owner financing gone bad.

21 Replies

Hi,

Four years ago I bought a house that I got thru owner financing . I thought it was a good investment , until i recently tried to sell it this month. Found out that It was a wrap and unfortunatly I was not wise to them. I filed a claim against the Title Ins policy but was denied. When the transaction took place I had signed warranty deed that had a Wrap addendum. So the issue is I owe 18,000 on the house had it sold for 110,000 however the seller still owes 70,000 on this original mortgage. I dont know if I can sue for damages?

Has anyone gone thru this?

Thank you

JR

wraps aren't bad at all. I have used them a number of times. Sometimes its advantageous to use a wrap. I need more information in order to help. What is the sales price? Did you have it under contract to be sold at $110k. I understand that the first mortgage or the underlying mortgage is $70k, right? I don't understand where you owe $18k. I presume that you bought it for $88k. That is, 70k$ plus 18k$. Correct? 

512‑293‑0297 | http://www.vantageresidentialequity.com | TX Agent # 492927, CA Agent # 01972256

You need an attorney NOW, and yes you entitled to the house as per your purchase terms.  Sounds you've made extra payments, paying it off early, and the seller didn't make the same additional payments on the underlying mortgage.  The seller has Your money, you need to get it back, and applied to the underlying mortgage. 

I am assuming you stated the case properly, and you bought the property for $110k or so with a seller wrap, Not a Sub2.

@Jerrry Hopkins    Thanks for sharing.  Is the property in AZ?  So you made $22,000 on the sale of the property?

Jerry, your claim is to the seller that the underling mortgage is included in the 70K owed to them. See an attorney! It isn't a title issue, it could be a closing matter, but attorney needs to see your docs. Good luck :)

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

Thank you for your support, I originally purchased the home for 77,000 in 2011 put 19,000 down. So the owner financed 55,000 . Found out it was done in a wrap , and the seller still owes around 70,000. He originally bought it in 2008 for 88,000.

I agree with Bill G. it does not sound like a title issue. Get a good RE attorney and see if he can unwap it.

Just one question, when you sold it for 110K, are they getting a new mortgage- and if they are, can you get the trust title holder to release the property?

The house was in escrow for a sale price of 110,000 . when this all unraveled . So I can't sell the house.

Yes you are correct the issue is with the seller. Originally I thought since this wrap was not on the title ins,policy they were responsible. I am worried the seller defaults on the primary

loan and then I'm screwed

Interesting! Have you contacted the bank that the original loan is through? curious. If so did they speak to you? Sometimes they will only talk to the person on the note. In many notes there is an acceleration clause stating that if the house is sold then the original note is accelerated. Given that they haven't attempted to foreclose means that the seller has been paying the original note. It does sound like the seller was doing some fishy things, for sure. But before you contact an real estate attorney that will charge a bunch I would try a few things first to get possibly even more out of the transaction. Maybe the original bank will take a loss just to get out of a potential legal problems. Who knows? I have seen some really odd things occur. Document everything though so that you can show an a good attorney what has transpired though. He/She will appreciate it. The seller needs to take the haircut (loss) not you. That is for sure.  

512‑293‑0297 | http://www.vantageresidentialequity.com | TX Agent # 492927, CA Agent # 01972256

"When the transaction took place I had signed warranty deed that had a Wrap addendum."

Okay so you signed a document that officially disclosed the seller was wrapping. The seller the docs usually state the note is being created subject to the underlying mortgage.

Buyers have their "right to their own inquiry" so if you go in front of a judge this is going to be a hard sell that you did not know a wrap was occurring or the consequences of a future sale.

In a wrap if the senior lender was unaware then based on the note they might have a "due on sale" clause they can call on the seller who did the wrap and you can lose all your deposit money in that case if the liquidated value barely covers the senior note.

With a wrap you have it a requirement that the seller pay a note servicing company with the required escrows and then the note servicing company sends the money to the mortgage company and then the difference to the seller so you know the note is paid.

If the seller tried to refi out there should be a recorded deed at the courthouse clerk office for the wrap deed showing.

The seller can also have trouble sometimes with the insurance policy and them not renewing once they have found out they sold the property and are no longer on title for ownership.

Lot's of hurdles with wraps you have to watch out for. At this point you need to meet with a specific (real estate litigation attorney) and bring all your documents. In fact many times you will send these ahead of time by .pdf e-mail so that the attorney can go over key facts when you meet. Have questions ready and notes to take. Sometimes the attorneys will charge a few hundred and other times they will be generous and wait until you sign an engagement letter with them if they believe they can help you to charge and take a retainer.

Litigation is expensive for this small amount. Nobody on here is going to be able to help you with this and just one item can change the whole outcome of a suit. Even if you are 100% in the right when going to court there is an 80% chance of winning. Attorneys will tell you it depends on how a judge feels that day and how they interpret the evidence and the laws. Nothing is a guaranteed outcome.

No legal advice given.

Medium allworldrealtyJoel Owens, All World Realty | [email protected] | 678‑779‑2798 | http://www.AWcommercial.com | Podcast Guest on Show #47

Jerry, does the Seller know that you are planning to sell the property or otherwise pay off the loan?  With the help of an attorney, I would let them know that you intend to pay the balance of $18,000 and will need clear title.  If they cannot perform you may be in a tough situation.  The flip side is they may have $52k+ in an investment account earning a much higher return that the interest rate the bank was charging.  If that's the case then simply communicating your intent may resolve the issue.

Originally posted by @Christopher H. :

Jerry, does the Seller know that you are planning to sell the property or otherwise pay off the loan?  With the help of an attorney, I would let them know that you intend to pay the balance of $18,000 and will need clear title.  If they cannot perform you may be in a tough situation.  The flip side is they may have $52k+ in an investment account earning a much higher return that the interest rate the bank was charging.  If that's the case then simply communicating your intent may resolve the issue.

 Yes he does know, And was very panicked gave me some excuse that he went thru a divorce and the x wife got one of there investment houses that he was going to use to pay any  outstanding balances. So my guess is he financed the house 3 yrs earlier  on a 30 yr note and is paying the minimum with my money and pocketing the rest. That is the only way he could be so over what I owe him. 

As others have mentioned you will need an attorney unless you can work with the original seller and have him come up with a plan quick to pay off the remaining $52,000. In the future, I recommend pulling a letter report on any property you plan to purchase in a similar way in the future.

you need an attorney now!  You should have been aware that he owed More than he was financing to you for, when you bought it.  That would raised concerns then.

@Jerrry Hopkins  

@Bill Gulley  

  your totally fubared... forget the advice of get an attorney now.. of course you can. but if the circumstances are as you delinate.. IE you bought on a wrap and did not know the amount you were wrapping was far greater than what you were paying, and in addition never got paid off.. then your seller stole your money plain an simple.  In CA our All inclusive deeds of trust ( and title insurance would have protected you)

The only thing an attorney can do for you now is check to see if the Title company who closed this should have had a condition of the underlying mortgage before they did the deal.. but to the title company they may have simply thought the seller was carrying a 70k second.. Like I said not sure on other states but we addressed this early 80 in CA with the All inclusive Deed of Trust...

And bottom line if the people you bought it from have no money then what ? you can sue them spend thousands doing that get  worthless judgment you can never collect on and spend even more money.. Maybe you can take it to the DA and there might be some criminal aspect that would force these folks ( sellers to pay you over time.)  I have seen this show many times before.. and this is why all these sandwich leases wraps.. .sub too that all these folks talk about on BP are fraught with danger .. In the hands of armatures  its innocent folks like you that get hosed... Someone at the closing of this deal when you bought the property should have simply looked at the title guarantee and said  " Hey you know there is a 70k mortgage and they are taking back 55k so your going to owe 125k)

Medium ksqoekox 400x400Jay Hinrichs, TurnKey-Reviews.com | Podcast Guest on Show #222

Not sure what fubared is Jay, but the is no legal path to cure this without an attorney. H/she may take it to the DA, suit to the closing agent, then to the title company if it was an insured closing and to the seller. If there was collusion or errors or omissions or fraud it will take an attorney seek a remedy, the buyer can't do it alone. Heads could roll.

Yes, Sub-To can be dangerous when improperly originated, documented, closed, serviced and collected not to mention the underlying mortgage risks, I've pointed those aspects out many times. When done properly they can be very useful too, that is, when done properly! :)

  

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

Originally posted by @Bill G.:

Not sure what fubared is Jay, but the is no legal path to cure this without an attorney. H/she may take it to the DA, suit to the closing agent, then to the title company if it was an insured closing and to the seller. If there was collusion or errors or omissions or fraud it will take an attorney seek a remedy, the buyer can't do it alone. Heads could roll.

Yes, Sub-To can be dangerous when improperly originated, documented, closed, serviced and collected not to mention the underlying mortgage risks, I've pointed those aspects out many times. When done properly they can be very useful too, that is, when done properly! :)

  

Thank you for your responces Bill and Jay. It does sound like I'm screwed the best I could hope for is to payoff my loan which will be 18 months . The seller will still have to make payments on his loan I don't think he can file bankruptsy on this. I guess he could foreclose but I should be able to sell the house as long as I payoff his note in the sale which might be around 65,000 by then.  I should be able to sell it for around 120,000 by then so could walk away with 55,000 which is better then nothing?

In the military FUBAR is an acronym for F'ed Up Beyond All Recognition. I am curious as to the use of the term wrap in this case. It sounds like the wrap might be one where he wrapped two properties into one mortgage. I don't know that this affects how the deal plays out but I am curious nonetheless. As most have said on here, you really need to get an attorney involved at this point. You might also spend some time talking to the title company or another title company of your choosing. They are usually run by lawyers and sometimes they know more about this type of thing than any other lawyers out there due to the volume of transactions they look at. They can also just be money factories that are greedy and incompetent. I have seen both. Best of luck.

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