosure.  Why would you get the DIL and not foreclose?

@Bryce Y.  If there were no secondary liens there would be no need to FC.  You can just file the paperwork and you are good to go, I have a note in lansing MI that should go this route next week, knock wood.  

The reason you would want to do a FC would be if there was a 2nd or some other junior lien that could be eliminated in FC.  Sometimes once you start FC you can contact the holder of the second and offer them a small buyout for their interest.  They know they will get wiped out so you are in a good position for negotiation and paying a small amount to them can speed up the process and eliminate the time and expense of actually having to complete the FC.

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