Inherited home with defaulted mortgage that was never foreclosed

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Inherited home with defaulted mortgage that was never foreclosed

Nicho Pruett
Investor · Upper Marlboro, MD · Member since 2015 · 43 posts · 35 votes

HELP - What should I expect when negotiating?

Background:

I inherited my childhood home only to find out that my mother refinanced it 15 yrs ago for $70K. She made payments (about $25k) up until about 7/8 years ago and stopped due to financial and medical issues. The loan went into default. She’d been banking with this credit union for over 40 years; so they were kind enough to not foreclose. I think they “wrote it off as a loss”. Whatever they did, the head of their debt collections told me they never planned to come after her for the money and instead would wait until she passed to collect.

Issue:

Since she stopped paying, the fees/interest have run up to more than the original loan - last I checked the total is about $85k. I am going to meet with the lender to negotiate terms and want to know what I can expect and what is appropriate/will reasonably be accepted.

I’d like for them to forgive all of the fees and let me pay off the balance that was owed at the time she defaulted.

Is this reasonable? What are my chances they’ll accept it? If not reasonable what would be?

Any help/insight is greatly appreciated.

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Stephanie P.Pro Member
Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
7y
Originally posted by @Nicho Pruett:

HELP - What should I expect when negotiating?

Background:

I inherited my childhood home only to find out that my mother refinanced it 15 yrs ago for $70K. She made payments (about $25k) up until about 7/8 years ago and stopped due to financial and medical issues. The loan went into default. She’d been banking with this credit union for over 40 years; so they were kind enough to not foreclose. I think they “wrote it off as a loss”. Whatever they did, the head of their debt collections told me they never planned to come after her for the money and instead would wait until she passed to collect.

Issue:

Since she stopped paying, the fees/interest have run up to more than the original loan - last I checked the total is about $85k. I am going to meet with the lender to negotiate terms and want to know what I can expect and what is appropriate/will reasonably be accepted.

I’d like for them to forgive all of the fees and let me pay off the balance that was owed at the time she defaulted.

Is this reasonable? What are my chances they’ll accept it? If not reasonable what would be?

Any help/insight is greatly appreciated.

Nicho

Since you asked the question, "Is this reasonable" I will say absolutely not.  The credit union was good enough to not foreclose on your Mom for 7-8 years and you want to pay off the balance that was owed at the time of default and waive all their fees???  That's waiving at least 6 years of payments, 6 years of taxes and 6 years of insurance not to mention depreciation while your Mom lived there.  Like others have said, "Don't ask, don't get", but that's a pretty huge ask.

I would get an appraisal to find out what it's really worth and then work from there.  It really is going to depend on whether there's equity in the property; that will tell you which way to go.  My guess is there is pretty significant equity.

If there is significant equity and you want to pay the credit union off, renovate the property and rent it out, there are numerous loan products out there to get the property rent ready.  If you intend to live in it, it gets a little more dicey, but there are products out there for that too.  The credit union may even do the loan.

Best of luck

Stephanie

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  • Nicho Pruett
    OP
    Investor · Upper Marlboro, MD · Member since 2015 · 43 posts · 35 votes
    7y

    @Joe Splitrock

    Thanxxx so much for your insight. You are exactly correct. I definitely owe them a lot. Even when I first reached out to them. From the very first dealing they have been nothing more than kind. I will pay just about whatever they ask. I hope me wanting to understand the full picture when it comes to negotiating does not sound like ungratefulness because it definitely is not. I come from the prospective that being fully knowledgeable when making decisions is the best stance anyone can have. And that’s my goal. No matter how I feel personally when handling business you have to take your heart out of it and know what to expect. Otherwise I could go in there willing to pay more than needed.

    Remember my questions are because I don’t know not because I want to take advantage and at the same time understand the business better.

    Thanxxx for keeping me humble. Something both my parents drilled in me and would always expect - even from above. This project has more meaning to me than many might understand. It’s about saving a legacy.

    3Reply
  • Nicho Pruett
    OP
    Investor · Upper Marlboro, MD · Member since 2015 · 43 posts · 35 votes
    7y

    @Wayne Brooks

    Thanxxx so much. I thought they received a benefit some how. I heard when businesses and filled losses there were tax benefits. Maybe not so true.

    0Reply
  • Nicho Pruett
    OP
    Investor · Upper Marlboro, MD · Member since 2015 · 43 posts · 35 votes
    7y

    @John Teachout

    Thanxxx so much. Great info. I’m definitely keeping it just trying to make a win/win for both of us. But I needed to ask here the info in these posts to truly know if my thought process was at least in the right direction.

    0Reply
  • Nicho Pruett
    OP
    Investor · Upper Marlboro, MD · Member since 2015 · 43 posts · 35 votes
    7y

    @Joe Frank

    Thanxxx so much. I definitely appreciate what they did. Cause they didn’t have to do it and I could have been in a much worse position.

    0Reply
  • Doug SmithPro Member
    Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
    7y

    @Nicho Pruett I’m not sure if I were you that I would go directly to the lender and have that conversation. If it’s been that long, it might be beyond the statute of limitations in your area. Those vary by state. I would start by having a conversation with a good, reputable, experienced attorney that handles foreclosure defense in your area. I certainly wouldn’t do it yourself. Definitely do not make a payment until you chat with the attorney.

    1Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    7y
    Originally posted by @Nicho Pruett:

    @Joe Splitrock

    Thanxxx so much for your insight. You are exactly correct. I definitely owe them a lot. Even when I first reached out to them. From the very first dealing they have been nothing more than kind. I will pay just about whatever they ask. I hope me wanting to understand the full picture when it comes to negotiating does not sound like ungratefulness because it definitely is not. I come from the prospective that being fully knowledgeable when making decisions is the best stance anyone can have. And that’s my goal. No matter how I feel personally when handling business you have to take your heart out of it and know what to expect. Otherwise I could go in there willing to pay more than needed.

    Remember my questions are because I don’t know not because I want to take advantage and at the same time understand the business better.

    Thanxxx for keeping me humble. Something both my parents drilled in me and would always expect - even from above. This project has more meaning to me than many might understand. It’s about saving a legacy.

    The estate attorney will work with the bank to ensure everything is done fairly and properly. You can be the nice person showing gratefulness and the attorney can negotiate to settle the debt. The attorney is not emotionally connected, so it is better if they deal with it.

    That is great that you want to honor her legacy. I am sure she would be proud of you! I wish you the best of luck and feel free to reach out if I can offer any advice in the future.

    5Reply
  • Account Closed
    Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes
    7y

    @Nicho Pruett It's a little more involved than it may look like at first. Here are a series of points:

    1. Has the Will been probated and has your name been recorded as the rightful owner?

    2. The Credit Union has a fiduciary responsibility to the people who put their money & trust in the Credit Union to use the money wisely, therefore I wouldn't expect the C.U. to forgive unpaid payments.

    3. The C.U. doesn't want to wind up with the house, either as an REO or have to foreclose if they can avoid it.

    4. They don't get to keep any excess proceeds from a foreclosure sale. Any excess money, (if there is any which is rare because of how foreclosures are structured) should go to the rightful heir and usually takes an attorney to track down to find out how to collect it from the C.U. But don't expect any excess money.

    5. The C.U. doesn't like you and they don't dislike you, they just want their money (and paid on time. ) So, whatever happens, it isn't personal to them.

    6. Depending on the type of loan issued and whether it is insured or not plays a major role in what they are allowed to do.

    Option 1:  Ask the C.U. if they are willing to let you assume the loan, reset the amount and the interest rate as necessary and you start making the payments.

    Option 2: Ask the C.U. to allow you to put the house on the market and then pay off the loan with the proceeds, you get to keep the rest.

    Option 3: Find an investor willing to pay off the C.U. and then you Joint Venture to fix it up and sell on the MLS.

    Option 4: Find an investor to sell the house to "as is".

    Option 5: Find a Hard Money Lender or other Lender to provide you with financing to pay off the C.U.

    All of this is assuming you have "Rightful Title", that probate is over if needed and that there aren't other Heirs involved.

    2Reply
  • Desiree Wrencher
    Member since 2019 · 8 posts · 4 votes
    7y

    @Nicho Pruett, Do you wish to keep the home?

    0Reply
  • Davido Davido
    Rental Property Investor · Olympia, WA · Member since 2012 · 543 posts · 311 votes
    7y

    @Nicho Pruett and @Tom Gimer

    Maryland Foreclosure Statute of Limitations on Foreclosure. It was changed in 2014, to 3 years?

    The general statute of limitations in Maryland is three years from the date the cause of action accrues, except as otherwise provided. Specialities, including contracts under seal, have a 12 year period of limitations pursuant to Section 5-102 of the Courts and Judicial Proceedings Article of the Annotated Code of Maryland. Maryland deed of trust and note forms are generally sealed documents to which the 12 year period applies. In the 2014 session, the Maryland General Assembly amended this section to state that the 12 year period does not apply to "(a) deed of trust, mortgage, or promissory note that has been signed under seal and secures or is secured by owner- occupied residential property, as defined in Section 7-105.1 of the Real Property Article." The transition provisions of the statute gave anyone who had such a sealed instrument at the time of enactment until July 1, 2017 to institute an action.

    Further, a servicer will be unable to use traditional methods to revive a debt which is subject to the statute of limitations. As of October 1, 2016, Section 5-1202 of the Courts Article will provide that any

    0Reply
  • Davido Davido
    Rental Property Investor · Olympia, WA · Member since 2012 · 543 posts · 311 votes
    7y

    Nicho, Is the property in Maryland?  If it is the mortgage cannot be enforced.   If they send you a bill, send it back with a note that the Credit Union waited too long, the mortgage is now beyond the statute of limitations, it cannot be enforced.  

    Note that if a foreclosure is filed by the Credit Union, you could have a need to be the owner of record on title, in order to have 'standing' to claim the protections of the Statute of Limitations.  The Courts generally don't let you defend for someone else.

    Once you are the title owner, if you want the mortgage lien taken off your title, it is a simple matter to file a quiet title lawsuit asking the judge to remove the credit union (quiet your title).  No worries -if the property is in Maryland.

    2Reply
  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    7y

    @Davido Davido You've referred to a consumer debt collection statute... which concerns a legal (money) remedy such as collecting on the note or a deficiency. We're talking about foreclosing a lien, an equitable remedy. The law on lien expiration in Maryland can be found here, in section (c):

    https://law.justia.com/codes/maryland/2018/real-property/title-7/subtitle-1/section-7-106/

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    4Reply
  • Davido Davido
    Rental Property Investor · Olympia, WA · Member since 2012 · 543 posts · 311 votes
    7y

    @Tom Gimer  Alright.  Thank you.  I could be wrong, but seems to me that 7-106 applies specifically to collecting on deficiency judgements obtained after a foreclosure.   Nicho check out this article which also spells it out pretty clearly in layman's language.
    https://blog.nolo.com/bankruptcy/2014/05/21/maryland-banks-have-3-years-to-sue-foreclosed-homeowners-not-12/   Then just ask your attorney about the statute of limitations.  I'm no Attorney, but this language is pretty clear to me,  I think you have no worries.

    In the 2014 session, the Maryland General Assembly amended this section to state that the 12 year period does not apply to "(a) deed of trust, mortgage, or promissory note that has been signed under seal and secures or is secured by owner- occupied residential property, as defined in Section 7-105.1 of the Real Property Article."

    And from the statute that Tom Gimer posted is this statement that if the Credit Union doesn't release your lien, they'll be responsible for your costs (attorney) when you get a judge to order them to release it.

    (e) Enforcement. -- If the holder of a lien on real property or his agent fails to provide the release within 30 days, the person responsible for the disbursement of funds in connection with the grant of title to the property, after having made demand therefor, may bring an action to enforce the provisions of this section in the circuit court for the county in which the property is located. In the action the lienholder, or his agent, or both, shall be liable for the delivery of the release and for all costs and expenses in connection with the bringing of the action, including reasonable attorney's fees.    MD Real Prop Code § 7-106 (e) (2018)



    1Reply
  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    7y

    @Davido Davido FYI I am a Maryland barred attorney and you're giving bad advice. Reconcile the statutes. A judgment lien lasts 12 years in MD unless renewed (for 12 more). A mortgage lien cannot be enforced after 12 years of the maturity date, or 12 years after the last continuation statement was recorded.

    And yet the claim is that a lien cannot be foreclosed after 3 years have passed since the default? Nonsense.

    Go ahead and test the theory though. It will only cost you one property.

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    7Reply
  • Davido Davido
    Rental Property Investor · Olympia, WA · Member since 2012 · 543 posts · 311 votes
    7y

    @Tom Gimer  Alright.  Thanks for clearing that up.   

    0Reply
  • Gibson Chigbu Jr.
    New Orleans, LA · Member since 2019 · 4 posts · 1 vote
    7y

    @Nicho Pruett I personally believe that since they had such a good relationship with your mother that they will work out a deal with you. Do you want to keep the house?

    1Reply
  • Nicho Pruett
    OP
    Investor · Upper Marlboro, MD · Member since 2015 · 43 posts · 35 votes
    7y

    @Mike M.Thanxxx for your insight. Good things to consider. The will is currently going through probate. The property is not in my name just yet and I will be keeping it and renting it out.

    0Reply
  • Nicho Pruett
    OP
    Investor · Upper Marlboro, MD · Member since 2015 · 43 posts · 35 votes
    7y

    @Doug Smith Thanxxx I will most likely contact one.

    0Reply
  • Nicho Pruett
    OP
    Investor · Upper Marlboro, MD · Member since 2015 · 43 posts · 35 votes
    7y

    @Desiree Wrencher I’m keeping it.

    0Reply
  • Nicho Pruett
    OP
    Investor · Upper Marlboro, MD · Member since 2015 · 43 posts · 35 votes
    7y

    @Davido Davido Wow great info. Thanxxx a lot; however the property is in PA.

    0Reply
  • Nicho Pruett
    OP
    Investor · Upper Marlboro, MD · Member since 2015 · 43 posts · 35 votes
    7y

    @Tom Gimer Thanxxx so much for the clarification. Even though this is MD law. I do agree that the lien is still enforceable and I’m ok with that. I don’t think I should not pay anything. Just trying to understand if I could possibly not pay all the associates fees. Those are what build up.

    0Reply
  • Nicho Pruett
    OP
    Investor · Upper Marlboro, MD · Member since 2015 · 43 posts · 35 votes
    7y

    @Gibson Chigbu Jr.

    I agree. They could have played hardball a LONG time ago any they didn’t. For that I am GRATEFUL.

    Yes I will keep the house. My mother would have it no other way. She wasn’t one to not pay her bills and understood the value of real estate. She owned a few properties when I was younger. However, she wasn’t in the best state. We found out that she had Alzheimer’s and it effected her sooner than we knew. Causing some bad decisions.

    They say parents never stop teaching and I am truly learning many lessons from her even from the grave. 😂😂

    I consider myself BLESSED.

    0Reply
  • Brent Crosby
    Rental Property Investor · Farmington, UT · Member since 2018 · 171 posts · 148 votes
    7y

    @Nicho Pruett I just want to echo looking for back taxes and checking for liens. Could turn this blessing into a curse. Title company should be able to check that for you.

    1Reply
  • Nicho Pruett
    OP
    Investor · Upper Marlboro, MD · Member since 2015 · 43 posts · 35 votes
    7y

    @Brent Crosby Thanxxx so much. Taxes are paid up and title search completed. Those were the first things I did.

    0Reply
  • Joseph Walsh
    Brookfield, WI · Member since 2016 · 191 posts · 108 votes
    7y

    Since they are so understanding, and if there is indeed equity in the property, even after the missed payments/fees, maybe they would be willing to refinance the property and debt, possibly forgiving some of the fees.  That way, they actually get their money, and potentially more.  Just a thought.  "Hey, I really appreciate what you did with my mother, had we realized we would of taken over payments...now that the estate is cleared, maybe we can refinance the property with a new loan in my name, ...." type of conversation.  It sounds like a pretty awesome bank that you might want to do business with anyway!

    1Reply
  • Gibson Chigbu Jr.
    New Orleans, LA · Member since 2019 · 4 posts · 1 vote
    6y

    Did you ever gain possession back of the house?

    0Reply
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