Post foreclosure bank charge off

[Will Sifert]

Hi,

I am hoping to get a little information about what happens to a property after it is foreclosed on then later charged off. One of the units in my condo building was foreclosed on about 4 years ago. As far as I could tell from the recorded records the bank still owns the unit. I see where it went to a foreclosure sale in 2009 and the bank was the high bidder and bought it back at the sale. There are no other documents that I can find recoded since then in regards to this unit.

I contacted the bank recently as I was interested in buying the unit and they told me that they charged it off and no longer own it, that the previous owner who was foreclosed on owns it again. I asked if the owner was aware that they own it again and the bank said they may not know.

Full disclosure, I am also on the hoa board and the owner who was foreclosed on sued the hoa board and lost, so I would rather not contact her until I know for sure that she does own the unit again. Also no hoa dues have been paid for a long time as we have been sending the notices to the bank.

Does this all make sense, if the bank forecloses on you then later charges it off, do you regain ownership? If so should I be able to find something recorded stating this? And is it possible if all of that is true that the owner doesn't know that they own it again? What would you do in my situation?

Thanks

[Dion DePaoli]

Does this all make sense, if the bank forecloses on you then later charges it off, do you regain ownership?

It makes sense but there are common misunderstandings to the use of "Charge Off". A Charge Off is an accounting event where a loss is realized on the financials. The loan is deemed uncollectable and the balance in whole or part will be declared as a loss. A charge off can occur for any asset not just loans.

The charge off itself, is a function of realizing the loss and is not unique to loans that are foreclosed, either. The loss is what is realized. That loss can be recognized while the loan is still owned or after a loan sale or after foreclosure. All of those situations in the loan's life are different.

If I made a loan for $10 and I sell the loan for $8, I write off $2. (No foreclosure) If I decide to keep the same loan, but realize I will not collect all of the $10 but should collect $7, then I may write off $3. (some regulations apply)

When the loan goes to foreclosure sale, regardless of whether it sells at auction, the loan is written off. The loan itself is extinguish and no longer exists after the foreclosure sale event. The asset becomes real property. If the auction captures (sells the property) my $10, I have $0 in write off. If the auction captures $6, I have $4 in write off. If the auction does not sell the property and it reverts back to the Mortgagee the write off is $10. The loan is a complete loss. The real property is then put in as a new asset with a cost basis of the loan loss. When the real property sells that gain or loss is booked against the real property. The loan no longer exists.

So, the answer to the question, do you regain ownership?....NO. Unless you purchased the property at auction, the borrower is removed from title post foreclosure sale and redemption, if any.

If so should I be able to find something recorded stating this?

Well real property is within public record. So, you can certainly pull title on the property and see the last owner's chain of events. You will want to find the last recorded and unsatisfied mortgage and follow that through ownership changes by way of Assignments of Mortgage (or DOT) alone with Lis Pendens related to the foreclosure event. If the property was sent to auction then the result of that auction will be a Sheriff Deed or similar in either the name of the Mortgagee or a entity that purchased at auction. The borrower's interest are extinguished with the loan.

If you review the title of the property and the foreclosure action is not completed then the previous owner will still hold title to the property.

From time to time, a Mortgagee may not conclude foreclosure for various reasons.

And is it possible if all of that is true that the owner doesn't know that they own it again?

Yes. From time to time, borrowers have been known to vacate their property prior to the completion of foreclosure, redemption (if any) and eviction. Example would simply be a borrower who vacates after the first Notice of Default. If the borrower walks, they probably don't pay too much attention to weather the action finalizes, they simply assume it does. In some cities like Detroit, where it is really not uncommon to not finish a foreclosure, that can leave the property owner (borrower) liable. Which is also why the Mortgagee didn't finish foreclosure, they don't believe the liability of the property will be beneficial for their capital recovery.

What would you do in my situation?

Being on the board certainly helps. Initiating an HOA foreclosure will require pulling title on the property. That is really step one, so you can see what you are working with. Who is on title, what happened on title, etc. If you are not comfortable reading that on a title report, have an attorney help you.

The conversation you had with the bank tells you the bank wrote off the loan. That does not mean they finished foreclosure. It means as far as the bank is concerned they do not plan on recovering any more dollars from the loan. The could have sold the loan or they could simply just written it off and vacated or stopped pursuing the foreclosure action to its finality, which is auction. It is possible the person at the bank simply references the asset in accordance to how they have the asset on their financials.

The bank saying they wrote off the loan does not mean the lien is extinguished per se. It means the bank is not pursuing more recovery than they already have. So, a HOA foreclosure may still have to deal with the mortgage (or DOT) on title needing to be satisfied or extinguished by lack of redemption through the HOA foreclosure and depending on the laws of the state in relation to seniority of HOA liens. I suppose in that sense, technically, a bank could write the loan off and still pursue remedies once the HOA takes action or whenever they want (within limitation statutes in regards to collection).