Legal Issue with owner financing on 25 Units in Kansas

[Justin Garrett]

Hello,

In a bind here looking on getting other's thoughts, and maybe an excellent Real Estate lawyer in Kansas.

I will start with a bit of backstory. I found some apartments while at home in Kansas on leave. I am currently stationed overseas in Europe. The properties were a value add and need a lot of work to ensure they were up to what I would call suitable standards (something I would want to live in). I negotiated with the seller to do an owner financing with 10% down, and the owner carries the note for 20 years at a 4.5% interest with a balloon at ten years. Long story short, I purchased 25 units last month with owner financing. Unfortunately, during our financing agreement, the owner never disclosed he held a mortgage on the property.

However, when the title company conducted its search, they found a loan on the property. I requested that the bank make the loan assumable, and if the seller defaulted, I would assume the loan and no longer be legally required to fulfill my agreement with him. However, he denied so I stated I would not purchase without the loan being paid off. As I am overseas, I was not as closing, and the original ALTA commitment from the title company under the requirements stated the loan would be released. However, the title company, by the direction of the seller or seller's agent, had this ALTA document altered the day before closing to have the loan placed on the exception page. My broker and transaction agent were told at closing by the seller that the loan was paid off in full. I come to find out yesterday the seller has not paid off his loan. I know some of this is on me because it did end up on the paperwork from the title company as an exception and did not need to be released; however, again, I wasn't at closing, and the seller verbally stated he had paid the loan off. My broker has contacted the bank, and the loan was confirmed not paid (yes, he should have done that before closing).

My question is, what happens if he defaults on the loan that is not assumable and I now have equitable interest in the properties?

If he were to get foreclosed on would I still be required to continue to pay in the agreed on portion of the our owner financing on the properties?