The Attorney General for the State of Texas has issued numerous public warnings to homeowners facing foreclosure. The warning is simple really… “Do not sign the title to your house away to anyone claiming they can help.”
Those warnings hit me pretty good since a large portion of my business involves homeowners in pre-foreclosure. It is a common thing for an owner to deed me their house using a Warranty Deed. Furthermore, I make sure there is no possibility of fraud being involved. But the Attorney General has made it clear to NOT give up your title! Who is right? I say the Attorney General is right BUT, . . . I am not wrong.
Real Estate and Mortgage fraud are so rampant in Texas that issuing warnings to homeowners is just one step the state is taking to lessen fraud. I am not going to give the details of fraud cases that have prompted the warnings because I don’t like telling people how others committed fraud.
It is very bothersome to have to contend with homeowners when they bring the warnings up. A few less than honorable people out there make it difficult on the rest of us who go out of our way to comply with the law.
Stopping Foreclosure by Reinstating the Loan
In Texas, I teach investors how they can take over mortgages of owners in foreclosure by reinstating the loan. This is done by having the owner sign a Warranty Deed (giving me or an investor legal title to the house). The mortgage is left in place for the time being in the homeowners’ name. This stops the foreclosure for the owners, brings their loan current and once a new mortgage is obtained in my or an investors name, . . . it gives the homeowner a “paid mortgage” on their credit reports. That’s a great deal for someone who is days away from losing their house.
This plan actually leaves the owners in the house and does not increase their payments nor does it require any money from them.
This usually gets a lot of curiosity interest from investors wanting to know how it’s possible. However the purpose of this article is not to lay out the blueprint for the plan. The purpose is to show how to do legitimate business while staying away from fraud.
One major concern that surfaces when doing one of these deals where the mortgage is re-instated, left in the owners’ name and title is transferred, is the possibility of the Due on Sale clause coming up. Some investors say to put the title in a Land Trust but good luck getting a mortgage with the owners’ identity concealed.
How can you do such a deal while not raising any suspicion?
DISCLOSE! DISCLOSE! DISCLOSE!
First off, I tell everyone (and I do it myself) to urge the owners to have all documents reviewed by a real estate attorney of their choice.
THEN… I contact the lender that is foreclosing and explain the entire situation to them. Tell them EVERYTHING!
I contact the Loss Mitigation department and ask to speak to a Vice President or the highest ranking person in the department. I explain to them that I would like to reinstate the mortgage and plan to have the homeowner sign a Warranty Deed as my security. Once the loan is brought current, I intend to get a new mortgage within the next 120 days (which will then pay that lender off entirely). I tell them that I am aware such action could warrant them invoking the Due on Sale clause (and they are quick to agree). I then ask them if my plan is acceptable to them and ask for their assurance that they will not exercise the Due on Sale if I proceed. To date, only one lender has told me they would call the loan if I did that.
To summarize the scenario:
The homeowners get to stay in their house, they are not required to come up with extra money to do this and the past due balance is wiped clean. They are able to start fresh with their payments. The reassuring part for the homeowner is they feel safe and secure with the deal because they know their own lender has given their blessing and in the end, there is no reason for them or the lender to suspect any fraud or wrongdoing.
The lender has no reason to question any part of the deal because they were informed up front and allowed to say yes or no. Most lenders are all for such a scenario because they go from nearly adding a house to their REO pile to being paid in full within a few months.
So the Attorney General is right to issue warnings of potential fraud. While at the same time, I am right to disclose everything to all parties involved in the transaction because if everyone is on the same page . . . there is no fraud and everyone benefits!