Non-Arm's Length Transaction and Clouded Title in Default

[Dimitry Moltoff]

My parents received a notice of default (NOD) on their mortgage several years ago and then filed for bankruptcy which cleared several judgement liens from the house, leaving only the secured mortgage loans. After bankruptcy, to avoid foreclosure, my parents brought the mortgage loan current however the lender did not record a Rescission of NOD at that time. No payments were made after bringing the loan current and my parents are now very behind in their payments. The loan has since been transferred to another servicer. Neither the new servicer nor the old servicer is willing to record a Rescission because each say it's the other servicer's responsibility.

My parents want to stay in the home. I would like to help my parents by buying the property from them and they would pay me rent. I have tried several times unsuccessfully to purchase with a conventional loan due to it being a non-arm's length transaction, the fact that there is an old (cured but still on record) NOD, and the fact that they are currently behind on their payments. The lenders consider this a "bailout" by Fannie/Freddie standards.

The house is worth about $800,000 and the mortgage balances total $550,000.  I'm looking at my options and considering some sort of cash purchase.  

Thought#1: With personal loans I could probably scrape together the $550,000 to satisfy the mortgages and maybe a gift of equity for the remaining $250,000. Then with the house in my name I would cash out refinance, either immediately or after some seasoning period if necessary. I have heard of "delayed financing" but I'm not sure if this is an option for me. Will the facts that it was a non-arms length purchase, a gift of equity, and an NOD belonging to the old owner affect my ability to refinance either immediately, after some seasoning period, or ever? If I can refinance will I be able to get the full cash out?

Thought#2: With even more personal loans I may be able to come up with the full $800,000 to purchase the home outright in cash without a gift of equity. Then with the house in my name I would cash out refinance, either immediately or after some seasoning period if necessary.  Is this plan any more desirable than the above plan for my ability to refinance either immediately, after some seasoning period, or ever?  Will I be able to get more cash out than the above plan?

I'm hesitant to go hard money because I'm not 100% sure on my ability to refinance after purchasing. I've heard so many "yes's" just to hear "no" at the end that I'm quite pessimistic and jaded.  If anyone with specific experience in situations like this with clouded titles and non-arms length transactions has any recommendations I'd be eternally grateful to hear them.

Thanks!

[Brett Goldsmith]

@Dimitry Moltoff When you say cleared, were the liens stripped? If the home had equity the liens likely weren't stripped from the home. You need to check title as those liens may still very well be on the property. Discharging personal liability from a lien and having it stripped from title are two different things.

Since it's your payments it may be worth looking into reinstating the account and taking it subject-to the existing mortgage.