Pending Foreclosure on a Sale Subject to my Owner Finance

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Pending Foreclosure on a Sale Subject to my Owner Finance

Account Closed
Property Manager · Baton Rouge, LA · Member since 2014 · 2k+ posts · 195 votes

Failed to collect Property Insurance and Property Tax on my promissory Note now buyer refusing to pay $15,000 delinquency on mortgage that is $709 per month @ 4% with $93,000 balance now pending foreclosure.  Any suggestions for solution to my error?

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y

@Wayne Brooks  this is text book or Classic what can go wrong in sub too and with folks that really don't know what they are doing.. if the underlying mortgage is in

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  • Warren Kirschbaum
    West Palm Beach, FL · Member since 2015 · 16 posts · 9 votes
    8y
    How much is the property worth? I hope your Note allows you to foreclose for failure to pay property taxes or insurance. Is the $15k delinquency from the taxes/insurance or have they missed payments for 2 years?
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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y

    pretty simple this is a default  start the foreclosure process and cash for keys or Deed in lui is usually the best and fastest way out of it..

    Unless your willing to go to the mat and sue on the note to get a judgement ( assuming its legal to do so in your state).

    your out the money.. and the property has to be your remedy..

    in all the years I have been doing this its EXCEEDINGLY rare that you will collect a deficiency from someone you owner financed the reason they owner financed in the first place is probably credit and other nik's in their credit or borrower profile.

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  • Account Closed
    OP
    Property Manager · Baton Rouge, LA · Member since 2014 · 2k+ posts · 195 votes
    8y

    Thanks Jay and Warren, you appear to be both right.  I've lost this one.  Comparable sales on 3 Bedroom two Baths in the area is from $120,000 to $150,000 move in ready as this one is the $15K delinquency is PTI and increasing every month, and the owner finance buyer bad credit will not allow refinance as you suggested Jay.   I agree cash for keys is the only way out of this

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  • Roman M.
    Investor · Miami Beach, FL · Member since 2016 · 486 posts · 216 votes
    8y

    you should put in forced insurance policy right away. 

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  • Account Closed
    OP
    Property Manager · Baton Rouge, LA · Member since 2014 · 2k+ posts · 195 votes
    8y

    Without the $15K reinstatement of the Mortgage the Bank will take the property Roman.  We are are taking about insurance on a Bank on property within the next few weeks or so.

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    8y
    You need to clarify.....first you said that you seller financed....now you say “the bank is foreclosing” ?????
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  • Account Closed
    OP
    Property Manager · Baton Rouge, LA · Member since 2014 · 2k+ posts · 195 votes
    8y

    There are many strategies to "Seller Finance" a property with an out standing mortgage Wayne.  As a Real Estate professional you should know about:  Lease with Option to Buy, Contract for Deed, Rent to Own.  Ever hear of a sale subject to the existing mortgage.   Well,  I made an attempt to sale this property subject to my existing mortgage.  The Bank is trying to foreclose on that existing mortgage that is still in my name that my Buyer promised to pay which I have ultimate responsibility when the Buyer fails to do so.  Nothing to clarify really.  There are $15,000 in back payments.  I will Quit Claim the house to a new buyer due to the defaulted promissory Note signed to be by the old buyer

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    8y
    Yes, I understand what a sub2 is, you just didn’t say that is what you did. If you did a true sub2, where title transferred to the buyer, you no longer have title and have No ownership or rights to transfer title, and no right to foreclose unless you did a wrap, which means you only have the right to foreclose.....this is the risk to a seller doing a sub2.
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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y

    @Wayne Brooks  this is text book or Classic what can go wrong in sub too and with folks that really don't know what they are doing.. if the underlying mortgage is in

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    8y
    Originally posted by @Account Closed:

    There are many strategies to "Seller Finance" a property with an out standing mortgage Wayne.  As a Real Estate professional you should know about:  Lease with Option to Buy, Contract for Deed, Rent to Own.  Ever hear of a sale subject to the existing mortgage.   Well,  I made an attempt to sale this property subject to my existing mortgage.  The Bank is trying to foreclose on that existing mortgage that is still in my name that my Buyer promised to pay which I have ultimate responsibility when the Buyer fails to do so.  Nothing to clarify really.  There are $15,000 in back payments.  I will Quit Claim the house to a new buyer due to the defaulted promissory Note signed to be by the old buyer

    If I understand correctly, you sold a house subject to your existing loan.  The buyer hasn't been paying. The lender is going to foreclose and you're getting hurt.

    Yep, you're going to get hurt.  You say "I will Quit Claim the house to a new buyer".  How can you do that?  You don't own the property.  With a wrap you would still have a security interest and could foreclose and (try to) take the property back. With a subject to sale, you have very little leverage.  You'll have to sue the buyer to try to get them to perform.  

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  • Account Closed
    OP
    Property Manager · Baton Rouge, LA · Member since 2014 · 2k+ posts · 195 votes
    8y

    According to my Title Attorney, under Louisiana Law I never stopped "owning the property".   I'm being foreclosed on not the person in the House.  They don't have a mortgage with the Bank I have the mortgage.  The occupant has a promissory Note and is due $93,000 (ME) the balance of my Loan with my Mortgage company.,Are you sure if I sue the buyer will help.  I just need $15,000 to reinstate the mortgage and some one to pay the $709 Note.  May be, "Quit Claim" is the wrong term but, I own the property until it is sold at Sheriff Sale under Louisiana Law, and that has not happen

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y

    @Jon Holdman  Alex you can't have it both ways..  you either own the property and you lease optioned it or sold it on an unrecorded contract.. and title did not transfer.

    or you sold it and title transferred and you took back a note which would be a second it sounds like ..

    bottom line is your not explaining this correctly and only giving crumbs of what the situation is.. so its really impossible to give recommendations when you don't even know what you did or did not do..

    so

    IF YOU transferred title and took back a mortgage and NOTE  which the only reason you take a note is if you have a mortgage tied to it..and you transferred title sub too your existing loan.. and your loan is a second or a wrap.. you can now foreclose and take it back over but you need to pay off the underlying or they are going to wipe you both out.  ( which is why sub too in the hands of those with little capital or don't know what they are really doing are so dangerous.)  for you as the seller.

    OR you did not transfer title and your note is just an unsecured note tied to nothing.. or you did a lease option that ties to the property...

    either way you need to figure out what you did and did not do..  

    And if the mortgage that is in your name from the bank if that is true then your credit has now been totally trashed for years to come as well.. again why sub too is so dangerous for those that don't know what they are doing or how to protect themselves..

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  • Account Closed
    OP
    Property Manager · Baton Rouge, LA · Member since 2014 · 2k+ posts · 195 votes
    8y

    Thanks, I will let the Title Attorney who put the deal together know about your comments. I personally did nothing in this real estate transaction out side of showing up at the Lawyers Office and signing papers. One thing every one got right, was my "credit has been trashed." Again, thanks to everyone for the legal opinions ... However, I'm even more confused but, one thing is certain, I could not and did not transfer Title and I have the right to reinstate the $93,000 Mortgage for $15,000 and continue the $709 monthly payments @ 4% APR which is PTI. I may not know what I'm doing but, I can my Mortgage Document.

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  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    8y

    I sold a home on a wrap 11 years ago.  That's what you have right @Account Closed?  A straight up sub2 would mean they paid you for all your equity at the buy.  Either way, you are 'responsible' for the mortgage as you know.  All they know is You and that  You haven't been making the payments.

    I make sure my mortgage gets paid no matter what. On this one I sold or any of my others as a purchaser.  If my buyer/mortgagor misses a payment, it is up to me to get it from them.  I pay the bank from my pocket, then I send the purchaser the same kind of notices you are getting from the bank. 

    If you sold straight up sub2, you are screwed.  Catch up the arrears or get foreclosed on. Take the buyer to court later if you want to. 

    But did you wrap additional equity? If so, what medium did you use to wrap it? Land contract, CFD or note and deed of trust/security? Get the mortgage caught up, get a landlord policy on the house and utilize remedies as outlined in your default clauses if you wrapped it.

    But there is no equity here not including what they will do to the house on their way out.  May be best financially for you to let it go, but your credit is and will be more trashed.  You are attending a 'seminar' right now, Alex.

    1Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    8y

    @Account Closed, sorry to be reading such a cautionary tale. Put simply, you got suckered / snookered! That is, unless you at least got a decent sized deposit out of them.

    Did they pay you anything at all along the way? Or were they pure scammers, always intending to "legally" squat there until the system finally catches up with them?

    In reality, you're still not in too much of a worse position than you placed yourself in, because after all, it hasn't been coming out of your pocket (so far).

    The question remains: do you still have any equity left in the property?

    (Because, $15k shouldn't make that much difference, right?)

    But please, forget the "quitclaim" rubbish! That's intended to be between relatives!

    All the best...

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    8y

    You need to dig out the paperwork from when you "sold" this house and figure out what really happened.   You say "one thing is certain, I could not and did not transfer Title".  Yet earlier you say this was a subject to sale.  In a subject to sale or a wrap you certainly would transfer the title.  In both of those types of transactions title would be transferred to the buyer and the existing mortgage would remain in place and would remain in your name.  If you did a wrap (or an "all inclusive trust deed") you would now have a security interest in the property.  That would give you the ability to foreclose and either take the property back or get your mortgage paid off (the wrap, not the original one where you are the borrower.)  If you were paid off, you would use that money to pay off the original mortgage.

    If this was really a subject to, then you really have nothing.  You have an unsecured debt with the buyer, yet you're still on the hook for the original mortgage.

    I find this difficult to believe. You sold a house and yet you don't know what the transaction was? How did that happen? This almost sounds like you were scammed. In any case, dig out that paperwork and see what happened. There should be a purchase contract, promissory note, maybe a mortgage or deed of trust, a HUD-1 form, and a deed of some sort. Or other papers. Tell us what's in that packet and perhaps this can be unraveled.

    3Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y

    @Steve Vaughan  herein lies the rub  with just trusting closing attorneys to do your deals for you.

    just like out here we don't trust our escrow companies to explain the mechanics of the deal, we know what we are doing and we give instructions to the attorney or title company .. not just hey I showed up and signed and had no clue as to what I am doing.. this is the height of well you know what.

    I get that all the time from east coast attorneys who just tell me title is fine.. I tell them that's your opinion.. please send me a copy of the title commitment so I can read it for myself.. I don't need them telling me if title is good to my liking.. I understand it could be good for their purpose to close and get paid.  closing attornies miss stuff all the time.

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  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    8y

    What a mess.

    How hard is it to just pull the land records and figure out what went down in the prior transaction?

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    8y

    @Tom Gimer Yep, pretty simple to see if there was a title transfer. Maybe this wasn't really a sub2.....maybe a CFD, "installment sale" or some other annomoly.

    1Reply
  • Tracy Z. Rewey
    Investor · Orlando, FL · Member since 2013 · 837 posts · 317 votes
    8y
    Originally posted by @Steve Vaughan:

    I sold a home on a wrap 11 years ago.  That's what you have right @Account Closed?  A straight up sub2 would mean they paid you for all your equity at the buy.  Either way, you are 'responsible' for the mortgage as you know.  All they know is You and that  You haven't been making the payments.

    I make sure my mortgage gets paid no matter what. On this one I sold or any of my others as a purchaser.  If my buyer/mortgagor misses a payment, it is up to me to get it from them.  I pay the bank from my pocket, then I send the purchaser the same kind of notices you are getting from the bank. 

    If you sold straight up sub2, you are screwed.  Catch up the arrears or get foreclosed on. Take the buyer to court later if you want to. 

    But did you wrap additional equity? If so, what medium did you use to wrap it? Land contract, CFD or note and deed of trust/security? Get the mortgage caught up, get a landlord policy on the house and utilize remedies as outlined in your default clauses if you wrapped it.

    But there is no equity here not including what they will do to the house on their way out.  May be best financially for you to let it go, but your credit is and will be more trashed.  

    You are attending a 'seminar' right now, Alex. (That line "wins" the Internet today!)

    This is very sound advice from Steve Vaughan.  I've also bought property with seller financed wraps and sold property with a wrap.  In some states they are called an AITD (All Inclusive Trust Deed).

    If I am the buyer I make sure the servicing company is paying the underlying lien out of my payment BEFORE the seller receives their net payment.  Don't trust the seller will make that payment when they get yours.

    If I am the seller then, yes I have to make that payment to the underlying on time even when my buyer/payer is late.  It usually helps to just get ahead on it a month so you have a time cushion.

    If I am the note investor and buying an existing seller financed note that used a wrap then I either 1) pay the seller's note off out of proceeds from the note purchase or 2) base my purchase on the net cash flow, let the underlying remain, and make sure there is a servicer in place tracking tax/insurance and sending the payment to the underlying.  As @Jay Hinrichs and others here have mentioned there are lots of risks with subject to or wrap deals.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y

    @Tracy Z. Rewey  my dad did hundreds of AITD's when they first came out in CA in the late 70's its a great document and should be used on all sub too type transactions.. it gives full notice and notice of default so you can cure quickly without what happened to this guy and get 15k behind and be beyond help.

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  • Tracy Z. Rewey
    Investor · Orlando, FL · Member since 2013 · 837 posts · 317 votes
    8y

    @Jay Hinrichs Completely agree. It's interesting how AITDs are popular out West but not so much out East.  I'm originally from Washington state and that was the norm for WA, ID, CA, OR and other neighboring states.  When I moved to Florida the term changed to Wrap Around Mortgage but you rarely see the document fully outlining all the sub2 details.  There are some basic addendums but they could go so much further. You're right, it would sure help people be aware of the issues.

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  • Kevin Romines
    Lender · Winlock, WA · Member since 2013 · 1k+ posts · 1k+ votes
    8y

    @Account Closed It sounds like you didn't transfer title and have the right to reinstate the mortgage? One thing I can tell you is that you are so much better off as far as credit goes if you do reinstate then letting the home go to foreclosure. If you reinstate, most likely the credit report will show that foreclosure proceedings started but account reinstated and is now in current status. 

    This is a much better place to be regarding your credit and you future ability to finance properties. The reason being is that a foreclosure is not a foreclosure until its officially foreclosed and the property goes back to the lien holder. If it is anything less then that, that really just amounts to some late pays on the mortgage. 

    Now late pays are bad enough, but the time frame to recover is much shorter than a fully completed foreclosure. 

    If you have as much equity as you say, then dump it fast for even what you owe if you have to? This is much better then the foreclosure. You can even dump it with the current situation of the rent to own or lease option buyer in place and explain that to the buyer that they will need to deal with the tenant, because your out of time and just need to close to pay off the underlying lender.

    If you have more time then just a few weeks, then you can be a little more picky about the cash offer your willing to take and possibly walk away with some cash in your pocket for your troubles. 

    In all states, there are very specific foreclosure procedures that a lender must adhere to. There typically are two types of foreclosure. A judicial foreclosure in which they must take you to court and sue you into foreclosure. If they do this, they can typically also get a deficiency judgement against you.

    There is also a non-judicial foreclosure. Depending on the state, this means they must give you proper notices and publish proper notices of foreclosure and set a sale date to sell the property at auction to the highest and best bid at a date in the future that is no less then the law allows in that state. 

    If it were me, I would spend some time TODAY, to nail down what type of foreclosure it might be and where in the process you are at. I would also call the lender and do everything in your power to delay the foreclosure at all costs. The more time you buy, the more time you have of crafting a sale or reinstatement that works for your benefit. Don't sit on your hands even one minute. Put all other things aside and get this done. You will be happy you did. 

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  • Account Closed
    OP
    Property Manager · Baton Rouge, LA · Member since 2014 · 2k+ posts · 195 votes
    8y

    Thanks, it is a judicial foreclosure delayed by Chapter 13, which I'm dropping to take your advance.  Thanks again

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  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    8y
    Originally posted by @Account Closed:

    Thanks, it is a judicial foreclosure delayed by Chapter 13, which I'm dropping to take your advance.  Thanks again

    Dropping the Chapter 13 is going to speed things up, not delay as much as possible.

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