Deed 'in lieu'

7 Replies

Hi folks!

 I have not posted in a long time, but have been very busy with both my real estate projects (I consider myself an entrepreneur more so than an investor) and my family and 'real' job. My real estate projects are all the under 35k properties that need some help.

But I digress....somewhere along the way I met and was in effect mentored by a former mortgage lender and would call and ask him a lot of questions and get an unbiased answer. Then I started getting leads on great deals from him and rapidly built my (very modest) holdings. Im thinking that I see an avenue to streamline the next deal and save both the seller (the note holder) and myself some cash. Here are the facts as I know them (actual dollar amounts to follow) 

The property was defaulted a few years ago and tenants moved out. Place got trashed in the process and then vandalized shortly thereafter (this was way before I knew the seller or I could have helped them to secure the place) But seller never followed through on the foreclosure.

Fast forward to this year when I meet the seller and find out she never completed foreclosure, then to my astonishment realize that the folks who owe her...are some of my current employees! They mentioned this to me when I was talking with them about upcoming projects, and I realized that they thought the foreclosure was a done deal. They went through a tough time in the recession and I dont think are too worried about their credit score with yet another foreclosure.

So the note holder is reluctant to put out the extra cash to foreclose (I had no idea it was so expensive ) and to go ahead with my purchase this needs to be done. I mentioned a deed in lieu to her (note holder) as I thought I might be able to approach these folks and have them sign...they think the place is already gone (for years now) so might like a few hundred bucks to spend for Christmas. 

Im meeting with them next week...just looking for advice on how to approach them for a deed in lieu.

My thoughts are to offer them 300....through a title company of course, and maybe be able to go up from there.

I should mention that this is in California, I know both parties, and am looking for practical advice. 

Thanks in advance!

Well, if the lender didn't foreclose it's not there house to sell, it belongs to your employee.

Next, the note may not be collectible a over 5 years old without current collection efforts, it's stale or dormant.

Why not just get the quit claim to you and buy the old note at a discount, the note holder can't sell the property but they can the note! :)

Ill have to look into that!

 I knew that since she didnt follow through with the foreclosure it wasnt in effect "hers to sell", but somehow it got bogged down in the foreclosure meltdown here in California and she (the note holder) just got overwhelmed. I should mention that she was just someone with private money whom a lender could call and she could finance deals.

I realize it is actually still the property of my employee, and just want to do right by both parties.

As an update, of sorts....I have talked with the lender (note holder) and she is willing to sell me the note at a discount....Now I just have to see about the quitclaim. My only concern (well, there are several ) is I realize that outstanding taxes have to be paid on a title transfer, and I am not sure of any other items on title (judgments etc against borrower) Got some homework to do! Any direction/suggestions most appreciated  . At this point i am planning to go through a title company.

Originally posted by @Bill Gulley :

Next, the note may not be collectible a over 5 years old without current collection efforts, it's stale or dormant.

 Bill can you tell me a little more about that. Is that federal law, local law, when does it apply etc.  I have a property the lender started to foreclose and then never finished. 

Originally posted by @Ned Carey :
Originally posted by @Bill Gulley:

Next, the note may not be collectible a over 5 years old without current collection efforts, it's stale or dormant.

 Bill can you tell me a little more about that. Is that federal law, local law, when does it apply etc.  I have a property the lender started to foreclose and then never finished. 

State statutes address dormant accounts and uncollectible accounts and loans, if a lender fails to make good faith attempts in collecting a debt the lender can be seen as abandoning the asset. The UCC covers these matters and types of debts are treated differently if a state has no specific provisions. 

Collection efforts with a borrower cease after a foreclosure, the lender has acted to secure the collateral, however under state law they cannot just let a foreclosure hang in limbo, they are to act in a timely manner. This will vary from lien states and title states, in a judicial FC the court sets time lines, in a non-judicial FC, the Trustee proceeds to the sale. Trustees can drop the ball.

If a Trustee doesn't get the required information from a lender they may not proceed and any FC can be taken to court. 

No lender is going to throw up their arms and declare they abandoned a mortgage and file a deed of release, they do not have to admit they messed up. It's generally up to the borrower's attorney to play this card having the debt dismissed or unenforceable as a secured debt. 

Detailed loan servicing requirements must show active attempts in collections, allowing efforts to go past 12 consecutive months can give good reason to declare that a lender abandoned the loan. A collection letter to the last known address of the borrower every few months can prevent such claims. Telephone attempts in collections are required to be recorded with notice of the recording by servicers and attempts documented in the loan files. 

I had a small stale second, originally 10K I believe, I just let it sit, I knew the borrowers and their circumstances and knew they wouldn't be going to court over the matter. They eventually sold the house, the title company called me for a payoff to release the lien, I collected. The borrower acknowledged the debt requesting the amounts owed by their agent. 

Debts may be reaffirmed if a borrower acknowledges the debt, other laws make sneaky attempts to have a borrower acknowledge a debt illegal. 

In your case, or other cases, I suggest you see a local attorney. :)     

UPDATE: After chatting with the title company they strongly suggested getting a 'deed in lieu' instead of a quitclaim as they were concerned about repercussions down the line.

I have since been able to do a more thorough inspection of the property with a friend that is a retired building inspector, and have noticed some odd things...

More on these later!

But as for the title, Im planning to offer my employee a dollar amount for the deed in lieu.

We shall see how that goes.

(as for the inspection stuff...Ill elaborate)