Burned on foreclosure purchase

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Burned on foreclosure purchase

Account Closed
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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  • Sean Kremer
    Real Estate Investor · Milford, NE · Member since 2011 · 201 posts · 140 votes
    10y

    I purchased a townhome on the courthouse steps last year and did all my due diligence. A week after the sale as soon as they saw that someone had bought it, they (HOA) filed the lien right then and then tried to tell me that I had to pay it. ($3500) Our attorneys got that one to disappear quickly with a few letters since they didn't record it in time. I also got burned once with an outstanding child support payment that I didn't catch before I bought the property. That was $4000. That one didn't go away without me writing a check.

         On a side note, I believe in Nebraska that if the utility companies don't file their lien before the sale takes place that it is null and void too. I think I had to deal with this many years ago and I think I won, but I could be mistaken. That was many purchases ago. My memory ain't so good. 

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  • Account Closed
    OP
    Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes
    10y

    @Sean Kremer

    On that child support lien, was the issue the child support lien was recorded before the origination date of the mortgage that was in default.

    Thanks.

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  • Don Coumbs
    Flipper · Cheney, WA · Member since 2014 · 77 posts · 47 votes
    10y

    @Account Closed, yes I was asking for an additional payment. Less than I stood to make on the purchase, but enough to cover my costs. The trustee initially agreed and then started putting off the transaction and finally cancelled it.

    Eventually I was contacted by the criminal investigation unit of the IRS and the FBI.  The owner had been allegedly involved in mortgage fraud.

    I posted because people should know that something went wrong with the property and that is why it is being foreclosed on. It is likely something to do with the financing, not the house itself. But even then, as had been said by several people, it can cause the new buyer problems. I see people (my competition) bidding almost retail prices for these houses, and I can't believe it. In my mind, a courthouse sale needs to be priced to account for the risk the buyer is assuming. 

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  • Brian BurkePro Member
    Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
    10y
    Originally posted by @Sean Kremer:

         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.

    Well, Sean, they should be scared. Too many people take the risks of the courthouse step auctions far too casually.  People forget that it isn't a purchase transaction, it's a legal transaction.  You aren't buying the property, you are buying the title vested in trust to a foreclosing lender, whatever that title happens to be.  

    The risks are far more onerous than many people hear about because most people that have been injured by the process don't go around telling people about the experience.  At the steps we know when it happens because the once gung-ho bidder suddenly stops coming and is never heard from again.  I've been there consistently for over two decades and there's less than five people in each county in which I bid that can say that...yet there are hundreds in the one-and-done crowd.

    The risk is highest for the casual buyer.  When I was buying 100+ houses a year I had a lot more problem children but I could amortize the grief over a lot of volume.  If a casual buyer had been unlucky enough to have bought one of those deals it would likely have been their last one.  The most successful bidders do a lot of volume so they can afford the occasional loser.  That's really the only way to mitigate the invisible risks.

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  • Account Closed
    OP
    Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes
    10y

    @Brian Burke

    Yes that first deal is the most critical and there after gets a little less each time.  I worked with a guy who after years of trying, finally convinced his wife to let him invest in real estate.  On his first house he gave $50k to a spec home builder.  Long  story short, he was out the 50k and probably 10k in legal fees.  How do you expect someone to recover from that.  Had it been his 3ed deal, where he made some cash on the first 2, he probably would continue.

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  • Sean Kremer
    Real Estate Investor · Milford, NE · Member since 2011 · 201 posts · 140 votes
    10y
    Originally posted by @Account Closed:

    @Sean Kremer

    On that child support lien, was the issue the child support lien was recorded before the origination date of the mortgage that was in default.

    Thanks.

       It was a while ago, but I believe it was recorded after the loan was originated. 

    0Reply
  • Sonia T.
    Santa Barbara, CA · Member since 2015 · 43 posts · 6 votes
    10y

     Brian,

    Fascinating! How does one go about doing the due diligence ourselves before the preliminary title search? Thank you!

    0Reply
  • Brian BurkePro Member
    Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
    10y
    Originally posted by @Sonia T.:

    Fascinating! How does one go about doing the due diligence ourselves before the preliminary title search? Thank you!

    Tough question to answer...you have to learn how to search title and become an expert at it.  I searched the title on every foreclosure in my county for five years, and read a few books on title searching and real estate law, before purchasing my first property at auction.  Even at that, I was a novice.

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  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    10y

    Fascinating! How does one go about doing the due diligence ourselves before the preliminary title search? Thank you!

    @Sonia T. here in WA the title co's refer to a preliminary title search as an Owners & Encumbrance or Lien & Encumbrance report (O&E or L&E). First American does mine for $75+tax and submits to me by e-mail. 

    Two saved me. There was a blanket LOC on a house I was buying only referenced by an APN deep in the documents. I didn't catch it on my search. Another time a lien was filed in the neighboring county and they caught that one as well. Now I check both counties as a general practice.

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  • Account Closed
    Investor · Downers Grove, IL · Member since 2015 · 135 posts · 55 votes
    10y

    Any horror stories out there about prior work on properties not be properly permitted and the local building dept making your life hell?

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  • Account Closed
    OP
    Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes
    10y

    @Steve Vaughan

    What is a blanket LOC?

    I thought a requirement for a lien encumbering a house was to have the it recorded on the land records, even if it originated in a different county.  What was the case in your second example?

    Thanks.

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  • Account Closed
    OP
    Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes
    10y

    @Account Closed

    That is a great question.

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  • Account Closed
    OP
    Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes
    10y

    @Account Closed

    You may want to start a new post, not because I feel imposed on being the OP;).  I would think you will get a better response with a new post, and I too would like to hear those stories.

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  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    10y
    Originally posted by @Account Closed:

    @Steve Vaughan

    What is a blanket LOC?

    I thought a requirement for a lien encumbering a house was to have the it recorded on the land records, even if it originated in a different county.  What was the case in your second example?

    Thanks.

     A blànket line  of credit. The seller used that house as part of a 180k, 8 house cross-collateralized credit line. It was only a 100k house!

    The lien recorded in the wrong county was a private 28 year old 2nd for 30k that was never reconveyed. The parties were all deceased. The title co insured it after tracking down all the heirs. Could've been a nightmare!

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  • Account Closed
    OP
    Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes
    10y

    @Steve Vaughan

    I was just talking to someone about title searches and cross-collateralization yesterday.  So how does that look on the land records?  I would expect a search under the land records could be tricky.  Not only are you looking for the history on the house in question, but you will also have to look at other mortgages held under the persons name to see if the house shows up in those instruments a collateral.  Yes?

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  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    10y
    1. Yes, everything under seller name and parcel number of the property. The APN search found it thankfully on like pg 12 of mortgage #18. Buried deep!
    0Reply
  • Sonia T.
    Santa Barbara, CA · Member since 2015 · 43 posts · 6 votes
    10y
    Originally posted by @Steve Vaughan:
    Originally posted by @Account Closed:

    @Steve Vaughan

    What is a blanket LOC?

    I thought a requirement for a lien encumbering a house was to have the it recorded on the land records, even if it originated in a different county.  What was the case in your second example?

    Thanks.

     A blànket line  of credit. The seller used that house as part of a 180k, 8 house cross-collateralized credit line. It was only a 100k house!

    The lien recorded in the wrong county was a private 28 year old 2nd for 30k that was never reconveyed. The parties were all deceased. The title co insured it after tracking down all the heirs. Could've been a nightmare!

    Phew! I had to look it up and still was not sure what the blanket LOC was. Thanks Robert for asking.

    The more I ask, it appears that I have so much to learn... But I enjoy learning! Thanks again

    0Reply
  • Account Closed
    OP
    Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes
    10y

    @Steve Vaughan

    Very valuable information.  Thanks.   

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  • Account Closed
    Investor · Downers Grove, IL · Member since 2015 · 135 posts · 55 votes
    10y

    @Account Closed good idea - I will get a separate post up on that topic. Thanks!

    0Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    10y

    I was looking at a foreclosure, no defendants other than mortgagor, and no other mortgages found by me or by an outside title search firm, saw some mortgages for a different legal description.  In trying to make a deal before the foreclosure, owner mentioned another Mtg.  Turns out, there was another first mortgage.  This property, apparently properly, was actually known by two different legal descriptions.  Single lot, but originally platted as "xyz land co. plat...." with a meets and bounds, section/township/range description.  Apparently, later on the subdivided was renamed to "abc subdivision, block 1, lot 67, formerly known as xyz land co. plat...".  But on the "index" from an Officia records search, the parcel identifier for the Mtg.s were different, so you had to actually open the Mtg  document and read the actual legal descriptions.  I dodged that bullet by luck, someone else didn't.

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  • Account Closed
    OP
    Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes
    10y

    @Wayne Brooks

    I guess to that I'd say I'd rather be luck than good.  Even with 2 sets of eyes thing get missed.   Good story.  

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  • Account Closed
    Investor · Philadelphia, PA · Member since 2016 · 17 posts · 0 votes
    10y
    Originally posted by @Account Closed:

    @Shannon K.

    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.  

    I have difference of opinion on this one. Why would BANK sell it through auction if they can sell it through MLS ? I mean most of the time (not generally) when bank auction it out then there's a problem with condition, reports, etc... or else, they would sell it at market price on mls, am i wrong ?

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  • Al Wilson
    Investor · Daphne, AL · Member since 2014 · 1k+ posts · 242 votes
    10y
    First comes the foreclosure auction, then the listing of REO on the MLS if the bank was the buyer of the property at the auction.
    0Reply
  • Sarah Ziehr
    Real Estate Broker · Chicago, IL · Member since 2015 · 531 posts · 266 votes
    10y

    My investor purchased a condo he intended to rent out. After we closed, we were given a addendum to the HOA documents that no rentals were allowed.

    He had already agreed to owner occupy for the first 12 months per the foreclosure, so he ended up selling on month 13 and basically broke even. His cash was tied up for 12 months for nothing.  

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Steve Vaughan  in my lending days we did cross collateral a lot.... if its in the same county no problem you simply describe both properties in the legal description... I can't recall how we handled multiple. I had borrowers that I crossed properties in central Oregon.. out in Yakima and such,  But that's when I had a staff  LOL.. and my underwriter and doc prep gal handled it.

    We are blessed on the West coast when it comes to title information at our finger tips. those folks out east its a tough go... much more archaic. and labor intensive.

    I was talking to my Escrow officer the other day At Chicago title and their plant is now in the PHillipines and all title work happens there.. they get full title reports in a matter of a few hours with all those VA's work ing on it.

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