All Forum Posts by: Hal Thompson

If anyone is interested, the mandate issued in the Bourne Valley case in the 9th circuit on Dec. 14. What this means is that there is going to be an epic number of summary judgment wins for the banks in federal court. However, equally interesting, is that the 9th circuit also ruled recently that many of these foreclosure cases should never have made it to the federal courts in the first place. Federal courts generally require complete diversity jurisdiction, and there are usually at least two Nevada state residents (the purchaser, the borrower, the trustee) in these cases.

The million dollar question now is what will the Nevada Supreme Court do? If they rule contrary to the 9th circuit, which I think is likely, then there is a possibility this makes it to the Supreme Court. If not, then it's over, and the investors are all going to be wiped out in Nevada.

@Steve Babiak Makes sense. The reason I modified my answer is that there is some likelihood (although admittedly low), that the second was sold off separate from the first, and that by failing to name the original lender, the unrecorded successor to the second is not bound by the foreclosure. This could leave their lien unextinguished.

On second thought, for case 3, I'd want to figure out where the second mortgage went before being confident that it was also held by B of A.

@Silvana Elejalde I will give you some tips. However, realize that I am not generally a Florida buyer, so I am not that familiar with the intricacies of Florida recording/court systems, etc. However, here are some tips that may be helpful, using knowledge I've gained from being in the property records in multiple states with very different systems.

Do you recommend I physically spend time at courthouse doing searches instead?

Realize that in any judicial foreclosure situation, the property records and the court records are going to contain very different information. The property records will be useful for establishing lien priority, based on the recorded date of each lien (and any subrogation agreements). The court records will detail service of process on each defendant, whether they have appeared, whether there have been any agreements re: subrogation, etc. It is irrelevant if the lien being foreclosed has priority if a junior lienholder was not properly named in the foreclosure lawsuit; that junior lien will survive if the junior lienor was not named and properly served. Therefore, you must search both the property and court records to get a full picture of whether to buy at auction. Sometimes, courts provide online access to their docket filings, sometimes for a fee. Obviously, find out if this is an option, so you don't have to spend lots of time at the courthouse. Also, it doesn't hurt to get familiar with the rules for service of process; improper service of process can blow up a perfectly good foreclosure auction and lose you a lot of money.

Double check using Property Radar?

As I mentioned  in an earlier post, I think Property Radar is best for bird dogging, but it certainly doesn't hurt to sanity check using Property Radar as well. If Property Radar shows a lien your own research does not, you must reconcile the discrepancy before moving forward. Never hurts to source your data in multiple places and then sanity check against one another.

Case 1

Generally, once a Lis Pendens has been filed in the property records, that is notice to all subsequent encumbrancers and transferees that the foreclosure is taking place, and should bind any owners who took title after the lis pendens is filed. It wouldn't surprise me if transferring the property automatically delays the foreclosure while the foreclosing entity determines what is going on. However, this title transfer tactic might also be an attempt to do a work out with some kind of third party funder, etc. Generally, I would say that this shouldn't be of concern, but might indicate that the foreclosure sale won't take place because another investor is trying to take title prior to doing a workout with the lender and borrower.

Case 2

Because of the principle I articulated above (liens of unnamed parties aren't wiped off in foreclosure), foreclosing entities will often name any parties that might have an interest in the property, regardless of whether they have filed a lien against the property. These entities probably came up on a credit report, or possibly from a bankruptcy filing. You should do your best to identify the source of these named parties, to verify that there isn't some outstanding lien or statutory superlien (these are generally sewer/hoa/water district, etc, but it can vary by state). However, sometimes foreclosing entities have better data than you will have access to, so some level of uncertainty may remain. Remember, if you ever feel uncomfortable about what the data is telling you, it's a lot cheaper to walk away than go in half assed to a foreclosure auction where your cash is on the line. The question of whether the creditors have the ability to claim money from the debtor is separate from the question of whether they have a lien that is superior to the one you are foreclosing. The debt owed by the homeowner is not your problem; liens superior to the one foreclosing at auction are your problem. Always best to identify the source of all named lienors so you can determine which is which.

Case 3

MERS is an entirely separate bucket of worms. In short, Mortgage Electronic Registration Systems is an electronic database that tracks the transfer of note interests between lenders, as a way of avoiding property recording fees. MERS records itself as the "beneficiary" of the deed of trust, and then tracks the transfer of the note internally among various investors. This is a highly detailed topic involving the Uniform Commercial Code and state law. This is an excellent primer on the topic, if you care: 

http://scholarship.law.wm.edu/cgi/viewcontent.cgi?...

The break in the chain of title that you identify, with Bank of America seeming to appear out of nowhere, is an aspect of MERS that has come under severe criticism from courts and attorneys. MERS serves to obfuscate the ownership of the note and deed of trust, and MERS has been inconsistent in its description of the legal theory surrounding its business, depending on the context (but I digress). When a note goes unpaid and the mortgage/deed of trust needs to be foreclosed, MERS will assign the deed of trust to a bank, that then forecloses on the property. In Florida in particular, foreclosures have been unwound because the bank initiating the foreclosure can't prove that it owned the note when the foreclosure was filed. This might be worth learning about, since this is a common problem with MERS in the chain of title in Florida.

Regarding the second mortgage, because the foreclosing entity owns both, I don't think they could argue that the second survives, as long as they are foreclosing the first. However, make sure that the foreclosure court documents clearly demonstrate that they are foreclosing their first lien. You don't want to buy the foreclosure of a second, thinking it was the first. As I mentioned above, you have to read the court documents. You cannot assume anything.

Should I do a title search with a title company on the ones I'm interested?

Title searches never hurt. Could be the cheapest $50 you ever spent, especially if you're not that confident about your ability to properly search the property records.

@Jason R. There is still some lawyering left to do for sure. If the Nevada Supreme Court decides the issue against the banks, that will overrule the 9th Circuit. However, if the banks appeal to the US Supreme Court, and they agree with the banks, that will overrule the Nevada Supreme Court. This is the kind of case where the assets at risk are of enough value that something of that nature could happen. However, I don't think the 9th circuit's panel decision was particularly well reasoned, and is likely to be overturned either en banc or at the Supreme Court, if it gets that far.

@Sean OToole Just to be clear, I'm not saying don't use Property Radar. Tools like Property Radar are great for honing in on potential opportunities and short listing. I tend to write a lot of my own data scrapers, but for people who aren't familiar with how to do that, then a tool like PropertyRadar is incredibly useful for short listing opportunities. However, once you have identified an opportunity you are going to purchase at auction, that's when it's time to switch gears and do your own title research. I don't even fully trust title reports. Nothing is a substitute for doing your own homework in the source property records.

@Ana Gonzalez @Sean OToole What Sean said in his post, regarding Property Radar and its use of a model to determine lien position, is why you shouldn't use a secondary source to determine lien position. Even if the model is correct and takes into account all properly recorded liens, you have to watch out for subordination agreements that no computer model is going to be able to read and digest. A subordination agreement is sometimes filed between mortgagors in order to allow one lien to jump ahead of another, often in the case of a refinance.

There is also the concept of equitable subrogation, which can also get messy. If an owner refinances, and uses the money from the new load to pay an earlier mortgage, then the new loan can jump into the place of the previous loan, even without a subrogation agreement. These issues are sometimes state specific, so it's really important to get educated on how lien priority works and the gotchas that exist.

@David Toupin Do you have a contact at B of A you could provide, or could you give some insight into getting to a decision maker at B of A?

@Marc M. This is certainly a strategy that people use. Purchasing the property at HOA foreclosure auction makes you the legal title holder, and you then have a legal right to satisfy the senior lien. However, you have to be careful of the senior lien holder asking for unpaid principle+interest+penalty fees; sometimes this can be far higher than the face value of the outstanding principal balance. Generally, it is better to try to come to an accommodation with the senior lien holder before purchasing at auction, but that can sometimes be a challenge depending on the nature of the loan and the identity of the lien holder.

@Jason R. It sounds like the attorney for the HOA didn't follow the rules. Generally, in order to foreclose on a party in bankruptcy, the foreclosing party must obtain relief from the stay from the bankruptcy court. This is generally a matter of course, unless the property has substantial equity value that would be useful in satisfying creditors. Most property that ends up in bankruptcy is encumbered by a mortgage that entitles the bank to relief from the stay, because it is either underwater or has so little equity value that it is not worth selling to satisfy creditors debts. It is pretty sloppy for the hoa attorney not to check bankruptcy status before foreclosing; you might have a cause of action against the bankruptcy attorney for violation of the automatic stay, and your subsequent harm in purchasing the property: http://corporate.findlaw.com/finance/bankruptcy-la...

@Jeff B. Get a proper title report, if you don't know how to search title yourself. I would argue even if you purchase title reports, you should still learn to search title yourself. But definitely don't rely on PropertyRadar or any secondary online source. Even with online recorder's databases, I will still check title prior to auction in the actual Recorder's Office to make sure I am getting the latest real time data. You can't afford to have bad information in this game.