Questions about a Deal with Agreement for Deed

25 Replies

This is an unusual situation, but I'll try to do my best describing it. I wasn't sure if it his question should go here or in Notes Forum.

Seller and her husband sold on "Assignment for Deed" contract that is recorded with the county a house for $45k. The current tax value is $75k.  The husband died and he is still the owner of the record. The will clearly says that the house goes to his widow.

The seller has kept immaculate records over the year and the buyer pretty much pays whenever he feels like it (always in cash with seller giving him written receipts). She has never considered foreclosing. She's in a tight spot and wants to sell all of her interest in the property for $11k. The principal left on the note according to the Seller is $26k. The principal left on the note according to the Buyer is $16k.  

I can't buy the property because he's on record. Can I buy all interest in the Assignment for Deed?  How do I get the deceased husband's name off record and mine on record?  

Once I have this interest, if the Buyer is not agreeable to modifying the Assignment, what would the foreclosure process look like as the Seller has records and he likely does not?  

Seller says buyer has missed more than 25 payments and even went a full year without a payment.  He is not current with his taxes and probably not his insurance.  I would need to modify quickly or foreclose.  

Thanks guys.

Sounds nasty. Of course, there is a chunk of upside.

So to recap facts, A and B were married. They sold house to C under contract for deed.

'A' dies testate naming spouse B as heir to subject property. 

'C' makes erratic payments to 'B' and disputes unpaid principal balance.

If your objective is to make money, my suggested play is to arrange to buy the contract on a "Note for a Note" basis. Since the first $16,000 is NOT in dispute, base you deal and discount on that number and treat the remaining disputed principal gray area differently. 

I'd tie up the contract then offer to mitigate the receivable along with a clause signed by 'C' that affirms the debt and the new terms. Thus also give you a chance to work a play on the amount of disputed back payments. This is where and when you'll stiffen the upside penalties and make clear to 'C' that there's a new sheriff in town.

I'm not in favor of trying to buy the property and clearing title as that's not where the real opportunity exists. After a lengthy foreclosure (and paying your debt to contract seller) you will still have not monetized the opportunity to your benefit. 

A rental? Nope. It's a Debt Play.

@Brian Gibbons Good to meet you at the LAREIA meeting the other night. 

Thanks for driving out to Arcadia to hear me talk about probate. 

As to above deal, since the Contract for Deed is personal property, I'm wondering if ownership of that receivable, like a secured Note, could be sold or transferred with some kind of Affidavit along with Death Certicate, in South Carolina?

@Rick H. What kind of document allows me to control her note such that I can do my due diligence and talk to "C" without actually paying her the full amount she's asking for while I do it?  Is it just a standard option contract where the real property is not a residence, but a Note between "A & B" and "C"?  

My thoughts are I'm going to go get this piece of paper and then I'm going to go knock on the guys door. He's probably going to want to break my face when I tell him I'm going to buy the note and then tell him he owes me $26k and not the $16k he claims to owe.  How do I avoid getting a broken face?  Is it just a negotiation to land on a final number likely somewhere between $16k and $26k as part of the modification?

Would a modification be subject to Dodd Frank? Would I need to get him vetted by an RMLO to even consider the modification?  What if he doesn't qualify?

@Brian Gibbons Thanks for reaching out to the probate and title guys for me.

I agree with @Rick H. that the best way is to buy the Agreement for Deed, just like it was a non-performing note.  I would record the assignment, and then start a foreclosure, which in most cases is more like an eviction process than a mortgage or trust deed foreclosure.  This would require "C" to prove his payment position, or come to a modification agreement, either of which would include your court costs.  Talk with a local real estate attorney about the details of the process in your area.  In Oregon, this process is quite simple, and does not require newspaper publication, so often there is no competition at the judicial sale, so the vendor (that's you) ends up with the property.

@Dave Metsker undefined

  This was my original angle and seemed the most straight forward. I just wasn't sure how it would play out with the dispute over principal owed and the sketchiness over past payments, but ultimately I concluded I would have the immaculate records of the seller verse the sketchy payment history and method of the buyer. 

@Kris Fox

 you are in the position of strength when you use this technique.  Good luck.

The title seems is so messed up but maybe I'm missing something.

What's the vesting on the last recorded deed into the husband? Husband as a married man, sole and separate property?   Make sure you look at the actual deed.  The vesting is very important as it dictates what kind of probate action, if any, needs to happen.

Who is named as the seller in the contract/assignment for deed agreement? Meaning who are the payees? Husband only, or husband and wife?

You can't buy either the note or the property unless the wife actually owns them.  

First off, you don't buy a contract for deed as you do a note and deed of trust or mortgage. Installment contracts require title to the property to be conveyed subject to the sale contract along with the assignment of that contract. You become the seller and when the buyer performs as agreed, you must convey title per the contract.

Some CFDs are made with executed deeds, while some jurisdictions look at it as a race to the courthouse as deeds are effective when executed and perfected when filed, some Recorder's don't accept deeds made years ago. If, in that state and local jurisdiction an old deed may be filed by anyone in possession of that deed, (which can be another issue with a Recorder saying "who are you") then you may buy the contract and take possession of the deed.

As to being in title, the seller is in title, the buyer has an encumbrance and the ownership of that has passed with probate, nothing needs to be done as that will be picked up from a title search and the buyer may sell her interests, hers from being a co-buyer together with those interests inherited.

I'm not seeing this as a seller's matter as far as the note/contract holder, what makes us think the contract is for sale, I saw that the buyer under that contract wanted to sell the property. It's a purchase from the buyer under that installment contract and paying off the contract as agreed. Buying the contract is not buying the property either, since any deed play will be seen as circumventing foreclosure that buyer can get you into a judicial foreclosure and you may not end up with the property at all. If the buyer under the contract wanted to stay there and pay as agreed, that might be a contract purchase, but they are wanting out. If you pulled that you probably won't get your face busted but may well be sued. I'd say just buy from the contract buyer and payoff the seller in title. You can negotiate that payoff.

Next, audit the file, if you have records of payments made then produce them and come to a correct payoff. This is usually an issue with individuals servicing their own contracts and buyers paying in cash or missing payments. If a payment can not be shown as having been paid, by receipts or deposits, then it remains due.

No, the contract buyer may not simply have you assume that contract, not without written consent of the holder of that installment agreement. :)  

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

Originally posted by @Rick H. :

@Brian Gibbons Good to meet you at the LAREIA meeting the other night. 

Thanks for driving out to Arcadia to hear me talk about probate. 

As to above deal, since the Contract for Deed is personal property, I'm wondering if ownership of that receivable, like a secured Note, could be sold or transferred with some kind of Affidavit along with Death Certicate, in South Carolina?

In the best case scenario, the CFD would be transferable to the wife as personal property, with an affidavit and death cert. SC code might allow for something like that. But the wife can't transfer or reconvey the real property without ownership. Unless SC has some kind of heirship deed or affidavit process to transfer the real property. It seems several southern states have such a process.

@Bill G. I think I lost you at paragraph 4.  The seller wants to sell her interest in the assignment for deed.  The buyer/current tenant does not know that any of this is happening.  

In paragraph 6, are you saying that the Seller of the property needs permission from the buyer to sell or does this misunderstanding relate to the same one in Paragraph 4?

@Account Closed

@Bill G.  The original Assignment for Deed was between the husband, alone, and the buyer. I have a copy of the will and it leaves all of his interest in the Assignment to his wife, the current owner I'm communicating with.

Without knowing SC probate code, it's hard to say if the wife needs to probate both the assignment agreement and the real property.  She's not even supposed to be using the funds from the buyer, as the payments go to her husband's estate, not her.

The will means nothing all by itself. The wife needs to get to an estate attorney to see what is needed to transfer the CFD and the underlying property to her so she can sell it.

This is not a DIY situation. Although the wife is a beneficiary, at this point she has nothing to sell other than her interest in her husband's estate. Have the wife get to someone who can properly transfer and/or probate the CFD agreement and real property.

That makes perfect sense. Thank you very much.

@Account Closed

To reiterate:  The process to transfer ownership to a beneficiary of the note in SC may be as simple as recording affidavits and death certs.  It may be that simple with the real property too.  Or it may be as complicated as probating the estate, with notice to all creditors, etc.  Get the wife to an attorney asap.  After you know more about what is required, then you can determine how you want to involve yourself and what kind of offer makes sense.

Originally posted by @Rick H. :

@Brian Gibbons Good to meet you at the LAREIA meeting the other night. 

Thanks for driving out to Arcadia to hear me talk about probate. 

As to above deal, since the Contract for Deed is personal property, I'm wondering if ownership of that receivable, like a secured Note, could be sold or transferred with some kind of Affidavit along with Death Certicate, in South Carolina?

 I learned so much, Rick, re: procedure of Calif Probate Court!

I appreciated your talk so much!

Best Wishes,

Brian

Medium banner reiskills 997   copyBrian Gibbons, REISkills | [email protected] | 818‑400‑3046 | http://MyREISkills.com

Since CFD are rare in my state, CA, and I haven't run into one in years, I have a question for @Bill Gulley :

If, as I understand your post, a vendor cannot sell a Contract for Deed, then why do I see these commonly offered for sale in mortgage states with judicial mortgages?

My presumption was CFD's were fairly common way to provide seller financing in many central and eastern U.S. States.

As my experience is really limited to CA, and anecdotal and literary explanations, I don't have any expertise. I only know how problematic they are in CA to either perfect title on a breaching vendee or to remove for a performing vendee when vendor fails (or is unable to perform). 

So, to be clear señor Bill, you say a CFD cannot be sold or assigned or am I totally off base?

Sorry Rick, the @ thing isn't working.

CFDs are usually written with a note attached or embedded in the agreement, either way there is a financing document and we'll call it the note.

You certainly can sell a CFD that you hold, but consider the contract: As an owner in title to an asset I agree to pass title after the conditions of the sale are completed. If you buy my note without the asset, you will not be in title to pass title to that buyer, you may be entitled to the payments I would have received, but I'm still the guy that needs to convey title.

If I died, skipped town or go nuts, you have a problem if you didn't get the deed to convey the property. Even if you do get a deed dated 4/19/11, some local jurisdictions may say the deed was not perfected in a timely manner or your grantor is  dead, nuts or where is he? They may not accept that deed, then you need an attorney, petition the court to cure the matter to convey.

You'll also find after dealing in these types of contracts, where they may say some attorney is holding the deeds in "escrow", that those deeds have been misplaced, lost or destroyed and can't be produced, I had to run through the Bar Association to find out what attorney "inherited" the obligations of the escrow attorney, they do kick the bucket too. Title companies just can't find them.

To avoid such issues, selling an installment contract needs to include title to the assets being sold so that the title can be conveyed to the buyer when they perform. So, you actually buy the property subject to the installment contract along with an assignment of that contract and note.

And, you never know what the future holds, these transactions fall under the jurisdiction of your friendly local court judges. Many don't like installment contracts, whatever the reason. All they need to do is to instruct the Recorder's Office in their domain not to record stale documents as they may be questionable. They could say a stale document is one more than one year old. You never know what judge might be appointed next election.

Recently here, the Recorder's Office set new recording standards, the margins of documents changed overnight with an effective date to conform. No more legal size paper, margins for recording data, top, bottom and sides, by the time you have the body of your document, well....few will be on page. Increases filing fees, standardized copy sizes for recording and scanning, etc.

So, even if you had a pre-signed deed, you may not get to record it, so again, take title to the property when buying an installment contract. :)      

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

Kris, use a standard sale contract, she must be able to provide good title, if she can not, you get your money back. She may also be responsible for title searches, so simply contract, take the deal to you title agent, let them see if there is good title and proceed, if there is a mess, they can tell you what must be accomplished. You might have some leg work to do. Sounds like you need the title company to get a payoff, you may need to negotiate with that contract holder (owner). Good advice above, but really, let your local professionals address this and guide you, hope it all flows easily for you but there can be several road blocks on this, at this point I would not have high hopes. That's part of dealing in RE. Good luck :) 

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

good conversation on this one...

@Dave Metsker

judicial sales in Oregon must be advertised just like trustee sales unless I was missing something. and from past experience CFD in Oregon if challenged need to be foreclosed out just like a recorded trust deed or mortgage... am I wrong ?

Medium ksqoekox 400x400Jay Hinrichs, TurnKey-Reviews.com | Podcast Guest on Show #222

Originally posted by @Bill Gulley :

To avoid such issues, selling an installment contract needs to include title to the assets being sold so that the title can be conveyed to the buyer when they perform. So, you actually buy the property subject to the installment contract along with an assignment of that contract and note.

And, you never know what the future holds, these transactions fall under the jurisdiction of your friendly local court judges. Many don't like installment contracts, whatever the reason. All they need to do is to instruct the Recorder's Office in their domain not to record stale documents as they may be questionable. They could say a stale document is one more than one year old. You never know what judge might be appointed next election

Unfortunately I've seen a few more CFDs than Harmon due to the POS properties I sometimes work with in the desert

So far, I've yet to see the "note" for the installment sale sold separately from the property.  Indeed, any buyer of such property buys it sub-to the existing installment sale agreement.  What I do see is title flaws created by non-performance by the buyer and then failure by the seller to take proper judicial action to restore title and/or possession.  My other favorite is sellers who can't convey title because 1) they weren't the deeded owners in the first place, or 2) the property is over encumbered.  Bummer when that happens.

Local courts here do not instruct the recorder's office (thank goodness).  I can record any document, stale or otherwise, as long it confirms to recording guidelines.  Stale documents aren't even a thing as any document conforming to recording guidelines can be recorded at any time.  

Yes K. Marie, I've had a carrier almost of fixing installment contracts that people messed up, including some legal eagles and title folks, good to hear they are doing it right in your area. Things can always change with a Recorder's requirements, some places may be lax, other not so much, but life goes on. Avoid issues when you can, there are enough whiz bang things to address than getting involved in some mess. Not to say that cleaning up messes can't be profitable, some types of messes you can seek out...LOL :)

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

@Kris Fox , you have some top notch people here helping you out.  I can only advise you what the law would be in my state, you really need an attorney in the state the property is located in to give you advice.  

    First a contract for deed does not transfer title, it is a contract to transfer it in the future.  In my state they usually escrow signed documents and there is a procedure to show the escrow holder if payments are not made.  Even if you follow the instructions ( here we do a certified mailing with a list what is unpaid or done wrong), it is possible the escrow holder will file an interpleader if the Buyer objects to protect them from suit.  Usually the payments are made to the escrow company so they know if there is a default, but not always.  there is supposed to be a Memorandum of Sale recorded in the courthouse to let folks know about the contract.  As to probate, if only the husband was the legal owner then there is a legal procedure that must be done to transfer it to wife.  It may be as simple as an affidavit and death certificate, or could require a formal probate.

    there are some things you need to do.  One read the contract carefully it often will say if ownership of the contract can be transferred, mine do.  Next you will have to have someone testify about payment history in order to terminate the contract.  In my state CFDs are legal so they are enforced.  There is no "note" in our CFDs because once you treat it like a mortgage you must foreclose like a mortgage.  If seller got a few cash payments can wife say for sure she knew about them?  Get an affidavit on payments as part of the purchase to protect yourself.  I have found CFDs to be much easier to terminate than doing a foreclosure, but it might be affected by the Frank/Dodd act since you are buying after it passed.  Anyway good luck, and consider giving buyer a chance to cure before going to terminate, good deeds seem to come back sometimes.