Foreclosure Auction- Senior lien holder out of business

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Foreclosure Auction- Senior lien holder out of business

Matt Pfefferlen
santa monica, CA · Member since 2016 · 53 posts · 3 votes

Hello- I am interested in buying a 2nd position lien foreclosure at auction.   There is a really small first lien.  The first lien holder was shut down 6 years ago, but the assets were taken over by another bank.   At county records this deed of trust has not been substituted with the new bank.   Is there anything i should know?  Let's say i was going to turn around and sell it; how does the title company (or whoever responsible) or how hard do they try to find the rightful lien holder to pay?

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Ned CareyPro Member
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Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
9y

As already stated even if the original mortgage holder is out of business it will still be a cloud on the title. Also as already stated the owner of that lien may be able to be tracked down. They may accept a short payoff. The fact that the transfer of the mortgage has not been recorded is not really a factor

Title companies run into this kind of issue all the time and know how to deal with it. As @Tyler Sterns says,  @Roman M.they may be easier to find than you think, not for you but for an experienced title/escrow company. It generally will not go away with time unless we are talking decades and legal fees.Yes clearing up a title with a tax foreclosure is a way to do that but not the fastest or most reliable method. 

In the days of live tax auctions sometimes people would speak up and say they want to buy a specific lien to clear up the title, and others would not bid against them.

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  • Roman M.
    Investor · Miami Beach, FL · Member since 2016 · 486 posts · 216 votes
    9y

    You should know that unless the first mortgage files a release of lien, you will always be subject to the first lien. Just because the loan originator is out of business it doesn't mean that the loan was wiped out. The first mortgage was probably sold in bulk to another company and eventually they will want to get paid.

    So when you try to sell the property the title co won't insure unless they get a payoff from the first mortgage and whatever the payoff amount is will have to get paid at closing. It will probably take them some time to track down new mortgage owner if no assignment was recorded. 

    So yeh, expect to pay the first and a possibly delay in getting payoff.

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  • Tyler Sterns
    SW Florida/Maryland · Member since 2016 · 89 posts · 36 votes
    9y

    Not being able to find a senior lien holder is more of a curse than a blessing. No tittle company would close this deal without being able to payoff the first. But, finding this mortgage holder is probably easier than you think. 

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  • Roman M.
    Investor · Miami Beach, FL · Member since 2016 · 486 posts · 216 votes
    9y

    If You don't mind holding on to the property then you can be in the clear if you wait long enough and have additional funds. 

    You can wipe out the first mortgage by not paying the real estate taxes. Buy a tax lien certificate from the county (or third party that already owned it long enough) and after statutory wait period go to tax deed. If lender is nowhere to be found then they will not pay taxes when notified. When property goes to auction you can purchase it for the highest bid (but that means you have to lay out the funds again & basically pay yourself later) or the property will go to the highest bidder. 

    So if you have the funds and patience then you can wipe out the first if they don't magically appear and step up to secure their position.

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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    9y

    As already stated even if the original mortgage holder is out of business it will still be a cloud on the title. Also as already stated the owner of that lien may be able to be tracked down. They may accept a short payoff. The fact that the transfer of the mortgage has not been recorded is not really a factor

    Title companies run into this kind of issue all the time and know how to deal with it. As @Tyler Sterns says,  @Roman M.they may be easier to find than you think, not for you but for an experienced title/escrow company. It generally will not go away with time unless we are talking decades and legal fees.Yes clearing up a title with a tax foreclosure is a way to do that but not the fastest or most reliable method. 

    In the days of live tax auctions sometimes people would speak up and say they want to buy a specific lien to clear up the title, and others would not bid against them.

    3Reply
  • Tyler Sterns
    SW Florida/Maryland · Member since 2016 · 89 posts · 36 votes
    9y
    Originally posted by @Roman M.:

    If You don't mind holding on to the property then you can be in the clear if you wait long enough and have additional funds. 

    You can wipe out the first mortgage by not paying the real estate taxes. Buy a tax lien certificate from the county (or third party that already owned it long enough) and after statutory wait period go to tax deed. If lender is nowhere to be found then they will not pay taxes when notified. When property goes to auction you can purchase it for the highest bid (but that means you have to lay out the funds again & basically pay yourself later) or the property will go to the highest bidder. 

    So if you have the funds and patience then you can wipe out the first if they don't magically appear and step up to secure their position.

     Sure he could do that. But that's not a practical or timely solution. Right now in Maryland, title insurers typically won't insure a tax sale until 2 years after judgment. By letting it go to tax sale he probably wouldn't be able to sell the property for 4-5 years. Not exactly an ideal situation. 

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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    9y

    @Tyler Sterns you need to find a different title company. We started having problems about 3 to 4 years ago and we started to panic (I foreclose on 50 properties a year in tax sale). What we found was some title companies were perfectly happy to insure the title, presuming the foreclosure case was tight and everyone personally served.

    I'm sorry but I can't think of the underwriting company's name. It may be the company that took over Chicago title.

    PS: You are certainly right that it is not the most practical method. The tax foreclosure itself would take 1-2 years

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Ned Carey  I just ran into my first one of these.. owner has property and stops paying.. bank never prosecuted foreclosure .. so after a certain amount of years the loan sunsets.. IE goes away.

    they want to sell it to me.. SO I am thinking no way.. loan can't just go away.. ( Washington state) house and 1 acre been hammered by tweakers but still work 130 to 150k as is.. 275k to 300k after rehab. 

    So I bought it for back tax's 11k..  and I got title insurance... title came back clean mortgage somehow was reconveyed  ( that's what we call mortgage satisfactions  ) we call them Reconveyance deeds..

    so that was a first for me.. I own it free and clear now and tryhing to figure out to take the 130k offer on the table as is or rehab it.

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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    9y

    @Jay Hinrichs Judgments in MD are good for 12 years. So theoretically a 30 year mortgage would expire after 42 years. However my attorney said that if the lender did not make attempts to collect for approx 10 years, it could be argued that they had abandoned the mortgage. 

    We just had one where the bank woke up after 5 years. We were thinking we're 1/2 way there, then they started foreclosure. We made some decent  money in the 5 years renting the place. 

    Boy choosing between $130K now or rehab an 11K property and sell for $275K. I hope all of your problems are that tough.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Ned Carey  in our states were we are trust deed.. there is no judgment..

    apparently.. if you stop paying on a mortgage and the lender either starts a foreclosure and abandon's it or there is no effort to collect.. after a certain amount of time the Lien is Voidable.

    I really did not dig into it once I reviewed my preliminary title report and no deed showed up.. only tax's..in Washington you cannot transfer title sub too ad valorum tax's they must be paid  so I did have to pay the 11k in back tax's plus the transfer tax..   One of those deals that pops up if you are in the bizz long enough

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  • Rich Baer
    Real Estate Investment Attorney · Kingsville, MD · Member since 2016 · 643 posts · 408 votes
    9y

    @Matt Pfefferlen

    It is taken care of by filing a quiet title case in Court. I did this in Maryland. In a nutshell, you serve the Resident Agent and any Trustees in the Deed of Trust. You ask the Court to render the mortgage void unless someone steps forward with a payoff. In our case, someone actually did come to Court. The Court case can take 6-12 months so you should get started on it.

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  • Matt Pfefferlen
    OP
    santa monica, CA · Member since 2016 · 53 posts · 3 votes
    9y

    thanks. I am buying the second for about 700k hopefully and the first is a 15k line of credit.  I see other loans from the first lien holder assigned to a new company.  I know the path to pay and I probably would since I am scared to death the first lien may foreclose and I get wiped out (doubtful but who knows down the line).  For 15k (more after interest) not sure if quiet title is worth it given everything?

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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    9y

    @Jay Hinrichs Oops I should have been more clear. When I said "Judgements" I meant a judgment to any creditor. In MD all financial judgments attach to any and all titled property. (boat, plane, car, Real estate etc.)

    @Rich Baer I thought to do a quite title you actually had to have clear title. Since the Original Poster knew of the mortgage, a quite title would not be appropriate.  Was the basis for the quiet title that the mortgage had been abandoned? Did the mortgage have to be a certain number of years unpaid to make that claim?

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  • Rich Baer
    Real Estate Investment Attorney · Kingsville, MD · Member since 2016 · 643 posts · 408 votes
    9y

    @Ned Carey

    The key word is unresponsive or unknown. We had purchased a shell property in Pigtown back in 2006 from a Seller who thought the mortgage was paid. It was a $20,000 mortgage from 10 years earlier. We paid only $10,000 for the property. We had a contract to sell it for $60,000 as is. We filed the quiet title action and on the very last day for the Bank to respond before we received a judgment to void the mortgage, a motion was filed saying the balance was $11,000.

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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    9y

    @Rich Baer thanks. That really sucks. 

    That reminds me of a tax sale poach you and Scott beat me out on.

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