News story about notes, can someone break it down for me?

Question

Story coming out of St. Pete , Florida. Looks like its about note investing, or at least touches on the issue. Not 100% sure what happened here.

http://www.tampabay.com/news/business/realestate/a...

Wayne Brooks · Answer

@Jay Hinrichs @Patrick Desjardins It's not just simply a case of "creating" a large second mtg, to make people think it is a first.  There's likely a legal issue with the second mtg not being a legit mtg, but to the crux of the matter....

I have noticed a couple of times where after a first mtg files foreclosure, a second mtg holder will file a "cross claim"  and become the "cross claimant" in the foreclosure case (I believe that is what it is called) and actually "takes over" the court action.  Why this happens, I do not know.  But, the end result is that the second mtg gets a foreclosure judgment for Their mtg, but the case number and, more importantly, the case Name (i.e. Wells Fargo vs Joe Blow) remains the same so it appears the original plaintiff in the action is getting the judgment, but in fact it is actually the second mtg foreclosing.  This is what makes it so deceiving.

Usually on the online auction calendar/bidding site there is an indication in the case title indicating a "cross claimant", but perhaps not always.

@Roman M.  This is not the same as the "dummies" we see bidding on obvious seconds and HOA's.  Unless you read the entire Actual judgment, or perhaps even the case file, you would never know.

It appears this attorney doing this is obviously doing this on purpose to score the second mtg judgment amount, and leave the bidder hanging.  I still have doubt about the validity of these mtg.s, unless his "mtg co. entities" actually loan this money to his "buying entities" that are taking titles to these properties.  If they are, not sure how'd you'd nail him.

Jay Hinrichs · Answer

@Don Konipol  and probably a costly one for the harmed party to litigate against someone who is an attorney.

all of us who have been in the foreclosure game have watch newbies buy seconds and think they bought the home free and clear this does happen...

I bought a first and someone bought the second 30 days before me and rehabbed the whole house only to lose it to us.

We found out it was rehabbed when we went to secure it and the owner showed up to put appliances in.. needless to say sad day for them.

But in our area you hand over your check you own it.. no putting the genie back in the bottle even if we wanted to unwind we could not.

Don Konipol · Answer

Seems like in Florida real estate auction bidders ASSUME that because judicial foreclosure, court rulings are some sort of warranted indication that the liens existing at time of court filing are the only liens.

Now, an interesting twist is the issuance of the second mortgage position.  Seems like the 2nd mortgage is bogus as it is a "sham" done to collect from a bidder who relied on the court filings.

It is possible to follow the letter of the law, but not the intent.  Had this been a case where a second mortgage had been issued between to unrelated parties in a value for value arms length transaction, then the bidders who did not do the required due diligence would be out of look.  But - the 2nd lien was between related parties, the transaction may have been on paper only, not value for value, and the transaction was not arms length.  Courts do not look favorably on scammers taking advantage of legal technicalities.  Should be an interesting court case.

John Thedford · Answer

VERY valuable lessor for anyone wanting to buy at auctions, even the pros. Though technically "legal" I still question motives and M/O of the attorney. One bidder only stands to lose under 6K. The other bidder spent 450K+...and now has problems! Would a title company have caught these issues first and warned a buyer of problems? Either case, you can't get title insurance at foreclosure sales.

Patrick Desjardins · Answer

People being fools doesn't excuse crooks abusing the system. Even as a moderately experienced investor I rarely expect large 2nd mortgages, and they are purposefully making it so the amounts look like they would be a first.

Granted, in Florida you have amazing online records to do due diligence.

Roman M. · Answer

Nothing new with this articles.  Fools will always be fools for not doing their due diligence.

They either need to leave auctions out for pros or get some education.  It would have been cheaper to take some DD training then gamble away their savings.

Jay Hinrichs · Answer

this is interesting.

if I can decipher this.

party A  skelton buys HOA lien then uses a straw company to create a second mortgage... then never makes payment on that second mortgage..  so bene on second start foreclosure before the first starts theirs.. so the second mortgage goes to sale ahead of the first... bidders assume its a first and bid on it.  only to find out their is a first ahead of them.

other than the creating your own note then foreclosing on yourself to create an auction ... I am not sure this would be illegal.. and anyone bidding at foreclosure sale should be able to determine the lien position of the mortgage being foreclosed...

@Wayne Brooks  you know about this scheme ???? I assume its not a new one there in Florida.