Owner dies, house in FC Is Sub 2 a possibility? Does second mortgage have a play?

Question

Here is the situation:  Nice house, perfect location for renters. In foreclosure.  The owner died, leaving her sister as the POA according to county records.  Property has a first mortgage that is foreclosing but there is also a HELOC/2nd according to county records. Local bank originated the loan in 2012.  HELOC of $10,000 in 2018 by same local bank.  Owner died in 2022.  Looks like local bank sold the note to Wells Fargo in 2023 and is now foreclosing.

A couple questions:  If the second was bought at a discount from the local bank, would that give me any leverage to deal with the Wells Fargo to bring the loan current to prevent foreclosure?  (of course before the second get wiped out by the foreclosure)  Even if as the second lienholder I was able to bring the first current and continue to make payments to the first, the only way I would get ownership of the home would be to foreclose from the second position, is that correct?  It seems to me that if the second forecloses, another investor would bid and because the amount was so low being a second, they would then be in control of the process and essentially be able to payoff the first or do a subject 2 and pay off the first over time until the first exerts the due on sale clause.   Is there ever a different play for a second mortgage holder?  Can a second lienholder add the cost of all they have spent to bring the first current to the opening bid when the second forecloses?

Of course, it seems to me a better play would be to purchase at a foreclosure sale so the second gets totally wiped out but so much competition lately at these sales.  I am attempting to get in touch with the POA and work out some deal but time is not my friend with a FC looming.

Even if I don't get possession of this house this time around, I would like to be educated on creative options as it seems like I have run into this situation quite a bit lately when owner dies and house falls into foreclosure.  I would love some creative ideas in this situation:)

Account Closed · Answer

POAs are useful ONLY if the owner is still alive.
Now sister needs to become executor or personal representative depending on the state, unless she is the trustee on an estate that the property is part of.

Rick H. · Answer

County clerk has no business giving your legal advice or interpretation of law; only what documents can be recorded and requirements for same. Records memorialize and offer constructive notice.I’m not aware of any other state besides TX that has an automatic Stay on foreclosure of a secured debt upon filing probate. Your clerk could be well-meaning but feeding you bad info (or has other motives).

Just because it’s recorded does not make a document have affect! A POA’s powers typically cease when the signer’s capacity is diminished or deceased, absent In CA, (where I can document thousands of completed probate transactions since 1978) we have a County Recorder’s Manual that is a good reference. Maybe your state has something similar.

Bruce Lynn · Answer

Unless there is something unusual like it is a big estate that will take years or forever to probate, likely the home needs to be sold and the loans closed out.

I think your POA is dead, no matter what it says.  I don't think you can sign on behalf of someone who is no longer alive.

Typically the PR or executor are responsible for paying off debts and settling the estate.  I would not think most judges would want a small estate to have a loan outstanding for years after death.  They also probably should not pay out assets if there is still outstanding debt and it just seems most often eveyone wants their money, sooner than later.

Sandy Uhlmann · Answer

As far as the above statement by Mike Hern: "POAs are useful ONLY if the owner is still alive"  Is this true even if the POA document recorded in the county record specifically mentions that the POA has the power to control the real estate?  This deceased borrower named her sister POA just a few days before she died.  What good would this be in this case?  The POA document recorded with the county specifically mentions the real estate control.  Does this mean that the POA cannot execute a quit claim deal so the property could be a sub 2?  Likewise, does the above statement mean that the POA does not have the power to sell the house prior to the foreclosure (if time permits?)  Is there a way to know if a property has gone through probate or not or if there was a living trust?  Would that information be in county records?

Kerry Baird · Answer

I’m with the previous poster, that unless she did something involving a trust, this is a probate deal.  You would have to deal with the personal representative, who may or may not be the sister.  You might see the DC death certificate recorded and probate opened.

Bob Floss II · Answer

@Sandy Uhlmann The bank can absolutely foreclose on a home in probate.

Keep in mind, depending on your local rules, a probate does not necessarily need to be opened in order for the executor or representative to sell the property. I do closings in lieu of probate all the time. However, the title company will make the seller pay for a bond at closing. If the seller ends up needing to open a probate, it makes more sense to open the probate now and pay the bond through the court filing, rather than spend the money at closing.

Once the court issues the letters of office for the probate, they can sell you the house.

Sandy Uhlmann · Answer

Here is an update and maybe a little education for others (assuming the information that the probate division in my county is correct)  Probate was never opened.  The clerk at the probate office told me that a house cannot be foreclosed on while it is in probate.  He suggested that I contact a probate attorney and have them open probate.  I had sent a letter to the POA and she contacted me yesterday.  I shared this info with her.  Hopefully, she will open probate.  At least that will give her time to decide what to do. There are children involved and I want to do the right thing for this family in this unfortunate situation.  I hope that she sells the house to me before it forecloses but she may decide to put it on the market.

My local title company did say if the local bank has the second, they will likely show up at the FC and bid the price up so the overages can cover the second.  I suppose this is a frequent occurrence but I really never considered that.

Thanks again for all the information BP community

Bruce Lynn · Answer

@Sandy Uhlmann   Some probate info is online in some counties.  Sometimes it takes a little work to figure out how to search cases, but not impossible to figure out.  Some counties like to limit online searches or charge for it to keep people like us out.https://www.courts.mo.gov/cnet...   there's a dropdown box for the county and court type....choose probate.

However you can also often go to the courthouse and they'll have a computer there set up to do searches and it will often give you more info than the public internet sites....name, attorney name and contact, executor name, etc.   No reason you can't leave a note on the door as well.

There are also often lists you can buy.  One bonus of the list is that you can sometimes requests list that have real estate in the estate and not just every probate, which might cut the list in half and save you a lot of time.  Typically something like $30-$40/month.

Tom Gimer · Answer

The powers died with the decedent. They estimated remaining lifespan wrong. The named attorney in fact can do nothing in that capacity.If the deed is in the decedent’s individual name there is no trust involved at this juncture.

Sandy Uhlmann · Answer

From the obit, she has two kids.  I am not clear on if they area of age or not.  I believe they were in High School when she died.  If I call my county probate dept would they have the info on who is the executor or how to I find that info?

Thanks for all the help guys!  I am learning so much.

Owner dies, house in FC Is Sub 2 a possibility? Does second mortgage have a play?

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