Lien against seller attaching to property Im wholesaling! Need help.

Involved In Real Estate · Atlanta, GA · Member since 2012 · 19 posts · 13 votes

Hey Everyone,

I have a property under contract and found a buyer who wants to close asap. I sent the contracts to the closing attorney and they emailed me and said the seller has a lien against him for $37000.

I have the property under contract for $15000 and I sold it for $20000. My attorney said the seller was going to try an negotiate the lien down.Is there another way the seller can transfer title without the lien attaching to the property.

Im trying to save this deal...please help.

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Michael Quarles

Flipper/Rehabber · Bakersfield, CA · Member since 2008 · 3k+ posts · 3k+ votes

14y

Just wondering if you should buy the lien at a discount and foreclose against the property to cure it.

Also I would be interested in whether or not your agreement releases the seller in the case of a lien. If not you have up to the sellers net proceeds to settle the lien.

Also make certain your resell is subject to your purchase.

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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
14y
What kind of lien? Many liens get attached to the property and can't be detached without the lienholder's approval. They're specifically intended to block the owner from selling without paying off the lienholder.

I'd certainly bet the owner was well aware of this lien when he agreed to sell it to you.

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Tamara Sankey
OP
Involved In Real Estate · Atlanta, GA · Member since 2012 · 19 posts · 13 votes
14y
Im not sure what kind of lien it is. When I was told it was $37,000. I blacked out for a minute lol. The original owner of the property gave the house to her son, who is the one the lien is against. The mother didn't know about the lien against her son until now. At least that's what Im being told.

He's young so it may be a student loan or something...
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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
14y
Wait a minute. Who are you dealing with? Who actually owns the property? Sounds like you're "buying" from the mother but the property is owned by the son.
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Tamara Sankey
OP
Involved In Real Estate · Atlanta, GA · Member since 2012 · 19 posts · 13 votes
14y
Im buying from the son. His name is the one on the deed. And I wrote the contract with him. However the mother has been very much involved via phone. I have not met her in person though. I negotiated everything directly with the son.
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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
14y
"My attorney said the seller was going to try an negotiate the lien down."

You need to get an ATR "authorization to release" letter signed by the seller where you are allowed to negotiate the lien on behalf of the seller.

The lien holder might release the lien for a nominal amount. 37,000 for 3,700 BUT they will retain the right to pursue the borrower for the balance in the future.

They will not release the whole lien amount for that and let the borrower off scott free unless they are not an astute lien holder.

You need to find out WHAT amount the lien holder will settle for to release interest and then go back to the buyer and see if they will up the purchase price some with an amendment to purchase agreement.

No legal advice.
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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
14y
OK, then, the son knows what this is for. What does he have to say about this?

Note that it could be something entirely unrelated to the property. People get sued and then get liens attached to a property they own as a way to collect on the judgment from the suit. Hard to predict what the lienholder might want.
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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
14y
You have to talk to the lien holder to determine who they are,their negotiating skills,and what they will settle for.

If the point of the property is that it is paid off and the seller is wanting 15,000 then I don't see the seller getting the lien holder to settle for a small amount to release.They will not release for small fee and then let the seller pocket a big wad of cash.

If the seller is trying to dump the property and they will get no proceeds from the sale then the line holder might settle to release for a small amount and pursue them later.

If the son doesn't get any money where will he live?? If he is there rent free he will need money to move,deposits,storage,etc.

It's all about the situation.You might want to throw this one back for the work involved.You will know after talking with the lien holder and the buyer.
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Tamara Sankey
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Involved In Real Estate · Atlanta, GA · Member since 2012 · 19 posts · 13 votes
14y
Thanks for the advice guys. I may have to let this one go. Im contacting the seller now to ask them to sign the authorization to release. The son is not living in the property so he won't have to move but he does want to make a profit.

I think my closing attorney dropped the ball on this one too because I should have known about this sooner. Im finding all this out 2 days before closing.
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Ibrahim Hughes
Real Estate Consultant · Bloomfield, NJ · Member since 2010 · 2k+ posts · 1k+ votes
14y
Hi Tamara - this brings back memories of my old lien negotiating days. As Joel stated, how this plays out will have ALOT to do with the entire situation. So before I get into my suggestions on how to handle this I want to highlight something you stated:

As a wholesaler our end buyers (customers) are counting on US to deliver them a clean deal with no problems. It's not their problem that our seller wasn't up front with us from the beginning or that our attorney "dropped the ball" and brought this up 2 days before closing.

This is why I suggest to wholesalers that they learn to do their own informal title/lien searches in the beginning and get all glitches like this straightened out BEFORE we bring the end buyer in (with the understanding that an official title search will be done later on in the deal). It's OUR job to make sure that we know ahead of time who and what we're dealing with. Plus even if you put this on your attorney you will likely be stuck with legal and title search fees when these liens pop up and the deal falls apart. So it's in our best financial and professional interest to find out ahead of time who has legal ownership or control of the property and what encumbrances exists. This is how you control a deal and ensure that everyone involved, esp. you, get what they’re supposed to whether it's fees (title co and attorney), proceeds (you and the seller) or a property with marketable title (end buyer).

Now that we have that understanding (at least I hope we do) it's time to discuss the lien. How old is it? Is it owned by an individual? A creditor (i.e. credit card co. or debt collector)? How did it come about? It’s important to understand all the details so that you know how you’re going to approach the creditor.

BTW, you do NOT want the seller to negotiate this. It could be a judgment from a personal situation like a lawsuit between the seller and creditor. The seller calls the creditor with an attitude, personal attacks start flying along with memories from years ago when the case and resulting lawsuit were first being heard in court and suddenly you have no chance of getting this deal done. This is where you want to maintain control and negotiate the lien yourself.

Again, depending on who the creditor was I’d call them claiming to be a family member or friend looking to help the seller settle this situation. OR if the property was beat up I’d let them know that I was trying to buy the property but the judgment came up. Explain that the property is a piece of junk (be ready to send the creditor pics and a rehab estimate), is the only asset of the unemployed seller (embellish a little) and that this was likely the only chance the creditor would get of ever receiving a dime from the seller. Then I’d do what Roger Dawson would suggest and low ball the HE&* out of them. LOL – This will be that shock factor needed for them to understand that with a beat up house and unemployed debtor (seller), that $37000 judgment aint worth more than $800. Think that’s too low? I once negotiated a $110k judgment down to $10k (it took them 2 weeks to sit on my initial low ball offer of $5k. They were insulted at first. But came to their senses 2 weeks later and countered at $10k) so it can work depending (again) on the situation.

Let us know how you make out and the best of luck to you on this.
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Dick Green
Residential Real Estate Broker · Conroe, TX · Member since 2008 · 1k+ posts · 43 votes
14y
Maybe look at the transaction from a different angle. Instead of a flip for a quick profit. If the property is free and clear other than newly found lien, tell the current owner's that there's no profit, give them a few bucks to walk away from it. Make it income property with the lien still attached. Would it make a profitable rental?

Fight the lien battle later......much later. It's usually not the best time to negotiate on a lien after they discover you're trying to transact a sale. If you feel compelled to negotiate on the lien, the best starting position (depending on the type of lien), is the statement, "I'm thinking about filing bankruptcy and was wondering if it would be better to settle with you rather than filing."......lol.

That said, might be better to catch another fish. Good Luck!
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Ibrahim Hughes
Real Estate Consultant · Bloomfield, NJ · Member since 2010 · 2k+ posts · 1k+ votes
14y
I like Dick's approach too: "I'm dealing with the seller and trying to convince him to not file BK and instead make it possible for you to receive something out of this. If we can make it work fine. If not then I'll just move onto the next deal (in a very nonchalant voice)".
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Tamara Sankey
OP
Involved In Real Estate · Atlanta, GA · Member since 2012 · 19 posts · 13 votes
14y
@Ibrahim S. You busted my chops a little but I appreciated that :) Sometimes when deals start to take a turn for the worst it's easy to look for someone to place the blame on. I should have done more work in the beginning to make sure a clear title was transferable.

Ive found out some more about the lien. The seller (son) co-signed a loan for his father 6 or 7 years ago. The father didn't pay so now they are coming after the son. The property was originally bought by the sellers mom as an investment. She moved to NY and gave him the property to fix so he could live in but he never did. I spoke to her today and she is very upset. She said she gave him the property so he could make money off it and not to pay of someone else's debt.

I have a background as a debt collector, so I know how to approach them. It's the end of the month and the representative on the phone wants to meet their quota so I might have a good chance. Its probably with a 3rd party collection agency now and that would be even better.

@Dick. I think that's a good idea but if Im wholesaling the property to my end buyer how will he legally own the property. Quit claim deed possibly? He is going to hold it as a rental property.

At any rate I will keep you guys posted on the outcome. Thanks for all the suggestions an feedback.
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Michael Quarles
Flipper/Rehabber · Bakersfield, CA · Member since 2008 · 3k+ posts · 3k+ votes
14y
Just wondering if you should buy the lien at a discount and foreclose against the property to cure it.

Also I would be interested in whether or not your agreement releases the seller in the case of a lien. If not you have up to the sellers net proceeds to settle the lien.

Also make certain your resell is subject to your purchase.
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