Burned on foreclosure purchase

Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes

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.

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Chad U.

Investor · Boca Raton, FL · Member since 2012 · 1k+ posts · 1k+ votes

10y

@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.

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OP
Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes
10y
@Jay Hinrichs
All I can say to that is WOW;)
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Account Closed in those years other than a few subdivisions I was doing and a few timber plays all I did was courthouse step forclosures.. I had a 5 mil unsecured LOC.. from my bank to buy and a 8 mil secured so when we got the trustee's deed we secured it up with our secured LOC.. its the ultimate BRRR... but I can tell you 5 mil check book is a nice thing.
But its small potato's compared to many of the CA bigger players .. it enabled us to be top 3 in PDX though for the 5 years I did this.
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Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes
10y
@Jay Hinrichs
That's just incredible. You must have been on cloud 9 when you started making that kind of money. Not that you still would not be on cloud 9 but growing a business is exciting for anyone, at any level.
That LOC sounds extraordinary to me. I have been doing this for 8 plus years and have just about as high of a credit score one can have. Yet my long term commercial lender at a small town bank said I was not eligible for anymore loans after I quit my 6 figure engineering job because my flip income was not reoccurring. This was after he had financed 6 deals with me. Two of which I still have today.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Account Closed these are credit facilities they are not loans. They are more like business lines of credit like a manufacturer would get.. I have 24 years with my commercial banker.
Plus we made money your not going to get this kind of credit on 6 figure income. .. Credit is not really looked at in these deals. I mean my personal credit is around 720 ish..( because I have too many mortgages on rentals that I wish I had never bought and am in the process of selling LOL).
In todays lending environed I would be hard pressed to get those same high credit numbers. Although for my new construction I usually have about 7 million or so out at anyone time.
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Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes
10y
@Jay Hinrichs
Interesting. Just last week I created a new LLC and will be doing the S-corp tax election. Up till now I have been treating my, dare I say income, as capital gains. I was only looking at the down side of this, but during the course of this correspondence maybe an upshot I hadn't thought about exists. The upshot being better access to a business LOC. Do banks somehow, magically, start to take your income more seriously when you start paying self employment tax on it? Yeah probably not:) Thoughts?
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Account Closed FOR SURE your CAP gain elections have influenced your banks .
its takes a very close relationship with a banker to realize that your cap gain is really your ordinary income. bigger banks you can forget about it getting qualififed on cap gain incoem
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Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes
10y
I was hoping you would have jumped on this post of mine from earlier in the week. I am trying to take my business to the next level and am trying to figure out if contractors or employees are the answer.
bp post

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Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes
10y
Cool thanks for the words of encouragement.
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Aaron Mazzrillo
Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
10y
I held a 2nd on a mobile home in a park. The first went to foreclosure. I found out because the former owner/occupant told me. I called the first and informed them that they now had to start paying me on my new first. Unfortunately, they had not actually recorded so they just did the whole process over again to wipe me off.
I spoke to a lawyer who said I probably had a case, but it would cost me more than what I was owed to pursue it.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Aaron Mazzrillo if it sold for more than the first you would have overages coming your way !! and I am not going to tell you how hot the steelhead fishing is this year.. you would nto believe me anyway... pictures to follow !
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Aaron Mazzrillo
Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
10y
Originally posted by @Jay Hinrichs:

@Aaron Mazzrillo if it sold for more than the first you would have overages coming your way !! and I am not going to tell you how hot the steelhead fishing is this year.. you would nto believe me anyway... pictures to follow !
We're talking about a mobile home in a park. I bet the only person at the courthouse steps was the crier when that went to sale!
Just one of many times I lost money in real estate.
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Brian BurkePro Member
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
10y
I've bought about 500 on the steps and feel very fortunate that I can count the really bad stories on my fingers. Of course there were the houses where the owners trashed the house, stole the copper, stripped the house, or shot it up with multiple rounds from an AK, but those are just minor annoyances. I got my revenge one time though--the former owner got convicted of burglary for stripping the house. I got restitution checks for years from that guy.
I think the one that takes the cake is an owner that really wanted his house back. He sued to get it back, which I've had happen a couple of other times and always had the suit dismissed in a demurrer within a couple of months. But not this one. This guy got a really bad but really persistent attorney and got lucky with a sympathetic judge (a judge that had recently been arrested for a DUI, no less) and our demurrer failed. We had to go to trial (fortunately by then the DUI judge was history so we got a different judge). But just before trial the lender (yes, the lender) filed bankruptcy. I'm not talking about a private lender either, this was one of the largest lenders in the country that tanked in the great financial collapse.
Now this s$&@ just got real. If this guy wins and the court gives him his house back, my $250K+ that I paid at the steps is gone...I'll get pennies as a creditor in the lender's BK. Can't even proceed to trial until I get relief from stay in the BK case.
It finally went to trial and I won hands-down. But didn't end there. This ridiculous lawyer appealed to the state court of appeals! That took another year but I won that hands-down as well.
The end result is that my title was clouded for five years and it cost me almost $200K in attorney's fees to get to where I could finally sell what should have been a five month flip.
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Leigh C
Brooksville, FL · Member since 2012 · 429 posts · 220 votes
10y
Somewhat easy to get Lines of credit from hedges if you are in that type of volume. We just let a 10M line expire that was at 7% and 2 points.
Took us 2 weeks to go through the approval process...in person "interview" in hindsight should of taken place at a local strip club it was so informal.
Cost us 15k for the introduction 3 years back but now a days you should be able to figure out pretty easily the guys who are doing B2R and also credit lines to flippers.
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Leigh C
Brooksville, FL · Member since 2012 · 429 posts · 220 votes
10y
Originally posted by @Brian Burke:

I've bought about 500 on the steps and feel very fortunate that I can count the really bad stories on my fingers. Of course there were the houses where the owners trashed the house, stole the copper, stripped the house, or shot it up with multiple rounds from an AK, but those are just minor annoyances. I got my revenge one time though--the former owner got convicted of burglary for stripping the house. I got restitution checks for years from that guy.
I think the one that takes the cake is an owner that really wanted his house back. He sued to get it back, which I've had happen a couple of other times and always had the suit dismissed in a demurrer within a couple of months. But not this one. This guy got a really bad but really persistent attorney and got lucky with a sympathetic judge (a judge that had recently been arrested for a DUI, no less) and our demurrer failed. We had to go to trial (fortunately by then the DUI judge was history so we got a different judge). But just before trial the lender (yes, the lender) filed bankruptcy. I'm not talking about a private lender either, this was one of the largest lenders in the country that tanked in the great financial collapse.
Now this s$&@ just got real. If this guy wins and the court gives him his house back, my $250K+ that I paid at the steps is gone...I'll get pennies as a creditor in the lender's BK. Can't even proceed to trial until I get relief from stay in the BK case.
It finally went to trial and I won hands-down. But didn't end there. This ridiculous lawyer appealed to the state court of appeals! That took another year but I won that hands-down as well.
The end result is that my title was clouded for five years and it cost me almost $200K in attorney's fees to get to where I could finally sell what should have been a five month flip.
Should of sold it to the previous owner if he wanted it back so badly...I've always had a policy of selling it back at a slim margin if the previous owner had the liquid means.
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OP
Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes
10y
@Brian Burke
I am just wondering what kind of argument is used by a previous home owner to get their house back. I would think it would go back to the original judgment which gave the lender to right to sell the home.
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Rebecca Meier
Title Representative · Saint Louis, MO · Member since 2015 · 15 posts · 4 votes
10y
@Brian Burke Just a suggestion but have you ever thought about ordering an Informational Committment (these might be called something different in PA) from a title company/attorney on the properties you are going to bid on at the courthouse steps? It will give you all the open deeds, judgments, unpaid taxes, unpaid sewer (would show up as a lien), etc. on the property.
Rebecca
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Kimberly Davis
Tampa, FL · Member since 2016 · 1 post · 0 votes
10y
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.
Thank you for sharing!
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Brian BurkePro Member
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
10y
Originally posted by @Leigh C:

Should of sold it to the previous owner if he wanted it back so badly...I've always had a policy of selling it back at a slim margin if the previous owner had the liquid means.
He had no means, nor any interest in buying it back. He wanted his lender to give it back. Had that not been the case, I agree with you completely!
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Mark Ferguson
Flipper/Rehabber · Greeley, CO · Member since 2013 · 2k+ posts · 1k+ votes
10y
Bought at courthouse steps.
Day before the sale the previous owners filed a lawsuit claiming the bank foreclosed wrong. Long story short. It took over a year for the courts to hear the case and promptly throw it out. We could do nothing to the house the entire time.
We bought a meth house unknown to us on another one that ended up being burned down by the previous owners friend.
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Brian BurkePro Member
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
10y
Originally posted by @Account Closed:

@Brian Burke
I am just wondering what kind of argument is used by a previous home owner to get their house back. I would think it would go back to the original judgment which gave the lender to right to sell the home.
His argument was that he sent in a payment to reinstate prior to the auction. He did send some funds, but not enough funds, and the lender rejected the payment. His argument, flawed as it was, was that the lender shouldn't have done that and as a result the foreclosure should be reversed.
CA does non-judicial foreclosures, so there is no foreclosure "judgment". And, sales to third parties are final and cannot be reversed. This case should never have gone as far as it did. That's what makes it such a "courthouse steps horror story"...people think that they can eliminate the risk in this business, but even if you do everything right you can get burned.
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Brian BurkePro Member
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
10y
Originally posted by @Rebecca Meier:

@Brian Burke Just a suggestion but have you ever thought about ordering an Informational Committment (these might be called something different in PA) from a title company/attorney on the properties you are going to bid on at the courthouse steps? It will give you all the open deeds, judgments, unpaid taxes, unpaid sewer (would show up as a lien), etc. on the property.
Rebecca
There's certainly nothing wrong with ordering such a thing from the title company, but if they miss anything, and they do from time to time, it's my money lost, not theirs. When we are talking $100K to $1MM I'm not going to take the chance that a title searcher that I don't know got it right. Instead, we do the search ourselves and supplement that with a search from the title company just to cover the remote possibility that they find something that we didn't.
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1 Reply
Don Coumbs
Flipper · Cheney, WA · Member since 2014 · 77 posts · 47 votes
10y
My second purchase was a HUD repo. The agent HUD used stiffed the company servicing the property (winterization, lawn mowing, posting notices.) So we wound up with a lien filed months after our sale. It was less than $1,000, but at the time that was a big deal to me. As it turns out, HUD ate the fees and we didn't have to pay.
On a later occasion, I bought a house on the courthouse steps only to have the trustee contact me to "rewind" the sale. The previous owner was claiming a deployed military foreclosure exemption. I had already recorded the sale and made an agreement with the tenants for them to continue renting from me. I agreed to resell the property to the trustee, lost the tenants and held the property for a few months expected the resale to go through. Then the trustee decided not to buy it. I had foolishly let them set up the purchase and sale agreement, and their contract had an out for them. This is not really a "burn" I still own the house and it is a fine rental, but it was a lesson learned for me.
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Account Closed
OP
Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes
10y
@Don Coumbs
No good deed goes unpunished. What do you think would have been the outcome if you did not agree to selling the house back to the previous owner. Did they offer you a little extra money for your time and money.
Thanks.
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Sean Kremer
Real Estate Investor · Milford, NE · Member since 2011 · 201 posts · 140 votes
10y
Originally posted by @Brian Burke:

I've bought about 500 on the steps and feel very fortunate that I can count the really bad stories on my fingers. Of course there were the houses where the owners trashed the house, stole the copper, stripped the house, or shot it up with multiple rounds from an AK, but those are just minor annoyances. I got my revenge one time though--the former owner got convicted of burglary for stripping the house. I got restitution checks for years from that guy.
I think the one that takes the cake is an owner that really wanted his house back. He sued to get it back, which I've had happen a couple of other times and always had the suit dismissed in a demurrer within a couple of months. But not this one. This guy got a really bad but really persistent attorney and got lucky with a sympathetic judge (a judge that had recently been arrested for a DUI, no less) and our demurrer failed. We had to go to trial (fortunately by then the DUI judge was history so we got a different judge). But just before trial the lender (yes, the lender) filed bankruptcy. I'm not talking about a private lender either, this was one of the largest lenders in the country that tanked in the great financial collapse.
Now this s$&@ just got real. If this guy wins and the court gives him his house back, my $250K+ that I paid at the steps is gone...I'll get pennies as a creditor in the lender's BK. Can't even proceed to trial until I get relief from stay in the BK case.
It finally went to trial and I won hands-down. But didn't end there. This ridiculous lawyer appealed to the state court of appeals! That took another year but I won that hands-down as well.
The end result is that my title was clouded for five years and it cost me almost $200K in attorney's fees to get to where I could finally sell what should have been a five month flip.
I'll bet you just scared the pants off of a lot of people here that just read that, and were thinking about the foreclosure business.
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Sean Kremer
Real Estate Investor · Milford, NE · Member since 2011 · 201 posts · 140 votes
10y
Originally posted by @Brian Burke:

Originally posted by @Rebecca Meier:
@Brian Burke Just a suggestion but have you ever thought about ordering an Informational Committment (these might be called something different in PA) from a title company/attorney on the properties you are going to bid on at the courthouse steps? It will give you all the open deeds, judgments, unpaid taxes, unpaid sewer (would show up as a lien), etc. on the property.
Rebecca
There's certainly nothing wrong with ordering such a thing from the title company, but if they miss anything, and they do from time to time, it's my money lost, not theirs. When we are talking $100K to $1MM I'm not going to take the chance that a title searcher that I don't know got it right. Instead, we do the search ourselves and supplement that with a search from the title company just to cover the remote possibility that they find something that we didn't.
Brian...... I do this also on foreclosures. I pay $75 for a preliminary title search. I assumed that the title company was on the hook for anything they may have missed, but I've never actually asked them. Jeez.
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