Incorrect legal on a Freddie Mac purchase / encroachment

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Incorrect legal on a Freddie Mac purchase / encroachment

Doug Seaney
Investor · Eastport, MI · Member since 2016 · 13 posts · 3 votes

So we just bought a 3 bed 2 bath house from Freddie Mac for $24k (cash purchase).  Yes a major fixer upper!  I was telling an acquaintance about it and he said "oh you bought that?,  I heard the bank foreclosed on the wrong lot."  I called a survey company to provide me a mortgage survey and they got back to me letting me know they had done a survey on this property about 20 years ago and sent me that survey.  The house sits on an adjacent  lot to the north in a subdivision.  The tax id that I bought is meets and bounds.  the old survey shows the legal as lot 15and 16 and also the SW 1/4 of the S 1/4 lying east of the railroad.....  The mortgage from 20 years ago used the correct legal, but the last 3 mortgages failed to include lot 15 and 16.  so the bank foreclosed on what they legally had a mortgage on, it just didn't include the house. 

I called my realtor and he is to check with the listing agent as well as the title company and Freddie, haven't heard anything back yet.

I talked to an attorney at a different title company that I know and she said if the bank still owned it they could file suit to have the legal description amended, but as they didn't own it any longer she wasn't sure if that could happen.  She also said that the survey / encroachment exception in title policy was not intended to waive missing an entire house, but more for the odd 10 foot issue.

During the purchase process I asked the local assessor for the fact sheet on the house and the tax ID with the meets and bounds shows the house on that and NOT in the subdivision.  With this in hand and having done hundreds of deals without a survey I felt comfortable that I was buying what was presented. 

Freddie and the listing agent listed a house for sale not a vacant parcel - not sure who is culpable in all this?  Listing agent, assessor, Freddie, me, title company, original bank?  oh and the best part is we were about a dumpster full of demo along in the house that I don't really own!

I'm giving my agent another day or 3 and then off to a RE attorney to see if he can untangle this mess.

Has anyone here had similar happen?  I am thinking if I can get Freddie to assign the deficiency balance / judgment to me then I can go to the owner of the subdivision lots (yes same owner as the foreclosed lot) and trade her a full release of the judgment in exchange for the lots.

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Rich Baer
Real Estate Investment Attorney · Kingsville, MD · Member since 2016 · 643 posts · 408 votes
9y

@Doug Seaney

If you purchased title insurance you will ultimately be fine. The title company and title searcher are on the hook. You need to hire a real estate Attorney to handle the matter and advise you. A major issue becomes your losses from this point on and whether you should invest any money going forward knowing there are title problems. It is all fixable but it will take time and money.

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  • Account Closed
    Investor · Princeton, TX · Member since 2014 · 1k+ posts · 1k+ votes
    9y

    @Doug Seaney   My best friend bought a property at auction.  The mortgage was only on one of two properties that were owned by the same person.  The bank paid people to break into a property they did not own change the locks and then auction it off.  It was actually an onsite auction.  Only about 40 people there completely illegally.

    My friend tried to do a delayed financing and a survey had to be done for that.

    The Auction company and the bank employees FREAKED out when they finally listened and looked up what had happened.

    The auction company got out their checkbook and paid everyone off.

    Of course, if someone would have filed a complaint and they did not fix the problem they would have been out of business.

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  • Guy Gimenez
    Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
    9y

    What a mess @Doug Seaney....hindsight is 20/20. This is a classic example why a survey is important and I suspect it would have been less expensive to get a survey than a real estate attorney involved. Granted, I don't buy REO's, Fannie, Freddie, HUD, etc. properties but a survey is always a built-in expense for me.

    Would love to hear what solution you finally arrive at on this ordeal. 

    Best of luck. 

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  • Rich Baer
    Real Estate Investment Attorney · Kingsville, MD · Member since 2016 · 643 posts · 408 votes
    9y

    @Doug Seaney

    If you purchased title insurance you will ultimately be fine. The title company and title searcher are on the hook. You need to hire a real estate Attorney to handle the matter and advise you. A major issue becomes your losses from this point on and whether you should invest any money going forward knowing there are title problems. It is all fixable but it will take time and money.

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  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    9y

    @Rich Baer

    Are you sure about that ?  The title company provided title insurance on and provided closing services for the property defined by the legal description that was foreclosed on and subsequently sold. Whether or not the legal description conveyed did or did not contain a house is not part of their scope. 

    There have been a couple of similar scenarios on BP and my recollection was the last person was able to hunt down the previous owner and obtain a conveyance from them

    With the difficulty in going after a government entity, the agent is exposed here as they marketed a piece of property with a house that appears to not have a house

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  • Tyler Sterns
    SW Florida/Maryland · Member since 2016 · 89 posts · 36 votes
    9y

    How long ago was the foreclosure? If the bank foreclosed and the legal did not include lots 15 and 16, the bank never owned those lots and in all likelihood are still owned by the person who was foreclosed on. If the foreclosure were still ongoing, the foreclosure law firm could have filed a title claim, the title insurer would have then filed a QTA to reform the deed of trust or mortgage. 

    I think the RE attorney you spoke to is most likely right and your title company may be at fault. A title company should review the foreclosure docs while they were reviewing title to issue you a policy. I highly doubt that an exception would exclude an entire house. If they were intentionally doing that you would have signed numerous disclosures indicating that you knew the house was not included. However, even if they accept your claim, litigating this would be a lengthy process and I suspect they would have roeopen the foreclosure, file a QTA reforming the mortgage and redo the  sale. 

    It seems like your proposal could work. If the bank can offer the former owners something in exchange for signing a deed for the house over to you it will best for all parties. 

    Caveat, I'm not a Michigan attorney or your attorney, this is not legal advice and you should seek your own attorney before taking any action. 

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  • Jessica Zolotorofe
    Attorney · NJ · Member since 2016 · 1k+ posts · 794 votes
    9y
    Did you purchase title insurance? An owners policy should cover exactly these issues...
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  • Mindy JensenPro Member
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    9y

    @Doug Seaney , I have nothing to add except my condolences. I'm following this story because I find it very interesting. I would love for you to keep us up to date with how this pans out.

    [email protected]Podcast Guest on Show #261
    BiggerPockets
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  • Jessica Zolotorofe
    Attorney · NJ · Member since 2016 · 1k+ posts · 794 votes
    9y
    If there was a survey endorsement then the title company should definitely be liable for missing the survey not comporting with the metes and bounds and the legal attached to the deed. Do you know if your policy included one?
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  • Doug Seaney
    OP
    Investor · Eastport, MI · Member since 2016 · 13 posts · 3 votes
    9y

    @Jessica Zolotorofe the survey was in the exception section of the title commitment, however this is what my title attorney friend said was intended for minor encroachments, not for selling the entire wrong parcel.

    @Mindy Jensen - Yes it is a very interesting riddle, I find it very intriguing even though I may have my butt in a sling :)  If I wind up with 3.5 acres and a pole barn I guess I didn't get such a deal as I thought but still not too far off actual value for a buildable lot with a good sized pole barn.  I will for sure report back as this unfolds.

    @Tyler Sterns  Yes the original owner of the parcel I now own is the current owner of the other lots, about 80 years old and unknown mental / physical condition.  I am hesitant to reach out to them until I know what my options are with Title Co, Listing Realtor, Freddie, etc.  that will help me know how to approach this. 

    Years ago at a bank job we foreclosed on the wrong parcel, but we found out before we sold it and reached out to the former owner and offered 1000 bucks for a DIL of foreclosure.  worked out just fine; but we DID originally mortgage the correct parcels, which in this case didn't happen.

    Trying to find the bright side - with no heat in the house and being in Northern MI I really wasn't too excited about working on this all winter long, supposed to be a high of 5 degrees next week!

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  • Jessica Zolotorofe
    Attorney · NJ · Member since 2016 · 1k+ posts · 794 votes
    9y

    So who legally owns the lot with the house on it now?  The bank or the old mortgagor? One of the many reasons you should always use an attorney for any type of real property closing!  Do they use blocks and lots on the face of deeds in MI? If so, what did it say exactly? How about your contract with the bank? And was there any documentation or representation by the bank indicating that it was the house they were selling? And last questions (for now!) is the lot you actually purchased buildable or undersized? Is a variance a possibility or too small to build on at all?

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  • Jessica Zolotorofe
    Attorney · NJ · Member since 2016 · 1k+ posts · 794 votes
    9y

    I'd be interested to see your contract and your title commitment and binder, actually, if you wouldn't be opposed to sharing?

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  • Doug Seaney
    OP
    Investor · Eastport, MI · Member since 2016 · 13 posts · 3 votes
    9y

    the old mortgagor owns the other lots.  Not sure what "blocks and lots" are... assuming it would be lot 5 of block 6 of Cameron's lumber company addition to the village of woodland park?  If land was officially placed in a subidviosn yes we use lots.  the part I bought is metes and bounds

    https://en.wikipedia.org/wiki/Metes_and_bounds

    The land I bought butts right up to lots in a subdivision - and that is what the house sits on.  Representation by the bank / Freddie was a realestate listing that said 3 bed 2 bath house with a dozen pictures of said house.  I've asked my realtor to print that out before it miraculously disappears from the records :)

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  • Doug Seaney
    OP
    Investor · Eastport, MI · Member since 2016 · 13 posts · 3 votes
    9y

    @Jessica Zolotorofe I sent you a private message

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  • Jessica Zolotorofe
    Attorney · NJ · Member since 2016 · 1k+ posts · 794 votes
    9y

    You have a pretty good case against Freddie, but the remedy might be retrading the deed back for your money and maybe recovery of some damages, but not much and that's not really the end result you're probably looking for. I wonder if the lot the house sits on is sufficient in size and setbacks that the owner can even legally have a house on it and not own the balance. May have only been approved because the lots were contiguous and same owner. Also wonder if even though the most recent mortgages didn't include the right metes and bounds, was the mortgage from 20 yrs ago discharged from all the lots, or still encumbers the one with the house on it? If the former, there seemed to be no consideration for the discharge, but that argument would require Freddie to cooperate more than they may be willing. Who insured title when freddie foreclosed? Would be interesting to see that policy, too. Lots of variables! 

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  • Richard Ball
    Real Estate Agent · Port Huron, MI · Member since 2012 · 295 posts · 82 votes
    9y

    Hey Doug any update on this?

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  • Doug Seaney
    OP
    Investor · Eastport, MI · Member since 2016 · 13 posts · 3 votes
    9y

    The first update from realtors was that they tried to get the title company to help - as i thought the title company said no way  "we insured what you bought".  I Just met with attorney yesterday.  Good news / bad news is that he is on Freddies approved list to do foreclosreus for them, good in that he knows the workings of the beauracratic mess that is Freddie Mac.  Bad in that he doesn't want to show up on a lawsuit suing one of his best clients.  he is asking another attorney in a different practice to take point but he'll give pointers from behind the curtain.  Attorney is pretty sure we have a strong case - just need to get all parties in the same room and motivated to negotiate. 

    I also talked to the realtor that has the vacant parcels listed for sale and she tells me that the mom is also deceased so this is to settle estate.  daughter is the executor, not sure if this makes her more or less motivated to sell me a lot or 2?  Realtor does understand they cant really sell all the lots lest they sell with an encroachment issue as well.  Attorney thinks we need to file a lis pendens ?  sp?  that will restrict them from any action on the lots in question until this is resolved. 

    Hoping to get a purchase agreement with estate for the 2 lots contingent on all sorts of stuff :)  then take that PA to the parties involved and see if everyone can open their wallets and cover the PA amount.

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  • Jessica Zolotorofe
    Attorney · NJ · Member since 2016 · 1k+ posts · 794 votes
    9y
    You did spell it right, but it's a notice to the public of a pending litigation, so you really have to actually file a litigation. The foreclosure notice was sent within weeks after the owners were deceased, so that's possibly an issue in and of itself. And I don't know who would buy that other lot with the house half on yours. It's a mess for sure, but a great example of why it's so important to have a lawyer involved next time. The title company did nothing wrong. Only party that is in trouble here is Freddie (and possibly the broker who advertised improperly depending on details). Freddie advertised a lot improved with a house, and that's not what was delivered. They certainly knew or should have known better. Only problem is, as I mentioned, that you really haven't suffered any damages other than some nominal costs, maybe, so the result in court may be that you hand back over the deed and they give you your money back, but that may not be the best end result for you. I think negotiating gently with the daughter is a good plan. Hope it works out for you!
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  • Doug Seaney
    OP
    Investor · Eastport, MI · Member since 2016 · 13 posts · 3 votes
    9y

    Update - Freddie is supposedly looking into this.  So says the listing agent.  I suspect they will try  succeed to jam this back on the original lender.  I've been on the receiving end of FNMA look back, as a lender you don't really get a choice and timeframe is quite irrelevant.  Unfortunately for me that wont really solve anything from my perspective unless Freddie give me my $ back in the process.  I really would like to keep the house / project.  Not sure how motivated the original lender will be to pay any extra toward me buying the extra lots, considering they will be hurting from Freddie asking for the full loan amount back.  They may opt to re-foreclose. 

    The listing agent for the vacant land is supposed to be pinning the estate down (did I mention that the origainl owner is dead?) as to how much for the 2 or all 4 lots; once I have that I can see if between the two realtors and myself if we can agree on who pays how much to buy the lots. 

    Still in holding pattern for now I guess.

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  • Doug Seaney
    OP
    Investor · Eastport, MI · Member since 2016 · 13 posts · 3 votes
    9y

    Executor has un-listed all 4 lots and verbally says they want $10k for the two lots that are involved in my encroachment issue.  I am talking with relator to see about making  them an offer.  substantially below the $10k, as the lots are only worth anything to me and they can't sell to anyone else knowing they'd have the same encroachment issues.  I am still thinking the original bank will get this crammed down on them, and they may still have rights to re-foreclose - thus gaining the estate zero, so in theory they'd be wise to take what they can get from me and run.  If/when I get to an agreement on price I will have established my loss.  Once I know that I am thinking to sue the listing agent in small claims court unless he willingly coughs up some $.  I'd think the least he could do is give me back his $1500 commission, that along with my buyers agent's $1500 and a couple grand from me could put this to bed.  The big IF is if the estate can get realistic on the real value of the lots.

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  • Doug Seaney
    OP
    Investor · Eastport, MI · Member since 2016 · 13 posts · 3 votes
    9y

    Been slow to update this thread.  We bought the other two lots for $5,000, the listing agent gave me $1,500.  I am still countering with my buyers agent.  All things considered I'd say the outcome is acceptable.  Ended up with about 5 acres and 1300 square foot house and 24x30 pole barn for about $27k. 

    We are deep in a major renovation - so I have  been spending most of my spare time at the house.  The house is a real basket case but no real surprises yet.  Best guess is it was built around 1936, guess they weren't big on using headers over door and window openings, that's a story for a different thread.

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