Bizarre Issue in Wholesale/Subject To Deal - What do you think?

28 Replies

So the weirdest thing has happened and would love some insight from those of you who work the foreclosure process.

I bought a condo that was going into foreclosure. I got a cashier's check for the wholesaler to take to the trustee's office and then paid the wholesaler their fee. My purchase is Subject To the owner's mortgage as well as a whole bunch of past due HOA dues.

I am confident that the wholesaler is legit, for various reasons, so please don't point fingers there as your first reaction.

After I got the deed in my name and it was filed with the county, etc., I got a call saying that the public trustee did not accept my cashier's check, but they did halt the foreclosure auction.  I just needed to get the check and cure the past due amount directly with the mortgage company (Wells Fargo).  I had until December 12 to cure this or it would go back into foreclosure.

On December 5, I went to my local WF branch and tried to cure the mortgage.  They refused to accept the cashier's check and asked that I wire the money to their foreclosure center instead.  I was nervous about doing so (for reasons that, in retrospect, probably don't make sense), so I asked if I could mail in the cashier's check.  They said yes and gave me the address to do so.  I mailed the cashier's check in on December 6.

On December 12, I called my bank to make sure that the cashier's check had been cashed.  It had not.  I called the automated phone system for Wells Fargo and it indicated that the mortgage was now current.  No late fees, no balance due, next payment due January 1, 2018.

OK.  Great.  Check is probably just pending.

On December 14, I received a letter from Wells Fargo, dated December 12, stating that they were returning my cashier's check and gave no reason why.  I immediately called them to find out why.  They stated that they had already received payment for the past due amount on December 10.  I asked who sent that money in and they indicated that they did not know, that the funds came in on a wire.

So I called the wholesaler and asked what was going on.  They called the seller to make sure he was not confused about who was going to cure the arrears.  The seller confirmed that the seller did not cure the arrears.  

So I'm sitting here with several thousand dollars in my hand, a cured mortgage and a whole lot of confusion.

My next phone call is to the attorneys who are handling the past due HOA fees. I ask them for a payment plan and lay out something that I think is reasonable. They say that they'll need to talk to the Board of the HOA for approval. OK. I'm pretty confident that the plan I've outlined is reasonable and that they'll be happy getting payments on an account that is something on the order of 4+ years behind.

The attorneys contact me back, stating that the original owner was something of a scam artist and has made many promises in the past that never happened.  They also say that they've had people in the past contact them claiming to have purchased the condo and they would now be responsible for the bill, but then nothing would ever happen and it would always turn out that there was no purchase.  In short, the board has denied my payment plan proposal and wants the full amount up front or I risk them starting foreclosure (sigh) because they don't believe I'm legit.

In the meantime, I requested a title search on the condo and it comes back with the most bizarre thing.  There's a letter filed with the county, by the seller, indicating that the seller has been the victim of a "Quit Claim Scam" wherein somebody filed a quit claim deed for this condo back in 2010 claiming the owner quit claimed it over.  That quit claim has been removed from the record, but this letter explaining the attempted theft of the condo remains on the record.

Weird, right?

So now I've got a property that has this weird history and some unknown person has paid off the past due mortgage. (Sure wish they'd payoff the past due HOA fees too!)

So forgive me for being a little paranoid, I'm now just really nervous that something, somehow, is going to bite me in the butt on this.  I've ordered a title report every 2 weeks to make sure that nobody is going to file anything with the county that further complicates this issue.  It's only $5.00 for the report, so certainly not something that's going to break me.

SO my questions are these:

1.  Is there any way to find out who paid the mortgage company?

2.  If there is a way, do I even care?

3.  What's my exposure here?  If somebody else paid this thinking they could then take over the property, that's their problem.  

4.  Am I morally/ethically obligated to track down the payer and give them their money back?  (Part of me thinks yes, but another part of me feels like this is probably some scammer that got bitten by their own ploy).

5.  Other than pulling a title report every two weeks, is there anything else I could or should be doing to protect myself?

My intent on this property (as of now - could change) is to flip this property.  What are the odds that the title is going to be FUBAR and will affect my ability to sell/convey clean(ish) title at closing?

Thoughts?  Ideas?  Suggestions?  

Originally posted by @Linda Weygant :

So the weirdest thing has happened and would love some insight from those of you who work the foreclosure process.

I bought a condo that was going into foreclosure. I got a cashier's check for the wholesaler to take to the trustee's office and then paid the wholesaler their fee. My purchase is Subject To the owner's mortgage as well as a whole bunch of past due HOA dues.

I am confident that the wholesaler is legit, for various reasons, so please don't point fingers there as your first reaction.

After I got the deed in my name and it was filed with the county, etc., I got a call saying that the public trustee did not accept my cashier's check, but they did halt the foreclosure auction.  I just needed to get the check and cure the past due amount directly with the mortgage company (Wells Fargo).  I had until December 12 to cure this or it would go back into foreclosure.

On December 5, I went to my local WF branch and tried to cure the mortgage.  They refused to accept the cashier's check and asked that I wire the money to their foreclosure center instead.  I was nervous about doing so (for reasons that, in retrospect, probably don't make sense), so I asked if I could mail in the cashier's check.  They said yes and gave me the address to do so.  I mailed the cashier's check in on December 6.

On December 12, I called my bank to make sure that the cashier's check had been cashed.  It had not.  I called the automated phone system for Wells Fargo and it indicated that the mortgage was now current.  No late fees, no balance due, next payment due January 1, 2018.

OK.  Great.  Check is probably just pending.

On December 14, I received a letter from Wells Fargo, dated December 12, stating that they were returning my cashier's check and gave no reason why.  I immediately called them to find out why.  They stated that they had already received payment for the past due amount on December 10.  I asked who sent that money in and they indicated that they did not know, that the funds came in on a wire.

So I called the wholesaler and asked what was going on.  They called the seller to make sure he was not confused about who was going to cure the arrears.  The seller confirmed that the seller did not cure the arrears.  

So I'm sitting here with several thousand dollars in my hand, a cured mortgage and a whole lot of confusion.

My next phone call is to the attorneys who are handling the past due HOA fees. I ask them for a payment plan and lay out something that I think is reasonable. They say that they'll need to talk to the Board of the HOA for approval. OK. I'm pretty confident that the plan I've outlined is reasonable and that they'll be happy getting payments on an account that is something on the order of 4+ years behind.

The attorneys contact me back, stating that the original owner was something of a scam artist and has made many promises in the past that never happened.  They also say that they've had people in the past contact them claiming to have purchased the condo and they would now be responsible for the bill, but then nothing would ever happen and it would always turn out that there was no purchase.  In short, the board has denied my payment plan proposal and wants the full amount up front or I risk them starting foreclosure (sigh) because they don't believe I'm legit.

In the meantime, I requested a title search on the condo and it comes back with the most bizarre thing.  There's a letter filed with the county, by the seller, indicating that the seller has been the victim of a "Quit Claim Scam" wherein somebody filed a quit claim deed for this condo back in 2010 claiming the owner quit claimed it over.  That quit claim has been removed from the record, but this letter explaining the attempted theft of the condo remains on the record.

Weird, right?

So now I've got a property that has this weird history and some unknown person has paid off the past due mortgage. (Sure wish they'd payoff the past due HOA fees too!)

So forgive me for being a little paranoid, I'm now just really nervous that something, somehow, is going to bite me in the butt on this.  I've ordered a title report every 2 weeks to make sure that nobody is going to file anything with the county that further complicates this issue.  It's only $5.00 for the report, so certainly not something that's going to break me.

SO my questions are these:

1.  Is there any way to find out who paid the mortgage company?

2.  If there is a way, do I even care?

3.  What's my exposure here?  If somebody else paid this thinking they could then take over the property, that's their problem.  

4.  Am I morally/ethically obligated to track down the payer and give them their money back?  (Part of me thinks yes, but another part of me feels like this is probably some scammer that got bitten by their own ploy).

5.  Other than pulling a title report every two weeks, is there anything else I could or should be doing to protect myself?

My intent on this property (as of now - could change) is to flip this property.  What are the odds that the title is going to be FUBAR and will affect my ability to sell/convey clean(ish) title at closing?

Thoughts?  Ideas?  Suggestions?  

 First, Wells Fargo is notorious for playing double fisted. (You can't rust them, get everything in writing.) Second, only someone authorized on the account can get information from a lender or trustee. Get written authorization from the seller. Third, Wells Fargo can foreclosure on you if they find out you are taking the property Subject To. See; Due on Sale Clause. Fourth, did you get a Title Report? Fifth, always send reinstatements Western Union so it gets credited properly and you have some proof to fall back on (this has saved me several times) Sixth, this rabbit hole is deeper than you think but it is retrievable. 

@Linda Weygant  If your seller was under contract with a third party when you took title you could certainly end up in litigation over ownership of the condo plus a claim that your seller (and perhaps you, as a result) were unjustly enriched. Unfortunately such a claim would be governed by the applicable SOL. Under the circumstances you have to assume you were not the only investor the seller contacted about their impending problem.

What state is this condo in -- and is there a statutory framework of protections for homeowners in foreclosure and was it followed?

Update the discussion as the facts develop.

Originally posted by @Mike S. :

 First, Wells Fargo is notorious for playing double fisted. (You can't rust them, get everything in writing.) Second, only someone authorized on the account can get information from a lender or trustee. Get written authorization from the seller. Third, Wells Fargo can foreclosure on you if they find out you are taking the property Subject To. See; Due on Sale Clause. Fourth, did you get a Title Report? Fifth, always send reinstatements Western Union so it gets credited properly and you have some proof to fall back on (this has saved me several times) Sixth, this rabbit hole is deeper than you think but it is retrievable. 

Thanks for replying, Mike.

I have a power of attorney on the account from the seller, but it is not "finalized". According to Wells Fargo, they sent me paperwork a week or so ago that I need to fill out in order to finish the POA. I have no idea what that could even be. A POA is a POA. Why they are requiring extra paperwork, I have no idea. I guess I'll figure that out when I get it.

The Subject To goes as follows:

1.  Seller Quit Claimed the property into a Land Trust with himself as beneficiary.

2. A document was then executed that removed him as beneficiary and named my LLC as beneficiary instead.

So I don't think this is a traditional Subject To.  The original title holder (the Land Trust) still has title - title has not changed hands.  Just the Beneficiary of the Land Trust has changed.  Thoughts on that?

Yes, I received a title report. The liens showing up are all what I knew about - the first mortgage, the HOA dues and a down payment assistance loan. All previously disclosed. And then the attorney letter I mentioned in my original post, which is the issue that has me nervous.

I agree that this is a fairly deep rabbit hole.  No clue what I'm going to find and am just looking to the wisdom of BP to figure out what could happen and how I could mitigate it and get in front of it BEFORE it rears its ugly head.

Originally posted by @Tom Gimer :

@Linda Weygant If your seller was under contract with a third party when you took title you could certainly end up in litigation over ownership of the condo plus a claim that your seller (and perhaps you, as a result) were unjustly enriched. Unfortunately such a claim would be governed by the applicable SOL. Under the circumstances you have to assume you were not the only investor the seller contacted about their impending problem.

What state is this condo in -- and is there a statutory framework of protections for homeowners in foreclosure and was it followed?

Update the discussion as the facts develop.

Thanks for replying, Tom.

I definitely see your point about unjust enrichment.  So if somebody comes forward with such a claim, I can certainly deal with that.  But do you think I need to do up front investigation to try to find whomever made the payment?  Or just wait?  If wait, for how long?  

The condo is in Colorado.   I am somewhat familiar with some of the foreclosure laws that protect homeowners here, but certainly am no expert.  Knowing that Wells Fargo can be slimy, I can't say for sure that all I's were dotted and all T's were crossed.  

@Linda Weygant If I were you I would not ignore the issues potentially implicated by obtaining title via Quitclaim if a third party had a contract on the property. 

Let me think about your other q. 

boy that's a can of worms.. I know when I did this back when..  we never sent the bank reinstatements it always went to the trustee who handled it..   those land trust I never did quite get the reason to use those other than circumvent the due on sale.. which I think if the bank figures out there is a change of ownership they can do it anyway.

but it sounds like you might have a scammer as the owner / seller... and the middle man you used probably has no clue.. but if its not big money.. just rent the thing out until you get enough money to get even.. you could even just default and see what happens.. at that point someone will do something.

This is interesting, curious to see how it plays out...

Also, few months back there was a post involving WF and some "crazy" person who basically stopped paying to them, but WF didn't really do anything about it. Something about suing WF, a car bomb, lost evidence, and then WF keeping up the house but not going off the owner. Not that this has anything to do w/ whats going on here, but yet another odd story w/ WF...

Thanks @Jay Hinrichs - I've got a couple of workable exit strategies on this.  

The property is adequate as a rental - not the best returns, but certainly not the worst and definitely acceptable.  It's as good as anything else in the Denver market right now.

Refinancing it and paying off all the liens is definitely an option with significant cash out after remodel is also a decent play.  Still works as an okay rental, even with higher mortgage payments.

Best play is as a flip, but I'm worried about being able to get through title work or having very large title insurance expense at closing.

This is getting even more interesting. You don't even have record title... you have "a document" naming your LLC as beneficiary of a Land Trust someone else created.

Who is the Trustee?

@Tom Gimer - Colorado has the following special provision regarding Land Trusts:

Colorado’s Unique Trust Statute. In most states, a property in trust must be held in the name of the trustee, for example, "John Jones, as trustee under a declaration of trust dated June 2, 2011″. Colorado law (CRS C.R.S. 38-30-108.5) allows a trust to take title in its name, then the trustee may file a "statement of authority" identifying the trustee (CRS 38-30-172). If you want to change trustees in Colorado, you do not need a new deed, just amend the land trust and file a new statement of authority with the County Clerk and Recorder.

***

Therefore the land trust has been amended to show myself as the Trustee with my LLC as beneficiary. The Statement of Authority was mailed off to be filed with the County Clerk earlier this week.

@Tom Gimer that's why when people hit me with the hey we will substitute you as in the land trust I just say pass.. I don't understand that stuff.. if my money goes out.. I want REAL title in one of my LLC names or my name..

Linda,,, good luck with it .. sure is an interesting story.. with all my years as a HML I have seen my share of fubared title issues.. and that is what keeps us going.. right when you think you have seen it all or know it all.. something else comes up that is new and you don't understand. Like the Blockchain thread going now and how that is going to revolutionize title escrow and real estate and I don't even know what a blockchain is LOL

Sounds like you need to file a quiet title action .

Originally posted by @Linda Weygant :
Originally posted by @Mike S.:

 First, Wells Fargo is notorious for playing double fisted. (You can't rust them, get everything in writing.) Second, only someone authorized on the account can get information from a lender or trustee. Get written authorization from the seller. Third, Wells Fargo can foreclosure on you if they find out you are taking the property Subject To. See; Due on Sale Clause. Fourth, did you get a Title Report? Fifth, always send reinstatements Western Union so it gets credited properly and you have some proof to fall back on (this has saved me several times) Sixth, this rabbit hole is deeper than you think but it is retrievable. 

Thanks for replying, Mike.

I have a power of attorney on the account from the seller, but it is not "finalized". According to Wells Fargo, they sent me paperwork a week or so ago that I need to fill out in order to finish the POA. I have no idea what that could even be. A POA is a POA. Why they are requiring extra paperwork, I have no idea. I guess I'll figure that out when I get it.

The Subject To goes as follows:

1.  Seller Quit Claimed the property into a Land Trust with himself as beneficiary.

2. A document was then executed that removed him as beneficiary and named my LLC as beneficiary instead.

So I don't think this is a traditional Subject To.  The original title holder (the Land Trust) still has title - title has not changed hands.  Just the Beneficiary of the Land Trust has changed.  Thoughts on that?

Yes, I received a title report. The liens showing up are all what I knew about - the first mortgage, the HOA dues and a down payment assistance loan. All previously disclosed. And then the attorney letter I mentioned in my original post, which is the issue that has me nervous.

I agree that this is a fairly deep rabbit hole.  No clue what I'm going to find and am just looking to the wisdom of BP to figure out what could happen and how I could mitigate it and get in front of it BEFORE it rears its ugly head.

No, it isn't a traditional Sub To. It is likely the seller violated the Due on Sale clause when "1. Seller Quit Claimed the property into a Land Trust with himself as beneficiary." a. Banks don't like Quit Claims and b. normally Quit Claims invalidate Title Insurance. c. some banks look at a Land Trust as being a scam (they aren't a scam) but some banks treat them that way because it looks "fishy" and the bank didn't lend to the Land Trust. Now you add an additional entity (your LLC) and they don't know what they've got. The expense and time you will need on this one might exceed your expectations (defending the title in court).

1. I would either sell the property in a traditional manner (MLS or FSBO) for cash or financing but pay off Wells Fargo.

2. Or, be prepared to refinance Wells Fargo out of the transaction.

@Linda Weygant  OK well your summary was not so specific. Good! ... for now. I would be sure to check the land records to make sure nobody else records a similar document with conflicting information. 

@Jay Hinrichs Yeah, when I see a land trust involved with any sale I keep a close watch on the deal. I've pulled the plug on several over the years... let the next title company play the role of co-defendant.

Thanks @Mike S. - I am prepared (preparing?) to sell the property after rehab, but am also prepared to Refi Wells Fargo out as well if I end up keeping it as a rental.  

If the title issues are so FUBAR that I can't convey title, I'm definitely prepared to keep the property as a rental and either Refi Wells Fargo out or just keep paying the loan as long as they don't call the note due.

@Matthew Paul - thanks for the quiet title suggestion.  I knew there was something like that which could be done, but I didn't know the proper terminology to even do the research.  I've got a great lawyer and will contact them to see if they concur that this is the right way to go.

@Tom Gimer - Do you think my original plan of pulling an O&E report every two weeks is sufficient for making sure nobody else records any documents on this?  Or is there something more I should be doing?

Originally posted by @Linda Weygant :

Thanks @Mike S. - I am prepared (preparing?) to sell the property after rehab, but am also prepared to Refi Wells Fargo out as well if I end up keeping it as a rental.  

If the title issues are so FUBAR that I can't convey title, I'm definitely prepared to keep the property as a rental and either Refi Wells Fargo out or just keep paying the loan as long as they don't call the note due.

@Matthew Paul - thanks for the quiet title suggestion.  I knew there was something like that which could be done, but I didn't know the proper terminology to even do the research.  I've got a great lawyer and will contact them to see if they concur that this is the right way to go.

 Just curious, how would you refi if the title can't convey? I don't know any lenders that will refi unless the title is clear or can be cleared. 

I would have a title company run a report (shouldn't cost more than $50 -$60) and find out what the current status is on the title.

my last thought is that is title is so messed up you cant sell. your not going to be able to borrow either.

Originally posted by @Jay Hinrichs :

my last thought is that is title is so messed up you cant sell. your not going to be able to borrow either.

This is a "don't touch" file at this point. Nobody  would lend if they knew the details. It's so hot it would burn the 1003.

@Mike S. & @Jay Hinrichs - excellent points.  I'll see if the Quiet Title Action that @Matthew Paul recommended will settle those issues.

You are princes among men, guys.  Thanks for your insight and advice.  I'll update later if it turns into a cluster or if it resolved easily.  Either outcome will be interesting.

Originally posted by @Matthew Paul :

Sounds like you need to file a quiet title action .

Against who? 

Originally posted by @Tom Gimer :
Originally posted by @Matthew Paul:

Sounds like you need to file a quiet title action .

Against who? 

Who is on first , .............................         Against who ?  Thats bryond my pay grade .  There are unknowns in his chain of title . I would think a good lawyer would know how to phrase it so that any and all claims would be extinguished 

Originally posted by @Matthew Paul :
Originally posted by @Tom Gimer:
Originally posted by @Matthew Paul:

Sounds like you need to file a quiet title action .

Against who? 

Who is on first , .............................         Against who ?  Thats bryond my pay grade .  There are unknowns in his chain of title . I would think a good lawyer would know how to phrase it so that any and all claims would be extinguished 

I hear you.

There is no dispute yet to litigate, no title problem, no defendants (known or unknown). That said QT could certainly be in the future plans.

Originally posted by @Matthew Paul :
Originally posted by @Tom Gimer:
Originally posted by @Matthew Paul:

Sounds like you need to file a quiet title action .

Against who? 

Who is on first , .............................         Against who ?  Thats bryond my pay grade .  There are unknowns in his chain of title . I would think a good lawyer would know how to phrase it so that any and all claims would be extinguished 

 A Quiet Title action puts on notice any & all who might have an interest in the property that the ownership of the property is being claimed. Depending on local (state) laws, it can take a month with several postings in a newspaper of record or 6 months of multiple postings to complete a "simple" Quiet Title action. Once completed, usually a Special Warranty Deed is issued and should be able to proceed as a "regular" "cleared" title. 

If any one responds, it would go to a court case and can take a year or two to litigate depending on the facts of the case. It can then be appealed. Most (90%) cases are settled before trial, so normally something gets worked out sometime just before trial. Meanwhile mortgage payments must be paid if there is a mortgage or the house can go to foreclosure sale. It's pretty rare for this type of Quiet Title. Most Quiet Title actions revolve around property lot lines and such.

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