Need Advice On First Potential Deal w/ Title Issues

Chris Nwoke

OP

Marietta, GA · Member since 2012 · 13 posts · 0 votes

14y

His exact words from the ad:

"This house is worth about $160k fixed up, and could easily sale for $100k in it current condition. It needs $30k in repairs. So, why am I offering it for such a low price?

Because I need about $5k to get a lawyer to get a clear title. Wait, what? What the heck?! Is this a spam? Heck no! Here's the 411. The lender on my house attempted a foreclosure, but was KICKED out by the court. Yes, the court told them to go packing. Why? Neither the 1st nor the 2nd lender has an assignment of mortgage. The lenders listed on both went bankrupt. There is nothing, I repeat nothing, on file linking the current lenders to the property. The judge looked at these jokers and told them to get lost. Yes, it was tossed out. This happened in Feb 2011. I still have the house and I have not made a payment since June 2010.

I ran this by the lawyer. He said I have two choices. I can either pay him $5k and he could get me a clear title, or I could wait 4 years and file some papers to get a clear title on the house. The thing is, I don't want the house.

Here's the deal I will make with you. You pay any lawyer of your choice to get a title of the house and I'll sign an agreement with that lawyer and you that if the lawyer gets a clear title on the house, I will sell you the house for $55k. Real simple. No bs. You get a title, you can have it for 38 cents on the dollar. If your lawyer pulls it off, you make $70k ($160k - $5k - $55k = $100k - $30k = $70k). If not, the lawyer gets rich, you're out $5k, and I'm still stuck with a house I can't do anything with."

Dion DePaoliPro Member

Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes

14y

Not enough information who the mortgagee is. Speaking from experience as a mortgagee, just because a company went bankrupt does not mean a mortgagee who purchases the loan can not foreclose. I have purchased a couple of loans from firms that went out of business and the borrower was given poor advice from a uneducated title agent which gave him a sense of power and thus I was forced to foreclose him since he would not communicate with my servicer.

Many lenders from the old days are out of business. It maybe the pool of assets has not been liquidated yet to a new owner. It is also very possible to cure the defect in the chain of ownership by getting a proper Assignment(s). Depending on the time frame this happened, it may have been a buyback in the trade and the loan reverted back to the a seller who is working on curing the ownership.

It generically sounds like he talked to an attorney and the attorney thinks he can do a quiet title action. Again, we here can not know without seeing the title and perhaps the names of the companies.

I would put it under contract subject to curing title. I would first pull title and see what is going on. A mortgage or deed of trust which encumbers title can not just be "cancelled". For both liens to be faulty seems a bit of a stretch. I would not just pay the attorney just yet as it maybe looking at title you deem it to be a waste of money to have an attorney try to remove a valid lien. (well, two liens) Get the name of the mortgagee and the name of the plaintiff on the foreclosure case. Some BP folks might be able to provide color around who they are and give you some more options.

2 Reply

Bill Gulley

Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes

14y

All of that about sending the lenders packing is irrelevant. What it is saying is that the current lenders failed to do their due diligence before approaching the bankruptcy court. As Dion mentioned, this can be cured in state court if necessary, but no lender goes out of business and burns the notes, thay are all transferred. Showing the docs of the transactions will evidence the rights of the new holder, not a big hill to climb. Depends on how fast the lender gets in gear to perfect the liens.

Actually, this is not passing my sniff test, as the seller having been in bankruptcy and keeping title now wants to dump it quickly at pennies on the dollar......why? Make sure title is inusrable and don't get in a hurry. Might also give public notice requesting any claims or liens by others on the property. (Likely you'll no no response, but if future claims arise, such may help in the defense of future claims).

George King

Residential Real Estate Broker · Silver Spring, MD · Member since 2012 · 8 posts · 6 votes

14y

Find a skilled real estate attorney well versed in foreclosure/bankruptcy law in your jurisdiction. They would typically be able to handle the settlement as well if you get that far. Laws governing foreclosure and bankruptcy can vary from state to state. Pay someone with local knowledge and experience. Buy title insurance and read the policy to determine what is NOT covered.

Andrew Coleman

Investor · Washington D.C. · Member since 2010 · 48 posts · 21 votes

14y

Contact your title co and they can tell you what you need. Try your hardest to get it cleared before you present it to the buyer. If the buyer is really motivated and can't wait just be honest they will appreciate that.

Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes

14y

It sounds like BS to me. Georgia is a trust deed/non-judicial foreclosure state. So the "attempted foreclosure" wouldn't have been a court case. I'd want to know what the special circumstances were that made the lender go judicial. Or maybe the borrower is referring to his BK case.

If it were me I'd look up title and the court cases and make an offer that worked for me. I don't think that's a reasonable thing for someone just starting out to do. There's way too many variables and it appears the seller may be a wild card. You can find a better deal.

Shane Woods

Real Estate Agent · Weatherford, TX · Member since 2011 · 726 posts · 284 votes

14y

Hey Chris Nwoke, I'm still a newbie here, but one thing that always comes up with any ads advertising X ARV and Y repair costs, is that you don't trust it til you've walked it and run the numbers yourself.

You didn't mention if you've seen the property yourself yet? And if this is your first potential deal, you'll probably want to take a contractor or inspector with you and pay them to give it a good once over. That $30K repairs, might really be $15K, but more than likely it's $40 or $50.

It's the same with the ARV. How did he arrive at this number? Have you run the comps yourself to see if this is accurate?

Before you even waste time on the title issues, make sure the numbers work first. Clear title does you no good if you can't find an investor buyer. Just for easy calcuations, I'd give it a 15% error factor on their numbers:

$160ARV - 15% = $136,000 (closer to accurate probably)
$30K Repairs + 15% = $34,500 (ditto)

Now, does it still work for an investor wanting 70% ARV - repairs? (And the $5K would come out of your cut I'm assuming)

136K (ARV) * 70% = 95,200 - 34,500 (Repairs) = $60,700 is the MOST an investor will pay you for this house IF your numbers are right. This doesn't take into account your profit, nor the $$ to fix the title.

No deal at this price.

Shane Woods

Real Estate Agent · Weatherford, TX · Member since 2011 · 726 posts · 284 votes

14y

On the flip side, if his numbers are right:

$160K (ARV) * 70% = 123,000 - $30K (Repairs) = $82,000 is the Most an investor will pay you for the house. That leaves quite a bit more room to play, and get the title looked at and all that, and you still to make a little profit.

It's SUPER important to make sure the numbers are right first.

It's a LOT of work for profit under $20K in my opinion. And who knows if that $5k will handle the title issues. That just drives your profit down further.

Nathan Emmert

Investor · San Ramon, CA · Member since 2011 · 1k+ posts · 569 votes

14y

Originally posted by Shane Woods:

On the flip side, if his numbers are right:

$160K (ARV) * 70% = 123,000 - $30K (Repairs) = $82,000 is the Most an investor will pay you for the house. That leaves quite a bit more room to play, and get the title looked at and all that, and you still to make a little profit.

It's SUPER important to make sure the numbers are right first.

It's a LOT of work for profit under $20K in my opinion. And who knows if that $5k will handle the title issues. That just drives your profit down further.

Hmmm... I have the profit at $33,000... I would think a wholesaler would do a TON of work to net $33,000 on a single transaction... flippers need to do 2 rehabs to net that kind of money investing a lot of time and money.

That said, this reeks of a scam. The seller is hoping to find a dope to sell to essentially cashing in on a property he doesn't own (a bank does, somewhere... actually 2 from the ad). Just because he's not currently paying the mortgage and doesn't know who currently owns the mortgage doesn't override the fact that there is a mortgage (or 2)... somewhere. Someone will come calling on those eventually.

Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes

14y

Nathan Emmert I agree the language of the CL ad is scammy. But that doesn't mean that some banks somewhere own the property. Banks don't own a property for which they didn't receive a DIL or court order or properly foreclose on. I mention this because the biggest misconception I hear from owners and borrowers is that the bank or county or state "owns" their property when they stop paying their mortgage or taxes or after they surrender it in BK. I just know you are more sophisticated than that. :)

Working with title issues I've seen the situation the seller describes. Outstanding liens with failure of the lender to foreclose are abundant right now. Many sellers post charge off and post BK haven't heard a word from their lender in years; no collection activity, no foreclosure. I just bought a property subject to two mortgages where the borrower hasn't made a payment in 30 months. There has been no foreclosure action of any kind.

What's goofy here is the seller's description of the lenders going out of business and that somehow leads to the ever popular and ever dubious "failure to produce the note" claim. Craigslist ads with that kind of language and hype should be treated with suspicion, or just ignored.

Shane Woods

Real Estate Agent · Weatherford, TX · Member since 2011 · 726 posts · 284 votes

14y

Hey Nathan Emmert, maybe I figured it wrong. He didn't mention assignment so I'm assuming he's paying for the house then wholesaling to another investor.

Property Cost $55K - paid for by OP
Legal Costs to clear title $5K (or more) - paid for by OP
Closing Costs +/- $1000

Investor buys house for $82K

So that puts us at a $21K spread unless legal issues are more, or I've missed something. And again, $82K would be the MOST an investor would pay. Many like 65% ARV - repairs, not 70...

If I'm out of line here, help.

Dion DePaoliPro Member

Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes

14y

K. Marie Poe is right, if this property is located in Georgia the lender has no duty to prove ownership, they only have to assert they are the owner. There is no place in the foreclosure proceeding to challenge their ownership. So, if it was challenged in court, the lender would have had to opt into a judicial foreclosure which would be a special circumstance since those security instruments include a waiver of a judicial proceeding.

I have seen and purchased loans with no activity for years. That means nothing, just poor asset management and servicing. It does not benefit the borrower in any manner and the lien is still valid and enforceable. As I also stated above, many loans that I have purchased have come from one of the 388 lenders to go out of business that means nothing either. As a matter of practice when a company files bankruptcy the assets are liquidated to pay creditors back, etc., that would include selling mortgages. They still have value as Bill said they are not burnt with the BK trustee saying, oh well, those have no value.

There is always layman confusing terminology in situations where terminology is important. This could be one of those times. I would still look at least one more layer into the deal. Check the deed and see if it is even this guys name. If it is perhaps get a title abstract and see who the recorded mortgages are from and see for yourself if any AOM's have been updated.

There is no third party action outside of foreclosure or tax deed sale (some states only) which extinguishes a mortgage or deed of trust. That is a myth as K. Marie was pointing out.

The CL poster sure is leaving a bunch of money on the table which is also a bit less than normal I suppose.

Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes

14y

The ATL CL scam guy's ad has already been taken down or expired and here we are giving it all kinds of attention. I think the thing to be learned here is use to caution when someone promises a deal that doesn't make sense. When a CL ad tells you it's not a scam.....should make you wonder IMO.

I like how the "411" fails to mention the balances on the outstanding liens. If it said that the property is worth $100K as-is, but the loan balances are $300K, he wouldn't get too many takers. Putting out there that the house is somehow free and clear because the lenders went into BK? Thieves are lurking.

Chris Nwoke

OP

Marietta, GA · Member since 2012 · 13 posts · 0 votes

14y

Seems like the consensus is that this is a scam or at least too murky to mess with. I had that feeling after reading the ad a couple of times. This is probably not something I should waste my time with.

Since I have everyone here, I figured I'd ask about my other lead rather than make another thread. There's an abandoned house in a nearby neighborhood. I assume it's abandoned cause the grass is super high and the paint's chipped off and the inside looked pretty empty from what I could see.

I checked the county records and was able to locate the name of the owner. The sales records says that the house was sold to him five years ago for $0. Not exactly sure what that means (inheritance maybe?).

So now the key is to get a hold of this guy to get the house under contract. Based on the comps and recent home sales in the area, the ARV is roughly $105K, could be a bit more after repairs. And since it's abandoned and in bad shape, I'm thinking I can get it cheap. Now I need to find out from some experienced people what the best way to track down an owner is. I've heard of a few methods:

1. Mail a letter to the house address expressing interest in purchasing it and hope it gets forwarded to the owner's current address.

2. Ask neighbors if they know who currently owns it and where he may have moved to.

Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes

14y

Start another thread. Dealing with abandoned props and finding missing owners is a different subject entirely. Also do some searches. This topic has been covered repeatedly.

Brian P.

Wholesaler · Salt Lake City, UT · Member since 2009 · 1k+ posts · 401 votes

14y

Don't know anything about Georgia, are they a tax sale deed state, that is the only place I would touch this property at the moment.

Back in the early 90's when we were dealing with the RTC we bid on packages of non-performing notes and it was surprising the number of owners that thought the loans were gone now along with the bank and they were free of them, we had very bad news for them, but also good news, not as good as the bad news though.