Elderly mother served FC Auction notice,advice deeply appreciated

[Greg K.]

My mother bought a 2 family house for 514K back in 2006.  The mortgage was very complex and handled by the now defunct WMC(of GE), infamous for using scissors and xerox machines to fake documents, and anything else imaginable to get mortgages approved.

I believe it was something like a double mortgage to allow zero down payment, variable interest rate, and then went through a few re-assignments, with HSBC currently being the trustee of the note.  At the time I understood none of this, but assumed the responsibilities of managing the tenants in the other unit as well as maintenance, etc.

There were several hardships and she lost her job.  An attorney attempted to arrange a loan modification, and advised my mother to stop paying the mortgage payments.

One thing I did understand correctly was the gentrifying trend of the neighborhood, and the house has since appreciated in value to around 890K(adjusted comps analysis).  

The condition however has deteriorated and it's a very old house, I believe it to be worth closer to $700K at the moment.

A large and well known mortgage servicer was assigned to us, and they currently have the outstanding principal at $651K, but when I recently requested a pay off quote it came out to just about the same figure as what the house is worth, so, no equity.

My mother is 80 years old and English is not her first language.  She entrusted me to attempt to negotiate the selling of the house with a favorable outcome.

I went through two attempts to arrange a Short Sale with local investor that I found via loose social channels.  Interestingly, there have been several BPO's done, with walk through and everything, and the highest, and most recent value came in at ~580K.

The failed Short Sale was actually approved by the servicer for $480K.

I suspect this has to do with the Non-Performing status of the mortgage, my mother's age, and Massachusetts being a tenant/occupant friendly state.

I had to terminate the arrangement of this Short Sale when I finally acquired unbiased legal/realty counsel, and realized that the sizable return (700K - 475K = 225K) would not only be an act of fraud for us to receive, but that the buyer was likely misleading us into thinking we would get this money.

Since then, I really started doing my research, and am very interested in pursuing Real Estate Investing thanks to all of the hard lessons I've learned.

I organized an off market pool of cash investors, and showed the house and took offers.  At this time I have 2 VERY interested buyers one offering $700K , another offering $710K.  They both insist that there are creative ways to structure this deal so that me and my mother can LEGALLY , and secured by CONRACT, be able to collect the net proceeds, and split it 50/50 as her and I agreed from the start.

One of the proposed arrangements I researched and sought legal consul for, and am fairly certain would in fact still be an act of fraud.

A broker brought in an investor who proposed the idea of purchasing the Mortgage Note, and giving us the difference, secured of course in advance by a contract where we would agree to forfeit the Security(house) once the note was purchased.  This investor claimed to have a special standing that allowed him to be able to buy the note for about 50 cents on the dollar.  I do believe this approach is completely legal, but the more I attempt to research on the correct way to negotiate a note purchasing, the more confused I get.

Now, a few days ago we received a package that must have weighed 50 pounds, via certified mail, that HSBC will be holding a foreclosure auction in about 3 weeks.  One attorney said that it would be legal to arrange for one of my buyers to bid at the auction, and then we would forfeit our Homestead, vacate the premises in exchange for a net difference.  But I can't fathom any way of securing certainty that said buyer would not be outbidded by someone else, at which point the opportunity of course would be gone.

I've looked into a few other approaches, such as Short Payoff, and about to seriously look into bankruptcy.

My Goal:

Structure a deal that would allow me to comfortably situate my mother, and launch my own investment profile.

This is a very hot neighborhood, and most of the brokers and investors I've been talking to keep PROMISING that this would be a piece of cake.  But the possibility of being defrauded is not an option.  This is all we have.

Am I missing something more simple and obvious?  Can anyone offer some advice on how to proceed?

Thank you!

[Jay Hinrichs]

sounds like you have dealt with all the sharks..

if it takes a really long time to evict someone in that state your best bet maybe to let it go to foreclosure and if it bids up which it could if your buyers are already offering you whats owed. they would not do that if there was not equity above whats owed. your mom would get the overage as long as there is not junior debt.

also since her credit is trashed and if you can handle her housing.. she can just stay as long as possible until she gets evicted and then just walk out the door.. I know that's harsh but its the law as well.

in some states you get booted quickly and maybe the stress would bother her but if she is this far along in a foreclosure she has already dealt with stress.

underhanded or secret after the fact deals be careful of.

although post sale selling your redemption rights if your state has the right of redemption is very viable and toally legal.

[Cara Lonsdale]

I am confused by your post.  If your mother bought the property at $514K, how is it that you think the bank is owed over $600K????

To clarify, if you have an offer for the property that is OVER what is owed to the bank(s), then remainder is yours.  There is no fraud there.  Even if it were to go to trustee sale, if it sold for more than the bank is owed, the remainder would go to you.  So, banks just can't arbitrarily set an amount they want out of the house based on the current value.  They can only collect what they are owed.

That being said, there is probably an excellaration clause in affect if you stopped paying the mortgage payments, and that will add up quickly.  So, action is necessary for you to get this resolved.

My suggestion is that if an investor wants to pay $700K for it, take it.  Pay off the loans, and take whatever is left to get your mother into a safe place to live.

[Jon Holdman]

The reality is that if the property is worth $700k and the payoff on her note(s) is $700K she is significantly in the hole.  There is no equity.  Even if these cash investors buy without an agent your mom will still have closing costs to the tune of $15-20K.  If it does go to auction it will sell for even less, because of the risk of buying at auction.  And your mom will owe even more due to the costs.  IDK if MA (or wherever the property is located) allows deficiency judgments or not.  If they do, the lender can come after your mom for the shortage.

I'm with Cara, I'm not sure how a purchase for $514K ends up now owing $700K (if I understand correctly).  But if your mom has been not paying for several years, then you have a bunch of back payments, late fees, and probably significant legal fees already.  If there were two mortgages, then she may have fees on both.

Yes, someone could by the note(s) from the current lender. Whether they can really do it for 50 cents on the dollar is another question. Even if they do, and let your mom do a short payoff, that investor will want to make money on the deal. That would take the pressure off and allow your mom to sell retail, if possible. Or, at least sell on the MLS at the best possible price. Realize that closing costs on a MLS sale will be at least about 8% of the selling price.

From reading your post twice, I really do not see what equity it is you're chasing.  I think the best outcome here is to be rid of the house and not be stuck with any judgment against your mom.  I just don't see how you walk away with any money.

[Greg K.]

@Jay Hinrichs

Thank you for the advice.  MA does not have redemption rights.  Once someone wins the auction, they hold the deed, freshly cleared of any liens, etc.  And we would become tenants at will.  Which sure, would be a very arduous process to evict us.  But I sort of imagine the people that come to foreclosure auctions around here, to have already done enough drive by's and stake outs to know that the house is occupied. Thus, wouldn't bother bidding at the auction.   And I actually don't feel comfortable abusing the law for free rent from a person in the flesh.  However if she files bankruptcy she gets a 5 year stay on the foreclosure.

But we don't want to live here anymore.  If only there was some way to leverage these extreme benefits to a strike a deal.

@Cara Lonsdale

Thank you for replying.  Indeed I wrote a 'cliff note' version of the story.  The $651K I'm reading directly of the mortgage servicer's monthly statement.  It's a sum of an interest bearing balance and a deferred balance.  But $651 would not satisfy the loan and release the lien, as there is a prepayment penalty, and I have a faxed official pay off quote from them that's in the mid 700K's.

The attorney who arranged the modification has not returned my calls, so I'm really not sure how the principal grew, but I'm guessing it is indeed a penalty, or related to the terrible terms of the mortgage.

So indeed, if there was an overage, it would likely be a small amount of money.

I appreciate your suggestion, but that would yield something like 10 - 20K, but I'm still pretty sure there is a way to net 200K - 400K if structured properly.  The bank was willing to accept a payoff from someone else of $480K, so there must be a hidden gem here.....

[Greg K.]

@Jon Holdman

Thank you kindly for your advice.  The thing that really sticks out for me, as a novice in this business, is the shear volume of extremely eager buyers.  It's nearly impossible to buy a property in this neighborhood right now.  At one point we were offered equity in the subsequent fix-and-flip, and the broker said he predicted that after converting the two units to condos, they should sell for 700K each, so 1.4M.  Probably exaggerating, but there's no denying that the neighborhood has a very steep appreciation curve right now.

In regards to the note option, I have two buyers that have explicitly agreed to purchase the house for the 700K in whatever way we prefer, including buying the note and giving us the difference.  Yes, the investor wants to make money on the deal.  Getting this house for 700K is a great deal, and that is the incentive. 

edit:

Writing all of this out and all of your responses have my gears turning. Solution #5 would be if I could obtain an investment loan that would cover the purchase of the note, which would make me the new lendor, AND a rehab of the property. THEN we would sell it on MLS. That would be , i suspect, the most lucrative of all the approaches.

[Cara Lonsdale]

Originally posted by @Greg K.:

@Jay Hinrichs

Thank you for the advice.  MA does not have redemption rights.  Once someone wins the auction, they hold the deed, freshly cleared of any liens, etc.  And we would become tenants at will.  Which sure, would be a very arduous process to evict us.  But I sort of imagine the people that come to foreclosure auctions around here, to have already done enough drive by's and stake outs to know that the house is occupied. Thus, wouldn't bother bidding at the auction.   And I actually don't feel comfortable abusing the law for free rent from a person in the flesh.  However if she files bankruptcy she gets a 5 year stay on the foreclosure.

But we don't want to live here anymore.  If only there was some way to leverage these extreme benefits to a strike a deal.

@Cara Lonsdale

Thank you for replying.  Indeed I wrote a 'cliff note' version of the story.  The $651K I'm reading directly of the mortgage servicer's monthly statement.  It's a sum of an interest bearing balance and a deferred balance.  But $651 would not satisfy the loan and release the lien, as there is a prepayment penalty, and I have a faxed official pay off quote from them that's in the mid 700K's.

The attorney who arranged the modification has not returned my calls, so I'm really not sure how the principal grew, but I'm guessing it is indeed a penalty, or related to the terrible terms of the mortgage.

So indeed, if there was an overage, it would likely be a small amount of money.

I appreciate your suggestion, but that would yield something like 10 - 20K, but I'm still pretty sure there is a way to net 200K - 400K if structured properly.  The bank was willing to accept a payoff from someone else of $480K, so there must be a hidden gem here.....

 Unfortunately, you can't accept any funds beyond the $480K if a short sale is done.  Anything more would be fraud.  The lender's paperwork will say as much.  Additionally, you cannot receive funds outside of escrow....another indicator of fraud.  So, tread VERY lightly with these investor ideas.  You don't want to go to jail for any of them.

I would be looking for an angle more toward the predatory lending side.  I have never heard of a loan going from $514K to over $700K.  I have seen a pre-payment penalty of 6 months of interest.  However, you shouldn't have a prepayment penalty if she has been there since 2006.  That was 12 years ago!  Usually pre-payment penalties go for a year or two.  If it were my mother, I would be asking the attorney to explore that angle.  I think you will get further with that.

And if you think her original lending docs were doctored, I would have your attorney request "wet docs" for review.  The lender will have to send the originals that your mother signed.

[Jay Hinrichs]

@Cara Lonsdale  probably a sub prime loan and no payments for years could easily go this high.

@Greg K.  I get the picture now..

your getting interest from developers that want to subdivide the units.. and there probably is big upside.  if there was no equity and no upside you would not be getting anyone calling or contacting you.

if someone is willing to clear the foreclosure and do a JV on the upside that would be a good out come just have attorney put together a nice JV agreement and record it post sale.

if there truly was no equity NO one would be giving you the time of day..

the only people that generally chase no equity forclosures are the no money take title too and want to own rentals folks..

[Greg K.]

Originally posted by @Cara Lonsdale:

 Unfortunately, you can't accept any funds beyond the $480K if a short sale is done.  Anything more would be fraud.  The lender's paperwork will say as much.  Additionally, you cannot receive funds outside of escrow....another indicator of fraud.  So, tread VERY lightly with these investor ideas.  You don't want to go to jail for any of them.

I would be looking for an angle more toward the predatory lending side.  I have never heard of a loan going from $514K to over $700K.  I have seen a pre-payment penalty of 6 months of interest.  However, you shouldn't have a prepayment penalty if she has been there since 2006.  That was 12 years ago!  Usually pre-payment penalties go for a year or two.  If it were my mother, I would be asking the attorney to explore that angle.  I think you will get further with that.

And if you think her original lending docs were doctored, I would have your attorney request "wet docs" for review.  The lender will have to send the originals that your mother signed.

It's because I resolved to not break any laws in this deal, that I am here today with such a long tale. Short Sale, or any real estate transaction, would require a HUD-1 and HUD, where all side deals would have to be disclosed.

The document doctoring example was meant more humorously.  But from what I've read, if that company set up the mortgage, there must have been some funny business.

Now what you're saying about the principal growing and the payoff quote being higher, I confess I know nothing about that, and that is VERY helpful advice.  I suppose I could ask the servicer directly to explain.  Or maybe that payoff quote is negotiable.  (Attorney specializing in predatory lending said that statute of limitations has expired since 2006) Thank you!

[Greg K.]

Yes!!  I may be new to real estate but I'm not new to life.  The spike in property value traces to a real estate entity of supreme might and influence in these parts(Harvard University).

I am not asking to be spoonfed, but I must admit I am unfamiliar with the terms/jargon here.  Could you point me in a direction of what to research to understand this advice?   Thank you very very much!!

(Edit:  OK, so form a Joint Venture, which would protect both parties contractually.  But what do you mean by "clear the foreclosure"?)

[Ron S.]

I think you are chasing a rabbit down the hole and aren't going to come up with anything substantive from what I gather in your post.

It's easy to have the payoff well above the original loan amount, especially if the second was interest only. where no principle was paid for X amount of years. Those 80/20 piggyback 100% loans were very common. That doesn't make them fraudulent.

No one is going to be required to give you "wet" signatures because you make some allegation of fraud or predatory lending. The borrower that asserts the claim has the burden of providing it. If the property is in MA, it's a non judicial foreclosure so, the borrower would have to file an action in court against the servicer/lender in order to assert any allegation and again, the burden is on them. Even if the lender is required to "possess" (Not the same as "produce") the original note, don't count on them losing it as a "Get a home for free" card. "Lost note affidavits" and "Lost Note Bonds" are very common.

Do you really think you have a fraudulent loan and do you have the data (Not the opinion) to assert that in court and finally, do you have the money to initiate that claim? If so, good luck. Yes, Wilmington was a subprime lender. Yes, they were shady at times and yes, they are now defunct but that doesn't mean your loan (Mom's?) was fraud.

In my opinion, your conclusions you've drawn are flawed. If the lender gave you a balance of $651M, where are you coming up with $475M leaving you with $225M in equity? Also, in some portions you state you believe it worth $700M and then in others you state $890 with acknowledgment that that value is "adjusted"? Let's say your opinion of $700 is correct. If the total debt is $651M, there isn't any equity to chase or protect, especially if that is the "balance" (Which doesn't mean that is the payoff, when you factor in foreclosure fees and costs). Your own investor friend gave value at $580M.

Also, in my opinion, there is no legal way to "creatively" structure a deal in this scenario. Anything not disclosed and/or is outside of closing subjects you potential fraud. I can tell you from experience, if by some chance you can negotiate a short sale, if you put one dime in your pocket outside of closing, you could have a roommate and share a bunk in a state facility that feeds you three times a day. I don't care what an attorney tells you otherwise. They aren't going to be the defendant in court if their opinion proves to be flawed. 

Finally, if the sale is in three weeks? There is no legal requirement for the lender/servicer at this point to consider anything other than a full payoff to stop the sale. Bankruptcy would be the only thing that could stall the sale outside of a full payoff or a lawsuit that you have to pay for, if you can't find someone to take your case on a contingency basis (If I were an attorney, I wouldn't take it based on what you wrote) and it would only stall the sale if you don't have a case. Bankruptcy would only stall the sale if you can't pay the loan off in a 7 or, fund the plan in a 13. I don't know where you got that she gets a 5 year "stay". That's simply not true. If she files a chapter 13, she has to pay the arrears over a 5 year period AND the normal monthly payment on both loans. If she doesn't start paying after the plan is confirmed, the foreclosure continues.

P.S....Statute of Limitations? Either you misquoted or misunderstood. Statute of limitations doesn't come into play until a period of years AFTER the maturity date of the loan(s). If the loan originated in 2006, start looking into that defense about the year 2040. SEE: Massachusetts General Laws c. 260, § 33

[Ron S.]

Originally posted by @Greg K.:

@Jon Holdman

Thank you kindly for your advice.  The thing that really sticks out for me, as a novice in this business, is the shear volume of extremely eager buyers.  It's nearly impossible to buy a property in this neighborhood right now.  At one point we were offered equity in the subsequent fix-and-flip, and the broker said he predicted that after converting the two units to condos, they should sell for 700K each, so 1.4M.  Probably exaggerating, but there's no denying that the neighborhood has a very steep appreciation curve right now.

In regards to the note option, I have two buyers that have explicitly agreed to purchase the house for the 700K in whatever way we prefer, including buying the note and giving us the difference.  Yes, the investor wants to make money on the deal.  Getting this house for 700K is a great deal, and that is the incentive. 

edit:

Writing all of this out and all of your responses have my gears turning. Solution #5 would be if I could obtain an investment loan that would cover the purchase of the note, which would make me the new lendor, AND a rehab of the property. THEN we would sell it on MLS. That would be , i suspect, the most lucrative of all the approaches.

Good luck buying the note. No lender is required to sell a note to anyone and no institutional lender is going to sell a note to an individual buyer. Note sales are largely institutional now with the NPPI data issues and CFPB rules that are all around us.

[Tom Gimer]

Originally posted by @Greg K.:

Yes!!  I may be new to real estate but I'm not new to life.  The spike in property value traces to a real estate entity of supreme might and influence in these parts(Harvard University).

I am not asking to be spoonfed, but I must admit I am unfamiliar with the terms/jargon here.  Could you point me in a direction of what to research to understand this advice?   Thank you very very much!!

(Edit:  OK, so form a Joint Venture, which would protect both parties contractually.  But what do you mean by "clear the foreclosure"?)

Basically Jay is saying you need to somehow get current in order to prevent the foreclosure. Recording is the method by which agreements affecting property become public record. The "upside" would be the profit in the joint venture.

To me if this is an 80/20 situation it probably makes more sense for those interested just to bid at the sale and see if that $100k+ can be wiped out.

[Greg K.]

@Ron S.  Your advice is much appreciated.  My research corroborates that challenging the existence of the note would be frivolous.   And you're absolutely right, just because the mortgage may have been a bad deal does not make it fraudulent.  I'm trying to look at the situation as an entrepreneur, not as a victim.

Sorry for any misunderstanding, I have no reason to believe the loan is fraudulent.  I brought up WMC in context of mere conjecture, not opinion, and certainly not fact. 

Thank you, also for crunching the figures.  It's definitely my unclear wording that's at fault here.

No millions here, just thousands in K:

$475K = Loan servicer approved a short sale for this amount.

$890K = Value if the property were in excellent condition.

$700K = Multiple parties are arriving at this number as their bid.  

$580K = Loan servicer hired a 3rd party to perform BPO for short sale.  Report was provided with this figure, by the loan servicer.

I appreciate the information regarding foreclosure lawsuits and bankruptcy law.  Interestingly, it contradicts the explicit words of an attorney that was hired with retainer.  But what you are saying sounds more like the truth.

The statute of limitation =  this is VERY good to know.  Seriously, thank you so much.

@Tom Gimer I see.  Thank you.

[Ron S.]

Originally posted by @Greg K.:

@Ron S.  Your advice is much appreciated.  My research corroborates that challenging the existence of the note would be frivolous.   And you're absolutely right, just because the mortgage may have been a bad deal does not make it fraudulent.  I'm trying to look at the situation as an entrepreneur, not as a victim.

Sorry for any misunderstanding, I have no reason to believe the loan is fraudulent.  I brought up WMC in context of mere conjecture, not opinion, and certainly not fact. 

Thank you, also for crunching the figures.  It's definitely my unclear wording that's at fault here.

No millions here, just thousands in K:

$475K = Loan servicer approved a short sale for this amount.

$890K = Value if the property were in excellent condition.

$700K = Multiple parties are arriving at this number as their bid.  

$580K = Loan servicer hired a 3rd party to perform BPO for short sale.  Report was provided with this figure, by the loan servicer.

I appreciate the information regarding foreclosure lawsuits and bankruptcy law.  Interestingly, it contradicts the explicit words of an attorney that was hired with retainer.  But what you are saying sounds more like the truth.

The statute of limitation =  this is VERY good to know.  Seriously, thank you so much.

@Tom Gimer I see.  Thank you.

 "M" is common vernacular in the financial industry for "Thousands".  "K" is just as common. Sorry, I always use M forgetting that not everyone is doing the same.

If not clear, i'll state (As most of us do on this forum) for the record, I'm not an attorney or CPA and that my two cents is just that. Anyway, sounds like you are approaching it with as open a mind as possible. Good luck in your journey and let us know how it works out please.

[Ann Bellamy]

If you are only 3 weeks from the auction, and the property is in Cambridge, then I think this:

• You will have a lot of trouble getting an investor loan, even hard money, when your mother still lives in the property
• If your payoff is about 700K, and your mom doesn't want to live there anymore, then just negotiate a sale from a cash real estate investor for the payoff amount, with the investor paying closing costs, and move your mom.  
• If you let it go to auction, as @Jay Hinrichs says, you'll have a period of time after the sale where your Mom will still live there before the buyer evicts her.  That gives you time to find her housing.  I realize this contradicts the above, just stating options.
• The average sale price of duplexes in Cambridge in the last 6 months is 1.4MM, so there should be plenty  of bidders at the auction.  
• Any buyer pre-auction will want exclusivity rather than competing at the auction, so you may be able to negotiate a sale that includes a portion of his profit, which is the reference to a joint venture.  The hard part is know who are the sharks and who are the reputable real estate investors.  

I am not in the market for buying your property, so have no interest in this, but I can help you know who the local sharks are and who is reputable, if you wish to discuss directly.  I do recognize the humor in a local hard money lender calling other real estate investors "sharks", but I have a good reputation locally and I'm willing to help if you want to discuss.  

[Tom Gimer]

@Greg K. Don't forget about the 2nd trust. Your numbers appear only to be factoring in the $480k that the "loan servicer" in 1st would accept. Sure the 2nd would also agree to short but you have to factor that lien into the analysis.

[Jay Hinrichs]

@Tom Gimer  I did not see were there is a second on this property maybe I missed it.

but in my on the street experience if pre foreclosure people are beating down your door and they appear to be.. there is far more value than the 700k they are offering.. that's the first thing.

so if this goes to sale I suspect it will bid higher than the opening and IF THERE IS NOT a second like I was thinking the overages I am also thinking like in the states I work in would go to the Trustor or mortgagor .. ( the owner) and if it bid up say to 750 or 800  that's money in her jeans with NO closing costs no commissions etc etc.. maybe she has to hire an attorney for a nominal fee to petition the court for her overage.. in our state the trustee just finds you and mails you a check.. in WA you do have to petition the court..

so that's something to think about if the units are worth double subdivided there is in my mind some significant upside to these .. and ergo people banging at our door.

@Ann Bellamy  this gentlemen should by all means take you up on your kind offer. and you could maybe also have a referral to a reputable developer or VERY good broker that could advise on values.

[Tom Gimer]

@Jay Hinrichs According to OP in paragraph 1: "I believe it was something like a double mortgage to allow zero down payment" ... this could even be a neg am situation.

Remember, this was 2006. Very likely there is a 2nd out there... which hasn't been paid in years. Unless that lien was expressly released this is a problem.

[Jay Hinrichs]

@Tom Gimer  could it be rolling into the first if its the same lender ???

I suspect there are more details here that are missing.. the joy of trying to help on BP you only get 80% of the actual facts  LOL

[Tom Gimer]

@Jay Hinrichs I know... the first thing I would have done is pull title and get a rough idea of all payoffs. I suspect if $700k actually worked to transfer this property free and clear it would have been done already. And the BPO comes in at $580k? Huh?

[Account Closed]

I am still wondering how much equity is there.  Was the property ever simply listed.  I mean without a mention of a short sale, foreclosure, auction, or panic?

By the way... in some states if a person has a slam dunk case against a mortgage company it is possible to get an attorney to take the case on contingency.  I am not suggesting that here.  I just wanted to let everyone know to contact an attorney way before this point.

[Greg K.]

Everyone:   Wow.  I should have posted a long time ago, this is a beautiful community.

According to an attorney there is a second mortgage/lien for around 100K, and she said it's possible the holder of that loan won't try to  collect or enforce their lien.  But other evidence seems to suggest that they were in fact rolled into one trust(?), as county registry of deeds suggests.   Please stand by and I will gladly respond to each comment/question.

Thank you!