What are the chances?

Question

A friend of mine owns a home that is going into foreclosure. It would appear that when the last appraisal was done, a vacant parcel that she also owns was taken into consideration to reach the appraised value. This was 3 years ago and to date, there is no record of a lien on the vacant lot. Prior to the default of the mortgage payments, she has transferred the property out of her name and awaits the foreclosure process to take its natural course. Does she own this vacant land free and clear or is this wishful thinking... Again, there is no mention in either legal description or tax id of this lot being part of...

thank you

David Hadley · Answer

I'm not suggesting you (or rather your friend) do anything without seeking some professional assistance.

I don't think you should paint BiggerPockets with such a broad brush either.  At this point, I'm the only one that has made any such statements and I certainly don't represent BP.  I have no idea if anyone else on this site feels like I do.

I assume you're talking about the new owner of the vacant land since your friend no longer owns it.  Is the new owner you?

I involve ethics in everything I do.  I try to avoid emotion when making business decisions.

As for the rest of your post, I have to say I read it multiple times but I didn't really understand it.

Your questions were answered, I believe, multiple times by multiple people including myself.  I really don't know what else you want to hear?  If you have another question, ask it and I'm sure someone will try to answer it.

Kathy Collins · Answer

What bankruptcy judge/trustee?  Are you suggesting filing bankruptcy... (it's 3 yrs of transfer history btw where bankruptcy is concerned) and the chewing out came with the onset of "do the right thing" and the extremely judgmental comments made on this site.  The land is not on the mortgage.  Does that make the owner the bad guy?  Leave ethics and emotion out of it.  The land isn't there.  Does she or doesn't she own it?

Surviving is the right thing.  No one else is going to help any of us survive... We're on our own.

As far as paying more than could be afforded... Things have changed out here... While employed, things could be afforded.. How wonderful for us to have the rug pulled out from underneath... Now what?  It's us against them, isn't it... ?  The heck with no sympathy.. Nobody was asking for that... Just for the question to be answered...

I'm sure all feel bad enough of the situation they find themselves in and many factors contributed.  Notifying the lender of all these assets would simply result in 'thanks for the info, now you have less than before you started this process.'  Who survived?

...and borne by the bank... Not the intent.  But... They're not going to get any more from it after spending thousands to recoupe what isn't there to recoupe... Why not settle?  At least they get something, which is better than nothing and why not the homeowner who wants to stay if they could, if they would.

David Hadley · Answer

I don't think anyone has "chewed you out" ... yet.  We've offered some opinions on your situation that seem to be contrary to what you want to hear, if that's what you mean.

Personally, I don't like the attitude that leads people to believe that the upside of an investment is all theirs but any losses should be borne by the bank / society.  If you've ended up in the situation you're in because of a lost job, medical bills, etc., then that's one thing, though you should still be doing everything you can to make good on the situation (i.e. selling the lot and using the proceeds to help you get out of your predicament).

If you paid more than you could afford, using a loan that you knew would reset to a payment you wouldn't be able to make in order to try to make money from appreciation, then I have no sympathy for your situation.

With that said, if you have a non-recourse loan on the house and the vacant land does not have a deed of trust / mortgage against it, the vacant land is probably safe.  Check with your lawyer.

Jon, I believe that there is a good chance that the bankruptcy trustee / judge will hold to a higher standard than just a transfer after a missed payment.  I believe that there is usually a time limit applied, as in "anything transferred, in anything other than an arms-length transaction, within a year prior to filing to be included in the proceedings".

Kathy Collins · Answer

Thanks for the chewing out... The vacant lot has been free and clear since 2004.  The foreclosure would only apply to what was mortgaged.. Correct?  If the house holds the mortgage, why would the land be in jeopardy, if that is the case

Jon Holdman · Answer

The foreclosure would apply to whatever property or properties were names in the deed of trust or foreclosure.  You should have a copy of that from the closing, or can get it from the county court house.  The properties named are the ones that are the collateral for the loan, and are the ones that will be auctioned off if the foreclosure proceeds.

That said, if the proceeds from the foreclosure sale do not fully pay off the loan, the lender may get a "deficiency judgment" against the borrower for the shortage.  That could then be used to take other assets, including other properties.  You say the property was transfered.  So, for example, if you transfered the property to an LLC, and you are a member of the LLC, a court  could give the lender a "charging order" against the LLC.  That would give the lender the rights to any distributions made by the LLC (e.g., from a sale of the property) that would have gone to you.

Like was said above, if that transfer was made after your troubles started (e.g., after you missed a payment on the house), it may well be set aside by a court as a fradulent transfer.  If it was done well before you missed any payments, it will probably stand.

Certainly would be worth your time to speak with a real estate lawyer about your options.

David Hadley · Answer

Sounds like your friend needs to talk to an attorney.  I'm not one.

If your friend owns the property in a recourse state, then the lender will be able to get a deficiency judgment on the foreclosure if it sells at auction for less than is owed.  This judgment can be reattached to any other property your friend owns.

Also, if she has in fact transferred the property out of her name and has done so in anticipation of defaulting on the other mortgage, she is at risk for being charged with fraud.  A court will look at her financial situation when she transferred the property and if it is obvious she was in trouble when she transferred it in any manner other than an arms-length transaction (e.g. quit claim deed), lots of bad things can happen to her and even to the party she transferred it to.

Furthermore, why wouldn't your friend sell this vacant lot and use the proceeds to pay off / pay down the mortgage on the property in foreclosure?  Isn't this the responsible thing to do?

Frank Adams · Answer

If this is what you meant to say, then NO she doesn't own it, she transferred it.

all cash

Joshua Dorkin · Answer

Would this friend of yours be you in this case as well?