Creative Strategies for Purchasing a Property with Existing Lien

[Ashley L Smith-Jackson]

I can't believe I am "that guy", or in this case "that girl", who rehabbed a property before closing, smh!

Please help me problem solve this situation. In sum, I intended to purchase the property in cash from a wholesaler. He assured us that the title was clear. We insisted on title search but began rehab. Mid-rehab he told us that liens were found but were in the process of being released. At the end of rehab, we still had not closed. I found out that one lien would require a 33k payoff which is way more than the property is worth. Obviously, I've already rehabbed the property to rent it so I can't just walk away. What are my best options to close with the lien situation?

I am considering owner-finance where I pay the seller cash upfront and just $12/year for a "mortgage" so that the title is not transferred so liens are not called.

I am also considering quit-claiming the property then placing a 1st position lien on the property myself and then foreclosing on myself to wipe-out the other liens.

I've done wholesaling so I can get pretty creative in finding solutions but I am too emotionally involved to make a logical decision (and 7 months pregnant) AND I've only wholesaled in Texas, not in Ohio, so I'm not as familiar with their laws.

I need help thinking this one through! 

[Mike Hartzog]

You cannot put a new 1st position lien in place because any new liens, other than tax and municipal liens will be junior to any existing liens.  You didn't mention the type of lien, but you can sometimes successfully negotiate with the lien holder to reduce the amount.  Depending on the state, there can be significant time and expense involved in foreclosing on a lien, so getting paid a smaller amount now vs foreclosing on you can be a better deal for the lien holder.  Also, should should be able to demonstrate that the lien exceeds the property value, and they would not be able to recover a full payoff in a foreclosure sale.   

The other option, of course is to walk away.  Moving forward could dig you in deeper.  Do the math and make a non-emotional decision.  If you do move forward, purchase with title insurance.  The title company can guarantee that this is the only lien on title, and when you clear it you will have a clear title.  Also, at minimum your wholesaler should agree to waive the assignment fee, given that the title situation was misrepresented.