Ok so here's the rundown.
I've been working with a homeowner that is in default and she has equity. She has not made a mortgage payment since June 2013. She has tried everything to save her home but has exhausted all her options. She tried to do a loan mod but got denied. She filed chapter 13 BK but it got discharged because she does not have the income to support the repayment plan. Her debts do not exceed her assets, she is not insolvent.
About the property
- 4 bed 2 bath
- 1st mortgage is around 269k
- Property value is around 500k - 525k fixed up
- Monthly mortgage payment is $1389.64
- Payoff / arrears is $27,239.67
- Property is going to sale on Monday morning at the trustee sale auction
My original plan
My original plan was to purchase her property subject to financing. I got a contract signed a couple days ago from the seller. I would pay seller's back payments to save their house from going to auction. Then put 40k is escrow, give her 20k upfront to find a place and move, and the other 20k when she moves out on July 17th. In the meantime, I plan to make her mortgage payment. Once she moves out, I fix the property up, put it on the market, sell it, pay off her mortgage and get a nice payday!
Here are the problems
- After contract was signed, I ordered a preliminary title and it came back as "Husband and wife, tenants in common."
- Husband passed away 2 years ago. She has a quit claim deed but it's not notarized or recorded.
- She has a "will." It's hand written but not notarized. The will states that she gets everything and the husband's 3 kids get nothing.
This changes everything because now the husband's half ownership of the property will go into probate. There is a spousal property petition which is like an expedited probate that would take 30-90 days.
If I still choose to move forward with this deal.
- I would have to pay the 27k back payment to save it from auction
- Write a new contract with new terms that homeowner will do the spousal property petition.
- She wouldn't get the 20k upfront unless I somehow know that the spousal property petition will work out in her favor. This is a gamble because the 3 kids will have a chance to contest her "will," fight for the property, and potentially prolong the probate hearings.
I don't know. I'm so torn! This was a sweet deal until this issue came up. Today is Sunday and I have to make a decision on whether to save her from auction and move forward with the 2nd plan or let this deal go. I already have the cashiers check made out to the lender. Debating all day whether to pull the trigger or let this go.
Any probate / real estate attorneys can give me solid advice? I am all ears!
@Viet Nguyen Probate can be a black hole. Inexperience with the process requires an attorney specializing in this area. Do you have legal counsel? Is he expert in probate? If not you are going in blind. It's doubtful the seller will be totally excluded from at least partial ownership of the property. However risks are that it can take a long, long time to get your money out. Additionally, with your contract with the seller, you will need to have an attorney representing you at the probate hearings. Not a do it yourself type proposition.
Whether the potential profit justifies the additional risk, only you can decide. A knowledgeable attorney can help quantify those risks.
@Viet Nguyen probate does not stop a/any trustee sale. If you cure trustee process, decedents "children" (I would) probably would file an Amended Petition to Administer Estate or Request for Special Notice despite what the holographic will state's. If they do, buy out their interest's
Or you can pull the trigger and walk away
Some miscellaneous thoughts:
Get releases/assignments from all (3) children. Maybe get PC 7000 Deeds from each, too.
Get a certified death cert from seller because it will be easier for her to obtain than you.
Get signed lender's authorization and release from spouse
Delay sale long enough to record deeds
Or, encumber and apply for surplus
If you are uncertain about how to monetize this opportunity, go to the green box on the bottom of my home page.
For me, the headaches and risks of this deal make it not worth it to do the deal. However, if you really like to help the seller to have at least some money to move out and if you still have some time on Monday, first thing in the morning...
1) Seek legal counsel on this one. In your state, is an unrecorded quit claim deed valid conveyance of ownership? In most states, it is valid but check with a real estate attorney in your state. If it is valid, ask the attorney if the heirs can still have a claim on the property given the "will" is not recorded.
2) If the quit claim deed makes the wife the sole owner and if the unrecorded will is valid also, then have the seller quit claim deed the property to you.
3) Then have your legal counsel call the bank and tell them that you have an offer to buy the property. Hopefully, the last step can stop the sale. If the sale can't be stopped, since you got the quit claim deed...record it so you can cloud the title. A foreclosure sale is not really valid until after it's confirmed (Confirmation of Sale). Your quit claim deed might be able to put a cloud on the title (again, check with your attorney if a quit claim deed recorded after the sale but before it's confirmed puts a cloud on the title).
4) If the sale can't be stopped but your quit claim deed puts a cloud on the title, again...with your legal counsel, see if he can vacate the Sale or prevent the Confirmation of Sale.
If #4 works and the sale is stayed or even vacated, then you can go back to the bank with your offer. If the sale is confirmed then the deal is dead. It's up to you to take the risks of paying for an attorney to do steps 1-4 above if the reward is worth it. Let us know how this goes. (I am not an attorney and so any of the above suggestions might all be invalid or useless in your state so check with a real estate attorney).
Wendell - In California, most foreclosures are non-judicial. There is no "confirmation."
I work these type situations here and wear all three hats, from time to time: (write an annual article on foreclosure and protecting clients assets for the probate legal community; occasionally foreclose as lender, also acting as trustee under my corporate entity; and routinely work with trust and estate clients to resolve a foreclosure).
Quitclaim deeds are of little value in this state since title companies want an affirmative transfer. Even with a grant deed they'll often require an estoppel letter if the transfer was an uninsured transaction.
There is a process to obtain an ExParte Order Staying Foreclosure Sale however the judges and commissioners are reluctant to approve, they are only heard certain days of the week and can be tricky to get a conformed copy of a signed order in a timely basis. Not the 24 hour trick that we used to employ.
Compounding this problem is the relocation of most probate courts to the old county courthouses away from the suburbs (due to budgetary problems).
So, for this (and other reasons), my vote is to work this outside of the probate court. At this late date, this is a salvage operation, for certain.
I've worked this same type deal hundreds of times in the past twenty five years.
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