Unapproved BUT recorded deed of trust.

6 Replies

Quick question BP. Hope someone out there can help.

I have a hard money loan out that the investor has defaulted on. I am in second position and have beaten everyone to the forclosure punch. When I originally gave the loan a part of the documents is a statement that no subsequent lines can be placed on the property without written approval from myself. Since then they have added two smaller liens, a 3rd n 4th, equalling 133k. Neither of these had approval from myself.

I am now in a position where some serious money is being left on the table ( the flip is not finished). Trying to avoid the lengthy forclose I have convinced the investor to sign the property over with a Deed in Leiu of Foreclosure. My question is do I have to have the 3rd and 4th cooperation? Or how difficult is it to have them removed. 

I imagine to title company will not insure or pass title without the situation resolved or the 3rd n 4th cooperation.

The mortgages are recorded and showing up. I am just curious the process (if any) to get recorded but unapproved (by prior lien holders) DoT removed.

Thanks,

With Deed in Leiu of Foreclosure all subsequent liens will be inherited by new/next owner of the title. The only way to wipe them out is to negotiate a deal with the lien holders or go through a foreclosure process.

Not being "approved" by you has no effect on their validity.  Seems you would be Much better off foreclosing to wipe them out.  Can't you do non judicial on the left coast?

I am considering forclosing to get rid of them. And I am aware I take ownership of them. There could be significant funds still left to be made (almost 1 million) and it might be worth deed in leui To avoid being outbid at my own auction. 

Originally posted by @Wayne Brooks :

Not being "approved" by you has no effect on their validity.  Seems you would be Much better off foreclosing to wipe them out.  Can't you do non judicial on the left coast?

Yes I can, but I would still be looking at months of time. I still have about 100 days left for response to my NOD filing. Then it's actual foreclosure If I'm not mistaken. And it'll cost me upwards of 60k to do. The time and money might just be worth the deed in leui if my evaluation is correct.

Where the heck are you foreclosing...over 100 days to Respond to a NOD (are you sure you mean "respond"?), and a cost of $60k?? Do you have an attorney on this? I don't believe either one of those statements.

Other than Wayne, you're getter erroneous advice.

First of all, you cannot contract to prevent a borrower from using his subordinate equity as collateral to additional debt. The exception is the federal govt.

The U.S. Government does this by recording concurrent, simultaneous security instruments (DOT's in CA) to both discourage would-be borrowers from tapping the last ounce of perceived equity and if you read the HUD junior lien, it makes specific reference to such a breach.

Clever hard money lenders know how to circumnavigate this issue. However, it should have been engineered on origination. 

Your only real tool to a breach is to force liquidation after exhausting mitigation attempts. 

Yours is the reason I don't work with and lend money to real estate investors. Now, it'll get interesting for you. Not only will you likely see attempts to delay your foreclosure, but juxtaposition jockies trying to get a gain on their junior liens, too.

Your collateral is in the Sac area or the other Highlands near San Bern?

Remember, all you're doing is a forced collateral liquidation.