NPN - Deed in Lieu - can I sell property now?

Question

I purchased a 1st position NPN where the borrower signed a Deed in Lieu over to the previous lender. The previous lender never recorded the deed with the county. I went ahead and was able to get the DIL recorded with the county. Am I free to sell the property at this point (its vacant), or does the previous lender need to deed the property to me first, since the original DIL was to that lender? The assignment of the mortgage from the previous lender to myself has been recorded with the county, so I'm not sure if that's enough for the chain of title to point to myself as the legal owner of the property.

TIA,

-Rob

TIA,

-Rob

Jay Hinrichs · Answer

I always tell people who will listen  .. to never record a DIL until you have run title.

not saying this is the case.. but lets say their are liens and judgements and or a second mortgage. you now just took title sub too those.

if you know there is bad stuff behind your first position then you need to do a foreclosure and wipe them all out..

but there maybe nothing.. but its prudent to get updated title prior to recording.

and as the other person above stated.. if you recorded it and the interest went to the previous lender.. now they own it.. your in left field until you can get that entity to deed you the property.

Bob Malecki · Answer

@Rob Terpilowski you probably should not have recorded the DIL to the previous note holder until he/she agreed to transfer the asset to you at least via quitclaim deed. I would go back to that party and request a QC to transfer the property to you/your entity. If that does not work, contact me off-board and I'll get you a referral to a good RE attorney in Seattle.

Bob

Logan Hassinger · Answer

@Rob Terpilowski

Nothing new to add here other than the fact that you must run new title report before accepting DIL, or in this case run title report before you ever bought the Note to see if a DIL should even be accepted.

I’m closing on a Note this week by where I know the only route is foreclosure (Judgements in the millions).

Now why would I be choosing to buy a Nonperforming Note whereby my only exit is foreclosure and subsequently an REO. Because there is sufficient margin between what I’m paying and the property value.

Andy Mirza · Answer

It makes me suspicious that the seller did not record their DIL and sold the loan to you along with an AOM. Maybe they didn't know what they were doing. My understanding is that the loan "ends" for lack of a better term when the lender accepts the DIL. There should no longer be a loan/mortgage to sell or to assign to anyone else so I don't know if your AOM means anything.

In simple terms, the DIL turns the loan into an REO. Before we do a DIL, we have the trustee or foreclosing attorney run a check through title to make sure there are no outstanding liens (or if there are, that they are satisfied and taken out of the cash for keys amount due to the owner). 100% of the time, we will record the DIL, it's not even a question. Then, it becomes our REO and we transfer it to our end buyer the same way you conduct your typical real estate transactions i.e. through escrow, title, or closing attorneys with the appropriate Grant or Warranty Deed. As others have stated, the lender/seller should have done the same with you.

Tom Gimer · Answer

This is a mess in more ways than just the current vesting being in the wrong name. If the deed in lieu conveyed the property to the previous lender, that sounds like a pocket deed that was not executed voluntarily and for value. In other words there could be potential claims hanging out there from the defaulted borrower (and/or BK trustee) for some time.

This scenario is a problem in the context of title insurance as well.

Yes, the current owner of record needs to convey title to OP to complete the chain to allow the property to be sold.

Chris Seveney · Answer

@Rob Terpilowski

Few questions

You mention “the previous lender never recorded the deed with the county”. Do you mean the didn’t record the deed in lieu of the actual deed ? Big difference

With the DIL recorded the prior owner has ownership so you cannot sell the property until you get a deed from whoever owns the property (who is DIL made too).

As mentioned by many- I would run a title report as if there are liens on the property you will not be in 1st position and have to pay them.

I had a property that was NPN and it took me 6 months to get a DIL, before I recorded it I ran another title report and a large lien showed up from a property manager who managed it for the borrower as a rental. We threw away the DIL and foreclosed.

I purchased a 1st position NPN where the borrower signed a Deed in Lieu over to the previous lender. The previous lender never recorded the deed with the county. I went ahead and was able to get the DIL recorded with the county. Am I free to sell the property at this point (its vacant), or does the previous lender need to deed the property to me first, since the original DIL was to that lender? The assignment of the mortgage from the previous lender to myself has been recorded with the county, so I'm not sure if that's enough for the chain of title to point to myself as the legal owner of the property.

TIA,

-Rob

Rob Terpilowski · Answer

Hey @Andy Mirza probably looking at about $4k in foreclosure costs. There is some hope it could go up in value, but rent wouldn't be more than $600 for a house its size in that neighborhood and I typically don't hold anything under $800/month.   I talked with agents/wholesalers/investors in the area about possible exit strategies and I think the best option will be to wholetail it...get it cleaned up, put on the market and sell it with owner financing to someone who wants to do the work to fix it up.  Sounds like the best course of action will be to see if I can track down the seller (The DIL had been executed w/ the previous lender), and see if I can get him to sign a new DIL.

I appreciate the input!

-Rob

Andy Mirza · Answer

@Rob Terpilowski Sorry to hear about your ongoing problems with this one. How is your relationship with the seller? If you have a good one, then it shouldn't be too difficult to get them to execute another DIL for you. If not, then I agree that foreclosing is the next best option.

This is one of the risks of investing in lower value assets. You have fixed foreclosure costs that are same for your $5k or $500k balance loans. These can eat up your margins pretty quickly on an asset like yours.

How much are your anticipated FC costs? What's the timeline? Is there any hope that this will go up in value?

If your FC costs are in the $2k-$5k range, that will eat up your remaining profit. Can you sell the property at FC sale to limit your losses or do you intend to take it back as REO? Have you thought of your exit strategies?

Rob Terpilowski · Answer

So the saga continues with this one.  Apparently even though the DIL was sent in for recording, it was never recorded due to the signature and notary date being different, which in turn means the QCD from the previous lender to myself was not recorded either.  So as it stands right now owner on record is still the original homeowner and I am the current mortgage holder.  I did a title search and there are about $2k in city liens on the property, but no other liens.  The as-is value for this property is probably about $15k and I'm into it for about $10k at this point.  I'm thinking the best course of action at this point is to foreclose on it (seems like it will be cleaner than trying to do another DIL with the owner) so I can sell it and attempt to recoup my funds, but would like to hear others' thoughts.

thanks,

-Rob

Rob Terpilowski · Answer

Thanks Bob,

I'm going to reach out to the lender who the property was deeded to have him execute a QCD.  Will let you know if I'll need that referral.

NPN - Deed in Lieu - can I sell property now?

Most Popular Reply