Burned on foreclosure purchase
Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes
Burned on foreclosure purchase
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@Account Closed Here's one:
I once bought a property from auction where there were several unrecorded violations against it. Believe it or not, they were from the previous owner raising dogs in the house, and selling them all over the city. There were something like 15 fines which added up to over $28K, and the majority of these fines had absolutely NO relation to the property itself, and only to the previous owner who had been foreclosed upon. Since the City could not collect from this delinquent, the city decided to attach them to the property. However, they weren't recorded as liens on the property AND were not registered as violations through the normal code enforcement channel since they weren't enforceable against the property - they were from the Animal Services department. This for a new one for us!
These fines were not discovered until the day before us selling the property by our buyer's attorney, who ran a municipal search using the previous owner's name in addition to the property's address. Even though only 3 or so of the fines actually occurred at the property and the other 12 elsewhere, the City didn't care and wanted all of the fines paid even though the previous owner got most of the fines at other addresses.
Long story short, this delayed closing by a few months, $1000's in legal fees, and we only got the fines down to $11K. However, since she felt sorry for us, we now have a direct line into the lady at the department who can check any and all outstanding violations against properties. Moral of story, do as much research on any property prior to purchase as you can, especially municipal violations , or instruct your Title Co/attorney to do same. Had our buyer's attorney not discovered these, the property would have sold with all the fines attached since they did not affect title.
77 Replies
- Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes10y
Remember, as my kids tell me, "sharing is caring".
I purchased a home on the courthouse steps with the intentions of refinancing. Well the Trustee that foreclosed on the home did it incorrectly so I would either have to rescind my purchase (lose all my money invested) or wait 4 years for title to clear. I chose to wait it out and hold it as a rental. Buying on the courthouse steps is not for everyone especially for those with limited budgets.
- Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes10y
4 years? Was the problem a lien holder or mortgagee was not notified? Seem like a short time to wait for the problem to go away.
- Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes10y
I was at the county courthouse today, in the law library. They had an excellent law book on real estate finance. It covered all of these topics in great detail. Just about anything to do with foreclosures. So a great tip is to checkout your county courthouse library and read up.
This is what underwriting sent me:
I think that the foreclosure was probably defective. They cannot just correct the documents if they gave notice of the foreclosure incorrectly. I only saw the Substitute Trustee Deed and the Removal of Trustee – both of these documents reference a correction affidavit recording data instead of the deed of trust recording data. This is a fatal procedural defect in a foreclosure if the notice of the sale also contained the same error, which I assume that it did.
The Schedule C items need to be revised to require evidence that the notice of foreclosure given to the borrower and posted at the courthouse prior to foreclosure referenced the correct recording data for the deed of trust. If it did, then we can let the trustee for the lender correct the Trustee Deed and Removal of Trustee to correct the recording data for the deed of trust foreclosed upon.
But if evidence to corroborate the correct data was used in the notice is not provided, then a re-foreclosure would need to occur before this can be insured.
Also, there does need to be a Substitute Trustee’s Affidavit that the borrowers were alive at the time of foreclosure and not in active military service.
My summation - I'm screwed for 4 years.
- Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes10y
So it sounds like you did not find out about the issue until you went to either sell, or mortgage the property. Yikes. That must have been a scary time. I am still surprised on the short amount of time needed to extinguished the lien.
- Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes10y
Originally posted by @Account Closed:
I was wondering if there is any investors who would be willing to share a horror story on a foreclosure they bought only to find they got more than they bargained for.
To get the ball rolling he is one of mine.
The story is about an unrecorded lien/ About 5 years ago in Susquehanna county, I was at a courtstep sale and there were about 10 bidders. The first of the 2 house started at $12,100. I thought it would sell for around 20k. Turns out I got it at the starting bid and was the only bidder. I was shocked. A couple of months later I found out why. It has a 13k sewer bill on the house which I had not seen at the prothonotary office. The bill had gone back to 1997 and was never recorded. I went to the sewer authority monthly meeting and ask for a reduction. They felt sorry for me and dropped it down to something like 7k. Now I always call the sewer and water companies.
"Prothonotary" - had to look that one up!
Thanx for the word-of-the-day!
David J Dachtera
"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."
- DJ Benedict @Account Closed Here's one:
I once bought a property from auction where there were several unrecorded violations against it. Believe it or not, they were from the previous owner raising dogs in the house, and selling them all over the city. There were something like 15 fines which added up to over $28K, and the majority of these fines had absolutely NO relation to the property itself, and only to the previous owner who had been foreclosed upon. Since the City could not collect from this delinquent, the city decided to attach them to the property. However, they weren't recorded as liens on the property AND were not registered as violations through the normal code enforcement channel since they weren't enforceable against the property - they were from the Animal Services department. This for a new one for us!
These fines were not discovered until the day before us selling the property by our buyer's attorney, who ran a municipal search using the previous owner's name in addition to the property's address. Even though only 3 or so of the fines actually occurred at the property and the other 12 elsewhere, the City didn't care and wanted all of the fines paid even though the previous owner got most of the fines at other addresses.
Long story short, this delayed closing by a few months, $1000's in legal fees, and we only got the fines down to $11K. However, since she felt sorry for us, we now have a direct line into the lady at the department who can check any and all outstanding violations against properties. Moral of story, do as much research on any property prior to purchase as you can, especially municipal violations , or instruct your Title Co/attorney to do same. Had our buyer's attorney not discovered these, the property would have sold with all the fines attached since they did not affect title.
- Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes10y
That's a great story, and scary Really illustrates why you should call code prior to sale Not only to see if there's any outstanding issues but to see if permits have been pulled under the current owners name This would be able to flush out any mechanics liens that may not have been listed yet with the courthouse
So I'm assuming you got this on the court steps
Originally posted by @Account Closed:
I was at the county courthouse today, in the law library. They had an excellent law book on real estate finance. It covered all of these topics in great detail. Just about anything to do with foreclosures. So a great tip is to checkout your county courthouse library and read up.
Can you share the title? Would love to understand more..
- Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes10y
I wont be back there for at least a week or so, but I bet you could finds it equivalent at your local county court law library, if they have one. It was basically book on practicing law, as opposed to something like the consolidated laws which can be harder to understand.
Next time I am in the area I will get the title and update, but remember this was specific to Pa.
- Professional · Carmichael, CA · Member since 2015 · 13 posts · 5 votes10y
I bought a house in W.Sacramento for a flip, and when trying to sell it few month later a sewer assessment in amount of $11,000 came up. City would not budge on it, had to pay for it.
Unpleasant, but it's cost of doing this business.
- Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes10y
Originally posted by @Chad U.:
@Account Closed Here's one:
I once bought a property from auction where there were several unrecorded violations against it. Believe it or not, they were from the previous owner raising dogs in the house, and selling them all over the city. There were something like 15 fines which added up to over $28K, and the majority of these fines had absolutely NO relation to the property itself, and only to the previous owner who had been foreclosed upon. Since the City could not collect from this delinquent, the city decided to attach them to the property. However, they weren't recorded as liens on the property AND were not registered as violations through the normal code enforcement channel since they weren't enforceable against the property - they were from the Animal Services department. This for a new one for us!
These fines were not discovered until the day before us selling the property by our buyer's attorney, who ran a municipal search using the previous owner's name in addition to the property's address. Even though only 3 or so of the fines actually occurred at the property and the other 12 elsewhere, the City didn't care and wanted all of the fines paid even though the previous owner got most of the fines at other addresses.
Long story short, this delayed closing by a few months, $1000's in legal fees, and we only got the fines down to $11K. However, since she felt sorry for us, we now have a direct line into the lady at the department who can check any and all outstanding violations against properties. Moral of story, do as much research on any property prior to purchase as you can, especially municipal violations , or instruct your Title Co/attorney to do same. Had our buyer's attorney not discovered these, the property would have sold with all the fines attached since they did not affect title.
That sounds so wrong, legally. If the fines are against the owner, wouldn't they have to first get a judgment, before they can tie them to the property?
Another thing - I wonder, if you could have negotiated those liens before buying (if you had known about them), bought them from the county and then tried to claim any excess from the auction? Or if there was excess, could you have then filed to have that used to pay off those liens?
- Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes10y
@Account Closed
But did you really get burnt? You thought the bidding would go to 20K and you bought it for 12.1K. The sewer liens went down to 7k. So, looks as if you ended up paying less than expected ;-)
- Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes10y
You wrote
That sounds so wrong, legally. If the fines are against the owner, wouldn't they have to first get a judgment, before they can tie them to the property?
That is absolutely my understanding too, unless you are talking about property taxes for municipal related items. Even when the arrears are not in the form a lien, the go with the property.
Well I will give you the real numbers. So I got the house for 13k, plus something like 7k in sewer. Sided the house and put on a metal roof. New kitchen. Put in a second full bath, where someone had started converting the garage into a 4th bedroom. Redid the first full bath. Put in a new concrete driveway and walk way. Put in a partial french drain. Redid the floors and walls. Had about 25k in rehab costs. It sold for 130k. So I made close to 60k. Yeah, I can live with those numbers all day, but was a lot of work too. I did about 70% of the work less the siding and roof. Had an employee do them by themselves.
- Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes10y
Not 130k, rather 113k for a sale price.
- Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes10y
Yes after I ended up paying the sewer bill, I felt I would have paid 20k anyway.
- Buffalo, NY · Member since 2015 · 252 posts · 109 votes10y
@Account Closed, this type of thing is only possible when purchasing foreclosures at the courthouse steps right? I've viewed 2 properties so far this year and both times I've begun by asking if there were any outstanding leins, taxes owed, city fines, anything extra, and the realtor told me this does not happen with the foreclosures I'm going to see. Said I will own the property "free and clear" and that leins are most common buying sigh-unseen...
- Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes10y
When you are talking about a post foreclosed property AKA a bank owned property, you generally are getting the property with a free and clear title. I say generally because houses that go through a foreclosure have a higher probability of having a title issue. This is due to people on the legal side not doing their job correctly. The good thing about REOs is your purchase agreement will have a contingency that the title will be free and clear. When you purchase the property your attorney will look over the title and determine if in fact the title is clear. If it is not, either the bank will clear up the issue, or you can walk. So little worries.
I am assuming your talking about an REO as opposed to a pre-foreclosure house, because you are having this conversation with a realtor.
When it come down to profit margins as it pertains to acquisition types such as a short sale, courthouse foreclosure, REO and the rest, I believe the best deals are had on the court steps.
Just make sure when you are having a conversation with someone about a foreclosure that you get clarity on whether the property is about to be foreclosed on, or it has been foreclosed on, and the bank has taken ownership of the property. Folks often call REOs "foreclosures" and buying them is very different than going to the courthouse and buying at a foreclosure sale.
- Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes10y
Are you saying that you are buying a house sight unseen?
- Buffalo, NY · Member since 2015 · 252 posts · 109 votes10y
Oh no, I'm definitely not buying the house unseen. My realtor was just saying that houses which are bought sight unseen or at the courthouse steps are most likely to have liens/back taxes owed/fines for property violations.
I am indeed looking at REOs only at this point which have gone through pre-foreclosure auction and didn't sell so they're fully bank-owned now and put on the market. I just always like to check that I'll be getting the property free and clear because I previously remember reading on BP here about someone buying a house at foreclosure auction and ended up only paying off some guy's inground pool!
Thank you for clarifying. The houses you're bidding on are pre-foreclosures at the courthouse which might have lien issues, whereas I am looking at REOs only at the moment which is different.
- Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes10y
I see. Yes mechanics liens can be very tricky. In some jurisdictions the lien date actually goes back to when the contractor started the project. It is possible that a lien search would no expose the issue because the contractor has not gotten the judgment against the home owner yet. I have read where some investors will contact the county to see if any building permits have been pulled and if so, run down those individuals to determine if the bills have been satisfied.
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Account Closed many gotcha's only happen once of course.. but when they happen its a bummer.
In our state all those utl bills and code violations are wiped out so we don't deal with those.
But what we have is Senior tax deferral.. once an Oregonian home owner reaches 65 YO and Is on fixed income they can petition to defer their property tax's on the owner occ.
and then when the property is sold this deferral is paid... helps those on fixed income stay in their homes.. Not many know of this tax treatment.
But there I am bidding on a house in one of the prime areas of Inner PDX.. 500 to 1 mil homes. and this one cooks off at 300k.. I think Yatzhee but I am also wondering why no one else bid.. .well come to find out 95K in senior deferral... Ouch... we don't use attornies on the west coast for title and escrow like you boys and girls do.. but on this one I turned it over to my attorney and she was able to prove that one notification was not done correctly and I got the 95k down to 65k... Well the market in 04 here was HOT.. and I took a two bed and made it into a 3 bed. so the market rescued us.. as the property in the year I owned it went up about 75k in value.. ( not something in most areas of the country you can count on or will have happen).. so we made a profit.. but it could have been a bummer.
And to add to the complexity senior deferral you can only find out about it by calling the tax department at the county there is nothing on line. or of record.
- Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes10y
Good story because it goes to show you that it ain't over till its over. It can be kind of like a roller coaster.
Yes looking over court records alone will not give you the whole picture.
I would expect using language like "notification was not done correctly" would result in you owning more in back liens. How did that result in a lowering of the lien amount?
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Account Closed I honestly don't recall because it was 12 years ago and at that time I was buying 1 to 2 million a month in court house steps properties.. so even if we lost 100k on that one it would not have been a big deal.. I just remember it because I could not figure out why no one else bid LOL.. kind of like the newbie or maybe you call them the idot who bids on a second thinking it is a first.
But I had another one were I was very worried IE I was the only bidder.. a Romanian dude showed up but he just had a personal check ( Orygun is cash on the barrel head that minute).. and it was a 400k purchase.. but I am a developer and builder most foreclosure folks are not they are just flippers.. and I knew this one had a particular high density zone that would allow 24 homes.. so I got it for the 400k flipped it to a builder fo r650 in a matter on a month or so.. that one worked out. but now a days with all the new blood and young folks out there that are very SMART these kind of deals really don't happen.
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