I Loaned Money On A Property, Borrower Defaulted, Then Passed Away

34 posts by 14 users

No avatar medium John Thedford
Lender, Realtor, Investor from Naples, FL
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John Thedford

Lender, Realtor, Investor from Naples, Florida

Feb 08 '13, 02:05 PM


The title pretty much says it all. I hired a law firm to foreclose. I received a letter in the mail yesterday from the attorney handling the estate. Now what? What should I do if I want the property? Any comments, suggestions, helpful hints, or words of condolences to me as the lender?

Thanks!
MGJohn



John Thedford, Next Home Advisors
Telephone: 239-200-5600
Website: http://www.capehomebuyers.com
FL Agent # SL3098153


Medium 1399549246 avatar geojames James H.
Investor from Fort Worth, TX
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John Thedford

Lender, Realtor, Investor from Naples, Florida

Feb 08 '13, 02:18 PM


No doubt! What if I want the property? What is the best way to approach it? Anyone ever had this happen to them?

Thanks!
MGJohn



John Thedford, Next Home Advisors
Telephone: 239-200-5600
Website: http://www.capehomebuyers.com
FL Agent # SL3098153


Medium 1399394541 avatar jvermillionaf James Vermillion
Property Manager from Lexington, KY
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James Vermillion Donor

Property Manager from Lexington, Kentucky

Feb 08 '13, 02:20 PM


John, I have never had this happen but cant the lawyer you hired tell you right away? I would bet there is still a legal way for you to get the property...but these law questions are best left to the lawyers.

Good luck!



Medium 1398784765 avatar wheatie Jon Holdman
Investor from Wheat Ridge, CO
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Jon Holdman Moderator

Investor from Wheat Ridge, Colorado

Feb 08 '13, 02:23 PM
1 vote


The debt is still the responsibility of the estate. Because there was real estate involved, this may be a probate situation. Or, may not, if there is other ownership of the property. In any case, your claim against the property (which is properly recorded, right?) is still in effect. Your lawyer should continue with the foreclosure. He or she should know how to handle this situation.



Jon Holdman, Flying Phoenix LLC


Medium 1448324704 avatar barnardinc Will Barnard
Developer from Santa Clarita, CA
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Will Barnard Verified Moderator Donor

Developer from Santa Clarita, California

Feb 08 '13, 02:27 PM


Jon said it, your note (so long as properly recorded) is still in full force and effect. It may go to probate or if the decesaed had a proper structure, to a trust account in which the debts to the estate are paid and any proceeds remaining go to the heirs.



Medium be logoWill Barnard, Barnard Enterprises, Inc.
Website: http://www.barnardenterprises.com


John Thedford

Lender, Realtor, Investor from Naples, Florida

Feb 08 '13, 02:32 PM


Yes, it is recorded. I received a letter from the attorney handling his estate. I called them but didn't get a return call yet. The property is assessed at 95K. I hope to get it for around 40K. That would give me plenty of room to flip or rehab and then flip. I dont know, I might even want to hold it, but I am getting way ahead of myself. First, I need to find out what the estate wants to do with it. I already had an attorney hired, so I would guess that legal process is underway to foreclose. Out of about ten hard money loans I did last year, two defaulted. One just paid up 3 days before sale, and this one. That seems like a pretty high rate --20% of my loans! Most are at 15%, with about 20% LTV...and all first position.

Thanks for the advice...got a call in to the attorney....will wait and see what happens. I do hope I get the house!!

MGJohn



John Thedford, Next Home Advisors
Telephone: 239-200-5600
Website: http://www.capehomebuyers.com
FL Agent # SL3098153


Medium 1399502544 avatar genehacker Gene Hacker
Vendor from Lake Isabella, CA
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John Thedford

Lender, Realtor, Investor from Naples, Florida

Feb 08 '13, 02:47 PM


Almost all my loans are at 15% with an average LTV of 20% or less. I had four pay me off last year. Still have the rest of them. I am doing those with my Solo 401K and hold real estate outside my 401K.

thanks
MGJohn



John Thedford, Next Home Advisors
Telephone: 239-200-5600
Website: http://www.capehomebuyers.com
FL Agent # SL3098153


No avatar medium Wayne Brooks
Real Estate Professional from West Palm Beach, FL
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Wayne Brooks

Real Estate Professional from West Palm Beach, Florida

Feb 08 '13, 02:55 PM


I hope this doesn't double post.
If you take it back through foreclosure, I believe you are Only entitled to what you are owed. Even after repairs/resale, any overage from your "basis" would go the estate, assuming no other liens.
If however, the estate gives you a deed in lieu, I believe you are entitled to the full value/equity in the property. Just my opinion, ain't no lawyer.



Medium 1448387383 avatar kmarie K. Marie P.
Investor from Central Valley, CA
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K. Marie P.

Investor from Central Valley, California

Feb 08 '13, 03:10 PM


As the lender, you can only foreclose for the amount owed (plus late fees, attorney fees, etc.). If it's offered at foreclosure sale, the starting bid would be that amount. You would only get the property back if no one else bid. Or if you were the highest bidder. If it's really worth $95K, and your loan is small and in first position, there will be lots of interested buyers bidding at sale. IMO it is unlikely that you would get the property for $40K.

Other options include settling with the estate by offering to buy out their equity and getting the deed. Since the estate has an attorney, my experience says they will act to preserve the asset and equity. They may even have the funds to bring the loan current (or could do so by finding a lender willing to do loan in jr. position or refi and pay you off entirely. I would find out the estate's intentions asap if it were me.



Wayne Brooks

Real Estate Professional from West Palm Beach, Florida

Feb 08 '13, 03:17 PM


Forgot to mention, @K. Marie Poe is probably right. I bought a couple of properties a few years ago at the Lee county auctions, before the competition heated up. I looked at Collier county recently and it seems quite competitive. I doubt you'd get it at a price you want, even though you can't "keep the difference" anyway.



K. Marie P.

Investor from Central Valley, California

Feb 08 '13, 03:19 PM


Originally posted by Wayne Brooks:
I hope this doesn't double post.
If you take it back through foreclosure, I believe you are Only entitled to what you are owed. Even after repairs/resale, any overage from your "basis" would go the estate, assuming no other liens.
If however, the estate gives you a deed in lieu, I believe you are entitled to the full value/equity in the property. Just my opinion, ain't no lawyer.

Wayne: this post didn't make any sense to me. If you take property back at sale, you get collateral instead of getting paid off. A lender can do anything they want with a property after they take it back, regardless of basis. Does it work differently in FL? Are you saying the lenders selling REOS can't sell for more than what they are owed?



John Thedford

Lender, Realtor, Investor from Naples, Florida

Feb 08 '13, 03:20 PM


Thanks. I have a call in to the attorneys office. I would like the property. IF they want to sell it, the the only question is how much. I left a message with my attorney stating the same thing. Now, I guess I wait while the two firms talk back for 3.00 per minute. You know, I just realized something! Those phone you know what sites charge maybe $3.00 a minute. The attorney charges $3.00 a minute. Notice how the similarity is to getting scr****? LOL!

Thanks!
MGJohn



John Thedford, Next Home Advisors
Telephone: 239-200-5600
Website: http://www.capehomebuyers.com
FL Agent # SL3098153


No avatar medium Deborah Smith
Phoenix, AZ
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Deborah Smith

from Phoenix, Arizona

Feb 08 '13, 03:51 PM


Whoa really? They charge by the minute? I have never encountered that. Most detailed I have seen from attorneys or CPAs has always been at least rounded to the nearest 1/4 hour. Strange.



Medium 1448388825 avatar stevebabiak Steve Babiak
Real Estate Investor from Audubon, PA
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Medium 1448386327 avatar financexaminer Bill Gulley
Investor, Entrepreneur, Educator from Springfield, MO
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Steve Babiak Verified

Real Estate Investor from Audubon, Pennsylvania

Feb 08 '13, 04:27 PM


Originally posted by @K. Marie P.:
Originally posted by Wayne Brooks:
I hope this doesn't double post.
If you take it back through foreclosure, I believe you are Only entitled to what you are owed. Even after repairs/resale, any overage from your "basis" would go the estate, assuming no other liens.
If however, the estate gives you a deed in lieu, I believe you are entitled to the full value/equity in the property. Just my opinion, ain't no lawyer.

Wayne: this post didn't make any sense to me. If you take property back at sale, you get collateral instead of getting paid off. A lender can do anything they want with a property after they take it back, regardless of basis. Does it work differently in FL? Are you saying the lenders selling REOS can't sell for more than what they are owed?

K. Marie Poe - I concur. But what Wayne Brooks has posted is reminiscent of some of @Bill Gulley's posts, so maybe somebody will step up and explain (now that I've mentioned all of them).



Jon Holdman Moderator

Investor from Wheat Ridge, Colorado

Feb 08 '13, 05:12 PM


There are several possible outcomes:

1) The estate sells the property and pays off your note. You will get the principal, interest and any other charges you're owed. If the estate gets more than enough on the sale to pay you off, they keep the excess. If not, they come out of pocket to pay you off. They cannot sell without paying you off unless you agree to a short sale.

2) The estate gives you a deed in lieu. You get the property. You wouldn't pay anyone anything. I've done this with a defaulting borrower on a hard money loan.

3) The estate refuses to give you a deed in lieu or sell. You foreclose. Around here you start the bidding at what you're owed OR LESS. I see lender start the bidding lower and file a judgment for the shortage. You could do that if you think the estate has assets.

3a) Nobody bids. You get the property. You don't owe anyone anything.

3b) You start the bidding at what you're owed and someone else wins. You get what you're owed and the estate gets the excess (after fees.) If the winning bid is below what you're owed, you might be able to go after the estate for the shortage.

3c) You keep bidding and win. I don't see this happen here, but perhaps its allowed in your area. You would pay the foreclosure trustee the full amount and get the property. The amount you're owed would come back to you and the excess would go to the estate. So, you would be out of pocket, on net, the amount of the excess. If the winning bid is below what you're owed, you might be able to go after the estate for the shortage.

You're lawyer is charging you $180 an hour. That's a pretty typical rate.



Jon Holdman, Flying Phoenix LLC


Medium 1448388906 avatar rtpg1 Rick Harmon
Investor from Carbon Canyon, CA
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Rick Harmon

Investor from Carbon Canyon, California

Feb 08 '13, 05:18 PM
2 votes


My 35 cents* worth: Been making mortgages to probate estates and trusts forever.

@John Thedford - The basics have been covered here. Although your borrower pledged the real estate as collateral, it's unlikely that you will become the owner. You do have the right to continue pursuing foreclosure of the security instrument (mortgage) however at a 40% LTV there are likely to be other bidders.

As for someone else giving you a deed-in-lieu, well, that probably won't happen either. In order to pass marketable title, that person will need capacity, powers and authority to transfer, as typically provide via probate. Why would anyone open probate in order to give you the property? More likely, someone will open probate in order to devise a plan to either save the property from (your) foreclosure and sell it or distribute it to heirs or beneficiaries.

That's not to say that there are no profitable plays for you (I consider myself a master at these) however you'll be in an adversarial position with the estate and not held in high regard by the judge who will be asking why you're not just happy to get your investment back. Not my position, mind you, but how unsympathetic a court will look at your actions.

Good luck. Do the right thing. You'll get richer in the long run.

*Used to be 25 cents, but due to inflation...



Medium rtpg logo drop shadowRick Harmon, Rick the Probate Guy's Podcast
Website: http://ricktheprobateguy.com/the-hunting-club/


K. Marie P.

Investor from Central Valley, California

Feb 08 '13, 05:26 PM


It sounds like the OP has a first position lien at 20% or less of value. Unless there are other issues with the property, the estate has no reason to let the equity go. It would be a pretty clueless lawyer and exec/admin that couldn't figure out how to either bring the loan current or refi and payoff the OP. With that kind of equity, even if the estate has no cash on hand, there are plenty of short term loan options.

I'm assuming the OP is aware that lending at 20% or less of value is not usually going to lead to acquisition of properties. However, if the estate/heirs need immediate cash, the OP might be their best and quickest buyer.



Medium 1399375609 avatar equity Jeff S.
Asset Based Private Lender from Los Angeles, CA
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Jeff S.

Asset Based Private Lender from Los Angeles, California

Feb 08 '13, 05:56 PM


I’m glad of the discussions from @K. Marie P. and @Jon Holdman explaining where the money goes. I get so tired reading here from those who think it’s in the lenders interest to foreclose. There is no additional profit here center or unjust enrichment. If you didn't over-lend, the best you’ll generally do is come out whole. Alternately, you could end up owning a property for more than it’s worth.

I know nothing about the nuances of probate, but it wasn't mentioned that if you get a deed-in-lieu, you’ll receive the property subject to all encumbrances. It’s important to either clear these before you take ownership, or at least understand what you're getting with the property.

Originally posted by Rick Harmon:
My 35 cents* worth

*Used to be 25 cents, but due to inflation...

It used to be two cents, Rick. Talk about unjust enrichment… :-)



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