Recording Order

12 Replies

If I give money to a flipper to buy at trustee's sale, he wins bid, tells trustee to title in his LLC, I get note and deed of trust from his LLC same day, I record deed of trust, he gets trustee's deed let's say 15 days later, he marches down to the county recorder and records trustee's deed, will my deed of trust that was recorded 15 days earlier attach and become a lien, or do I have to wait until the trustee's deed is recorded before recording my deed of trust?

I just want to hear what you folks have to say, I don't consider it legal advice, and I will talk with professionals before acting.

No problem, since the mtg is attaching to the property, not the owner, and it is the owner giving the mtg even his recording hasn't occurred yet.

It will look a little odd in the chain of title but it will still attach as a lien. Like @Wayne Brooks  said...the mortgage attaches to the legal description, not the person in title.

I'm thinking if I record now it won't attach and become a lien until the trustee's deed is recorded. Because, the person (llc) that executed the DOT doesn't have any ownership interest in the property until trustee's deed is received and recorded. I think the DOT if recorded now will however become a lien if/when the trustee's deed is recorded, much like a recorded judgement or IRA debt becomes a lien when a debtor comes into ownership of real property.

My understanding:  CA Civil Codes says that if the trustee's deed is recorded within the proper time frame, the ownership begins the date of sale (not the date of recording). That suggests to me that the track back of a trustee's deed recording is what creates the lien.  So it's lien free without the trustee's deed, but you're covered from date of sale once the deed recorded (within the prescribed 15 days.....I think it's 15 days?).

Trustee's sale buying isn't my gig.  Perhaps @Brian Burke or Jeff S Na can comment.

@K. marie P.

Thanks for chiming in.  That's my understanding too wrt the trustee's deed track back if recorded within 15 days.  That was a bad choice of time frame on my part.  My question is really more broad than just a trustee sale. Better to assume it was beyond the the 15 days, or a non-trustee sale transaction.  I'm worried about protecting my money as best I can.  This is intended to be a loan, secured by a note and deed of trust, I'm trying to make that deed of trust a lien as soon as I can, the note is a good start and a legal document but unsecured.  I'm beginning to think the only way it will become a lien is AFTER the trustee's deed is recorded, or as you pointed out before in the case of a regular trustee sale if recorded within 15 days.

The LLC is going to get a new loan to pay me off soon after taking title. The new loan will be with a lenders title policy so I will get a much clearer read on this whole idea from the title officer at that time. I'm just trying to get a heads up on this forum.

Not really relevant but this was a HOA trustee sale with a statutory 90 day right of redemption, in California. The owner is willing to waive his ROR but the trustee attorney says no to waiver.

This was a very low end property and a relatively small amount of money.  I won't be crushed if things go a little haywire.  This is a test case so to speak.  And I trust the guy I gave the money to (too?).

Originally posted by @David C. :

@K. marie P.

Thanks for chiming in.  That's my understanding too wrt the trustee's deed track back if recorded within 15 days.  That was a bad choice of time frame on my part.  My question is really more broad than just a trustee sale. Better to assume it was beyond the the 15 days, or a non-trustee sale transaction.  I'm worried about protecting my money as best I can.  This is intended to be a loan, secured by a note and deed of trust, I'm trying to make that deed of trust a lien as soon as I can, the note is a good start and a legal document but unsecured.  I'm beginning to think the only way it will become a lien is AFTER the trustee's deed is recorded, or as you pointed out before in the case of a regular trustee sale if recorded within 15 days.

The LLC is going to get a new loan to pay me off soon after taking title. The new loan will be with a lenders title policy so I will get a much clearer read on this whole idea from the title officer at that time. I'm just trying to get a heads up on this forum.

Not really relevant but this was a HOA trustee sale with a statutory 90 day right of redemption, in California. The owner is willing to waive his ROR but the trustee attorney says no to waiver.

This was a very low end property and a relatively small amount of money.  I won't be crushed if things go a little haywire.  This is a test case so to speak.  And I trust the guy I gave the money to (too?).

So if we take the trustee's sale or HOA foreclosure out of it, the question is: is a lien created if recording a DOT before the deeded interest is recorded? I'm thinking a title company would look at the DOT as illusory. That being said, the promissory note has power even if it's not secured by a DOT. But you might be looking at a judicial foreclosure in order to foreclose.

Totally guessing here.  Please let us know what you find out when the borrower refis.

@K. marie P.

"So if we take the trustee's sale or HOA foreclosure out of it, the question is: is a lien created if recording a DOT before the deeded interest is recorded?"

Yes, that is the question.

I would guess there is no lien prior to deeded interest being recorded, but maybe there is a lien after deeded interest is recorded, DOT having been recorded prior. My logic is based on the fact that a recorded IRS lien or judgment will become a lien when a deeded interest comes into being even if IRS lien or judgment was recorded prior.

We'll see, I'll post back after refi.

Originally posted by @David C. :

@K. marie P.

"So if we take the trustee's sale or HOA foreclosure out of it, the question is: is a lien created if recording a DOT before the deeded interest is recorded?"

Yes, that is the question.

I would guess there is no lien prior to deeded interest being recorded, but maybe there is a lien after deeded interest is recorded, DOT having been recorded prior. My logic is based on the fact that a recorded IRS lien or judgment will become a lien when a deeded interest comes into being even if IRS lien or judgment was recorded prior.

We'll see, I'll post back after refi.

I wouldn't use the IRS lien rules to support your idea of lien creation.  The IRS is supported by special laws and rules exempt from state law.

@David C. I've got to agree with K.marie P..  First I should say that I'm not an attorney, and secondly that I have no first-hand experience with any case law directly on point.  There are probably some attorneys on BP that could cite some cases, but I can't.

Removing the trustee's sale from the scenario, I don't see a previously recorded deed of trust attaching to a property in the future. Remember that a Deed of Trust, in the most basic terms, is a DEED. By executing the DOT you are granting an interest in your property to another (albeit in the case of a DOT you are granting in trust with power of sale, not fee title). If you have no interest in the property, you have granted nothing.

As a basic example, let's say that today I deed you my neighbor's house.  I don't own my neighbor's house so I've granted you nothing.  Next week, I buy my neighbor's house.  Do you now own my neighbor's house?  I think not.

I've also heard of cases where lenders have screwed up where there were two owners to a property and the deed of trust was erroneously constructed and executed by only one owner.  Upon foreclosure, the lender owned a half interest in the property because each owner owned half as a joint tenants and one owner couldn't grant the interest of the other joint tenant.

Adding the trustee's sale back into the scenario, your question gets more interesting because, as has been correctly stated above, title is deemed perfected as of 8AM on the date of the sale as a matter of law (2924 of the civil code) if the trustee's deed is recorded within 15 calendar days of the sale. So, if a DOT is executed and recorded during that 15 day window the borrower technically had legal title when the DOT was executed and recorded. I don't know how the courts would treat this. I recently won a court case where the former owner was trying to say that he had a valid cloud on my title because he recorded a lis pendens after the sale but before the trustee's deed was recorded. The court ruled that his lis pendens was junior to my deed because of the relation back under 2924.

However, you mention that this is an HOA lien foreclosure. I haven't bought one of those since they changed the laws requiring a 90 day right of redemption. Does a deed even get recorded until the 91st day? If not then the 15 day test couldn't be met. If yes, then I still think the DOT is defective because the DOT is junior to the right of redemption.

The only way to ensure that you are in first position is to obtain a lender's policy of title insurance. I get it, though, that it's not always practical in the world of private lending on recently foreclosed property. I do the same thing you are doing all the time. I buy today, borrow tomorrow, and record the DOT along with the trustee's deed when it arrives later. It takes a long time of working with a lender to get them comfortable with that because it totally relies on the trustworthiness of the borrower.

Medium praxis capital logo cmyk stacked 900pxBrian Burke, Praxis Capital, Inc. | [email protected] | http://www.PraxCap.com | Podcast Guest on Show #152

@Brian Burke

Yes, I see, a DOT is a granting of interest, which is impossible to do if one has no interest. A IRS lien or abstract of judgment is not against a specific property and is not a deed. Makes sense.

It's starting to be pretty clear the DOT needs to be recorded after the transfer deed is recorded. Now I'm wondering if the DOT needs to be dated and notarized after the transfer deed is recorded as well. I have a note and DOT dated the day of sale. What do you do? I suppose I could wait to get the DOT but I don't want to wait to get the note.

One for the good guys that the lis pendens was ruled junior! I'm aware of the relation back under 2924. Does the trustee's deed always get to you within 15 days? My partner the other day was trying to convince me that pushing out the recording of the trustee's deed beyond the 15 days even though you have it in hand was a good thing because certain fees don't start until recordation, it was HOA dues, or Indian land lease fees or something like that. Now I can counter that argument. Although, it would be nice to save some money, I'm sure your lis pendens case doesn't happen very often ... I'll have to think about it.

On our HOA foreclosure it's been two weeks, no deed yet, I'm assuming we'll get the deed after the ROR time runs. We did get change right away. We're probably going to miss the 15 day relation back opportunity. The foreclosed owner is willing to waive the ROR because there is some overage that he will receive but the foreclosing trustee won't do it. Seems to me that if two parties agree to waive a waiting period the law shouldn't stand in the way ... whatever.

Yes, trustworthiness of the borrower is paramount.  I keep trying to figure a way to plug all the holes so I don't have to trust, I can get pretty close but not 100%.  My idea is to use my money to buy at trustee sale, create a note and deed of trust with a lenders title policy after getting a trustee's deed, then sell the note to a trust deed investor.  That way I always have money for another deal.  Sounds like that is what you are doing.

Thanks for responding Brian, I really appreciate it.

@David C. , this isn't legal advice (still!) but the DOT being signed and dated prior to the deed recording is an everyday occurrence. Think of any conventional transaction where all of the docs are signed a day or two before closing. I do agree that the DOT does need to record after the deed, however, even if it's the very next document in sequence one second later.

You don't always get the deed within 15 days but I hound the trustee for it around day 10.  If I had the deed before 15 days no possible "expense savings" would cause me to hold it beyond the 15 day period. What if the borrower filed bankruptcy a week after the sale?  If you didn't record your deed within the 15 days you now have to deal with the BK to fight for clean title that resulted solely by your own negligence.  Not fun!

The HOA won't cooperate in your ROR waiver because it's statutory. Perhaps you could pay the owner some consideration to enter into a contract that they won't exercise their right...check with an attorney. But that won't get you title any sooner so what's the point?

As for me, I don't create a note and sell it, I just borrow against the property right after the purchase and record the DOT after the deed. I have a long and successful history with my lenders, so I wouldn't consider what I'm doing to be a normal thing for most people.

Medium praxis capital logo cmyk stacked 900pxBrian Burke, Praxis Capital, Inc. | [email protected] | http://www.PraxCap.com | Podcast Guest on Show #152

@Brian Burke

Nothing is taken as legal advice.

Yes, everything is dated prior to recording, usually. But I doubt the DOT is dated before the transfer deed. Not a big deal. I can iron that out with escrow and title.

Point taken on the waiting beyond 15 days.

I've been doing hard money lending for a while now, on a small scale.  When I say sell the note to a trust deed investor I mean I get the money from one of my usual sources (lenders).  I'm sure what I have in mind is different than what you do.

I pretty much know what I want to do.  I've already spoken with my regular escrow about how to proceed.  I was just trying to work through what was already discussed here.  I don't do things without tons of thought, too much lots of the time.

Thanks again.