Fishy Quitclaim before foreclosure?

Question

I've been looking at pre-foreclosure properties and came across one where heirs of the deceased owner of a many-years-abandoned home with significant equity were persuaded a couple of years ago, for substantial $, to quitclaim the property to an investor (the heirs think he is an attorney, but he's not). The quitclaim deeds appear to have never been recorded in the subject county. The property was conveyed to a living trust before the owner died, and one of the heirs appears to be the trustee. The property is now slated for foreclosure auction some weeks away against the estate and heirs. Something seems shady here even beyond the apparent impersonation of an attorney, particularly since the heirs could have immediately sold the home even 10 years ago for much more than they got for quitclaiming. The quitclaim deeds erroneously indicate that the heirs received unbiased counsel regarding their options (but sheer ignorance may account for their approving that statement).

So, my questions are:

1) Why would an investor go after quitclaim deeds before acquiring title?

2) Would the quitclaim deeds have any affect if someone simply contacted the trustee and bought the property?

3) Isn't the "attorney"/investor risking that someone will bid up the property at foreclosure?

4) How do such quitclaim deeds relate to or affect a purchase of redemption rights from the same heirs or trustee?

Account Closed · Answer

@Jim Larsen @Tyler Mullen

A Quit Claim Deed changes Title from one party to another, or more properly, (but an often missed point) is that a Quit Claim Deed says that the party signing the Quit Claim Deed is giving up all rights they MAY have had for a property . They are not saying they DID have an interest in the property. I could give you a Quit Claim Deed that says I give you all the rights I have to the Space Needle (which is I have No rights at all to begin with) and be perfectly legal. I can't give you a Warranty Deed to the Space Needle because I can't sell what I don't own.

An unrecorded Quit Claim Deed in Washington State carries the same weight as if it were recorded. Not a recommended way to do things but sometimes it's appropriate. Anything recorded before the QCD has precedence to the QCD. There is likely no Title Insurance at this point. Normally, a QCD invalidates Title Insurance in Washington State. The trouble is in proving the QCD is legitimate if it is unrecorded and legitimate if it has been recorded but is contested. It requires a "finder of fact" (a judge in Superior Court) if the QCD is contested. In Washington that is taking about two years to get to trial. And for a mere $50,000 most real estate attorneys will give it a shot with no guarantee of the outcome.

Do not assume the investor said he was an attorney until you speak with the investor and see the paperwork. And unless he admits that he improperly said he was an attorney (how likely is that?) or says that he is an attorney in the paperwork, when he isn't, it is considered "he said, she said" and doesn't get you anywhere. There are always two sides to the story. That's why these are taken care of in court. I'm not siding with the investor but I do know how the courts work.

The investor would normally hold the QCD, how is that you have seen them? Curious.

Once a property goes to sale in a Trustee Sale in Washington State, that is "all she wrote" unless yo have big bucks and a compelling story to tell an attorney as to why he should sue for you. Far better to resolve before it gets that far.

Right now, the bank will talk to anyone on the loan, anyone on the title or anyone who can show a Power of Attorney for anyone on the loan or on the title or a properly executed probate. You can order a Trustee's Title report (Usually about $20) which will tell you what the legal status of the property is.

Tyler Mullen · Answer

A living trust becomes an irrevocable trust automatically upon the death of the grantor, whether or not the trustee of the living trust actually does their job and converts it. If what you say is true and the deed went into the trust, that's likely where it is now and maybe that's why it never sold or went to these "heirs", because the trust says it's supposed to go to the cat or something... or the trustee has no idea what they are doing and if they don't clean up their act they could get nailed. A trustees fiduciary responsibility is a very serious thing and if they don't live up to it they can be in huge trouble, or the trustee IS living up to it... quite hard to know without a copy of the trust and verifying the property is therein.

If there is still a probate going for this same deceadents estate... after 10 years that would be quite extraordinary, I had one that will last even longer but it has exceedingly rare and complicated circumstances. Even a probate longer that 2 years is quite rare. It took me about 6 years to get "... a fountain built in the city of seattle..." because the guy, unfortunately, didn't die with $14 million dollars.

Signed qcds not recorded are useless afaik, usually a sign of attempted exploitation, or people selling deeds to property they dont own, (an oldie but a goodie in the fraud world) or medicaid planning that was never completed. I've only done a single probate where the heirs signed qcds and that was for a series of trusts, many properties, a lot of money and a very complicated TEDRA agreement that was court approved. Other reasons for heirs to do that, maybe for their own medicaid planning, I don't know. If you bought the property from the trustee you'd likely get a bargain and sale deed, get your title coverage and then no, I don't see how old unrecorded qcds would have any effect on you at all.

Figuring out the other liens and who's foreclosing would help you understand a bit more what's going on.

Not an attorney. Not legal advice.

Account Closed · Answer

@Jim Larsen @Tyler Mullen

I might have forgotten to mention the most important problem

Chasing foreclosures in Washington State is a felony and could land you in jail.

"W 61.34 effectively stops investors from working directly with owner-occupied and/or primary residences who are in foreclosure or may go into foreclosure. Preforeclosures can include lease-backs, "saving" the homeowner's credit and "saving" homeowners from foreclosure. A full description can found in the RCW itself and the subsequent Washington State Supreme Court Opinion on the Washington State Legislature website and linked below.

Attorneys tell us "the penalty for engaging in a "pattern" of equity skimming that is set forth in the Distressed Property Conveyances Act is found in RCW 9.94A, as a Class B Felony, Level II offense", which can include confinement in a state correctional institution, fine or both. We are also told that the law cannot be avoided by disclosures."

Not worth going after foreclosures to my way of thinking. Buy the house at auction or buy the house after auction as REO, but don't try to buy any house that even "may go into foreclosure".

Buy "off market" the way I do, it's very profitable and has little competition and is legal. If you want more info on either item let me know.

Jim L. · Answer

Interesting.
As far as I can tell, the trust came to be before the QCDs. The property has been abandoned for years, so is possibly neither owner-occupied nor a primary residence when the QCDs were obtained. Perhaps the investor is working under knowledge of the trust details after all.

Tyler Mullen · Answer

Agreed. What makes no sense is why an equity skimmer would get qcds from heirs to a property and not the property owner? Fraudsters usually look to do the deal and get outta dodge, not hang around for ten years.

Then, why would that skimmer leave the deeds unrecorded long enough that the owner transferred the property to a trust? The trust beneficiaries might be totally different than heirs in a Will...

Either the investor is an attempted skimmer but is inept which is good I guess, or the owner got wise to what the heirs were doing (and the investor is the victim) so the best way to protect the property was put into in a trust. The owner wouldn’t be able to stop the heirs, or anyone in the world as you said, from executing a qcd.

I would love to see what paperwork the investor has that convinced them these heirs were actually heirs to that specific property and get their story of why not record the deeds and why not get the same from the owner or buy the house from the owner.

Or the heirs and the “investor” were all working together going after the property, there’s just not enough info to piece it together.

Jim L. · Answer

Thanks for the insights! What a resource this forum is.
I like the idea of ordering a trustee's title report. At least then we'd have a better idea of current legal status. We're still trying to track down the trustee. It's a bank foreclosure, and (at least one of) the heirs has a copy of the QCD she signed, apparently believing that personal debts of the decedent would take all value out of the property. (I see no major liens recorded, however.) We hope to get the trust itself, but no one seems to know much about it. As you all likely have seen, sometimes there is a soap opera going on behind the scenes.

Carl Fischer · Answer

@Jim Larsen

Is it a bank foreclosure or a tax foreclosure? It seems hard to make an informed decision without reviewing the trust, the QCD, talk to the trustee and the investor to get the whole story. Was it done for easy sale, tax reasons, Medicare reasons, to keep it out of probate, etc.

Tyler Mullen · Answer

Like you said, they follow the order of what is recorded. I usually see the court say, "...The grantor is dead and this recorded deed put the property in the trust. This is the deed that got recorded and not the other(s), whether they were signed before or after... so that must be what they intended to do so that's the way I'm leaving it." Maybe sometimes a signed but unrecorded qcd carries the same weight as a recorded one, but not always. I've seen them tossed out of court more often than not in favor of what was recorded.

Perhaps there are instances where the court invalidated the transfer to the trust and quiets title in favor of the unrecorded qcd, like if the grantor was deemed to have been incapacitated at the time and there's a financial exploitation situation... but that's a rare scenario. I have seen many a Will tossed out in favor of a earlier Will, even if unsigned, because incapacity or undue influence was proved. Again that was part of an exploitation investigation where the cg got ct to sign a new Will leaving everything to her and cutting out the kids.

What's funny here is the heirs could be scammers like you said selling what they don't own, or the "investor" is the one foreclosing to grab all the equity, or no one is and it's all just a legit pile of blah. Now I'm interested though and wish I had a copy of the trust and the title report just so I could know the rest of the story.

Jim L. · Answer

Very helpful response, Tyler. Thanks!

Fishy Quitclaim before foreclosure?

Fishy Quitclaim before foreclosure?

Most Popular Reply

9 Replies