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

General Foreclosure & Pre-Foreclosure Forums 33 Replies

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

No company avatar mediumJohn Thedford, John Thedford | 239‑200‑5600 | http://www.capehomebuyers.com | FL Agent # SL3098153

Sounds like your lawyer just got more work?

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

No company avatar mediumJohn Thedford, John Thedford | 239‑200‑5600 | http://www.capehomebuyers.com | FL Agent # SL3098153

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!

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

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. | http://www.barnardenterprises.com

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

No company avatar mediumJohn Thedford, John Thedford | 239‑200‑5600 | http://www.capehomebuyers.com | FL Agent # SL3098153

What LTV are your lending at?

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

No company avatar mediumJohn Thedford, John Thedford | 239‑200‑5600 | http://www.capehomebuyers.com | FL Agent # SL3098153

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.

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.

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.

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?

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

No company avatar mediumJohn Thedford, John Thedford | 239‑200‑5600 | http://www.capehomebuyers.com | FL Agent # SL3098153

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.

Originally posted by @Account Closed :
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).

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

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 H., Probate+Property Puzzles Solved | http://ricktheprobateguy.com

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.

I’m glad of the discussions from @Account Closed 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… :-)

Sorry Deb, the by the minute comment was sort of a joke. I do know one attorney that bills by the 6 minute increment. I had never heard of that. I do believe the actual amount this one is charging is around $250 an hour. I was making a joke concerning the amount lawyers charge and the telephone sex lines and quite possibly the amounts are about the same LOL!. You see these late nite commercials says call now, blah blah balh, etc. Anyways, I have calls in to the attorneys and will see how it works out. I don't expect them to just give back the property. I have considered the fact they may want to sell it to pay bills if the estate owes money. That being the case, I doubt it will go that cheap but you never know. I have seen estates some sell property on the low end of pricing for whatever reason.
I appreciate the input. I just went through the property records and I don't see his name listed by the county! I am already wondering what is up with that.

Thanks!
MGJohn

No company avatar mediumJohn Thedford, John Thedford | 239‑200‑5600 | http://www.capehomebuyers.com | FL Agent # SL3098153

Originally posted by @John Thedford :
Almost all my loans are at 15% with an average LTV of 20% or less.

A 20% LTV loan seems unusually low. Maybe I misread but was this a second for the rehab? Perhaps you can clarify, John Thedford.

When someone asks us what LTV we loan at on flips, I always have to ask them to clarify. Do they mean the value of the home in as-is condition or the ARV? There's also the moving value of the property as it's being renovated. This could trend up to the ARV over time or down if the flipper messes up (over demo's the place, doesn't pull permits, shoddy work, etc.).

It's important to understand the basis of the LTV and there's certainly no standard among the rehabbers I know.

Originally posted by John Thedford:
Sorry Deb, the by the minute comment was sort of a joke. I do know one attorney that bills by the 6 minute increment. I had never heard of that. I do believe the actual amount this one is charging is around $250 an hour. I was making a joke concerning the amount lawyers charge and the telephone sex lines and quite possibly the amounts are about the same LOL!. You see these late nite commercials says call now, blah blah balh, etc. Anyways, I have calls in to the attorneys and will see how it works out. I don't expect them to just give back the property. I have considered the fact they may want to sell it to pay bills if the estate owes money. That being the case, I doubt it will go that cheap but you never know. I have seen estates some sell property on the low end of pricing for whatever reason.
I appreciate the input. I just went through the property records and I don't see his name listed by the county! I am already wondering what is up with that.

Thanks!
MGJohn

I'm hoping the reason you're not seeing the borrower's name in the property records is because there's a backlog in your county for data entry or that you are not experienced at title searching. Did you use escrow and purchase a lender's title policy when you loaned the funds?

I was summond here....

A lender has a collateral interest in the property, unless the lender get a deed in lieu of foreclosure and fee simple interest they won't own the property in that manner, the collateral must be sold any excess of what the lender is due is equity of the borrower and the borrower is entitled to overages. The borrower can sue your tail off if you take the property and fail to attempt to secure property without sale. That's why there are public sales, an attempt to sell at the highest price possible, if it doesn't sell, the lender attempts to get the highest price for the owner.

In this case, I doubt you will end up with the property unless you buy it from the estate and use your loan as part of the proceeds. IMO

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

A 20% LTV loan seems unusually low. Maybe I misread but was this a second for the rehab? Perhaps you can clarify, John Thedford.
He did say first position, and yes, that is an extremely safe LTV at 20%.

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