I got a call from a seller who received a letter from me. Nice house in a nice subdivision. She told me that she surrendered it in her Ch. 7 BK in 2010. I looked at the BK and indeed she did surrender it and the BK was discharged in 2010. She thought she didn’t own it anymore and wants it out of her name. I told her she should talk to her attorney, but that just because she surrendered doesn’t mean that that lender had to do anything.
Couple of questions:
The property has first, a small heloc in second, and a third, all with Household Finance. There has been no notice of default and no foreclosure action of any kind. The property has been empty for over two years. The the property taxes and HOA fees have been unpaid since 2009. Value 120K, loans total 260K. This is a typical scenario in my farm. Is working with the seller and lender on a short sale the only option? Does HFC ever sell notes?
The Debtor is bummed that this is still outstanding. She’s more than two years past her BK discharge, when things are just starting to look better on her credit picture. If HFC forecloses or agrees to a short sale, doesn’t it set back her credit report?
Any creative ideas? She’ll work with me, I want the house. But I want to find a way to do the least damage to someone who is over two years past a BK.
Putting my interest in the property aside, are there are other solutions for the home owner to get the loans out of her name? DILs and abandonments don’t make the loan go away, right?
I’d recommend you go on www.pacer.gov and get copies of the BK petition any other docs that might have been filed by any creditor opposing her BK petition and the final order of discharge.
Then have a chat with some local Title Co and have them tell you who holds deed and title right now and what the outstanding liens are.
Did all that already. The Debtor owns the house. She can wait for the lender to foreclose. Or she can participate in a short sale. My questions above are looking for a creative solution and to figure out how to keep the Debtor’s credit damage to a minimum.
Confirm whether lender charged-off its loans. If so, it may enter an settlement agreement, otherwise you will have to do a short sale.
Her credit should not be a concern. She already discharged her liabilities and her credit reflects that. The lender can no longer collect from her; its only recourse is to enforce its security interest.
[QUOTE=Nike1;883384]Confirm whether lender charged-off its loans. If so, it may enter an settlement agreement, otherwise you will have to do a short sale.
Her credit should not be a concern. She already discharged her liabilities and her credit reflects that. The lender can no longer collect from her; its only recourse is to enforce its security interest.
Make an offer and see how the Lender responds.[/QUOTE]
I am not an expert in BK. The above is exactly what I would have expected. The property is security for the loan but the owner is not liable for the loan as the BK removed that connection.
See if a BK attorney can explain it more just in case it is not as simple as it seems.
I got some clarification on this and it’s not at all quirky. The debtor still owns the house. Abandoning it in BK is just the trustee’s way of putting aside an asset and not making any payments towards it. After the BK is over, the debtor no longer owes the debt, but the title doesn’t change. If the lender wants it back they would have to foreclose or arrange for a deed in lieu. This lender hasn’t even filed a notice of default and the owner hasn’t made a payment in over two years. The owner is free to deed it subject-to or short sell it or live in it or rent it out or refinance it or whatever she wants to do until the bank forecloses.
I have seen this in my area a number of times. Homes just sits because the lender doesn’t pursue the foreclosure for any number of reasons. The last one I took time to check into (only because it was next to my rental and deteriorating rapidly) the lender of record couldn’t even acknowledge the had a loan on it. It had been sold multiple times and I don’t think anyone really knew (or cared) who actually was holding the note at the time the owner died. So it just sits and I assume it will be sold for taxes owed.
You have a bit of an advantage in that the seller is willing to work with you. I don’t know how the CA foreclosure process works or how expensive it is in CA so I’m not sure if it would make sense, but if you want to force the lender to move on the property you could explore getting another note on the property from the seller (that would be the 4th !) and YOU immeidately file a foreclosure on the property. They will get notice and should claim their interest. At that point you could try to negotiate buying their interest OR if they stay silent (or un-negotiable)and you see through the Foreclosure, will you become the owner because you are the forclosing lender ??? I;m not sure if that would make sense or not, the idea just popped in my head so I thought I would put it out there.
Hello Keith and thanks for your thoughts. Being the foreclosing lender in jr. position in CA (non judicial trustee’s sale) will get you title…subject to all the senior liens. In this case there is a 1st, a 2nd, an HOA lien and past due property taxes. I can get title subject to those same issues just by getting the deed.
Investors in judicial foreclosure states have a totally different take on “creative” foreclosure solutions because judicial foreclosure requires everyone with an interest to be served and to respond and there is always the possibility of someone not answering or a default judgement. Not here.
I’m not worried about pushing the issue because if I can get the deed there is both cash flow and time to deal with the senior liens. Even if the lender wakes up there is a minimum of 4 months in the trustee’s sale process before sale. That’s enough time to work a short payoff.
I’ve seen props and loans fall through the cracks before, but I can’t be sure that HFC has let this one go by accident or if they have a strategy with the many loans out there in default that they are not acting on. I’ve read other accounts by borrowers in BK where the lender doesn’t act even after the BK is discharged. In CA there is also this issue of the note and statute of limitations. Note SOL is 4 years. Four years of no active collection by a lender means the lender has let the SOL expire. So a note holder can’t “collect” on the note, but the deed of trust is still valid. There is some interesting case law on this issue. So who knows, maybe I’ll make case law by finding an angle on that one.
This might be all moot as it’s possible the owner might not be willing to do anything as she already walked away and is confused why she still owns it. Confusion is often a deal killer in my experience. Or she might have figured out that she can do the same as me. Occupy or create cash flow on the property until the lender comes knocking. And then work a short sale payoff or loan mod.
I see, Sr. liens will still need to be dealt with at some point. I would want to deal with those liens sooner than later. Only because I would expect if you did just get the deed now and create some cash flow would that not fall under “Rent Skimming” under CA law ? Just curious.
“So a note holder can’t “collect” on the note, but the deed of trust is still valid. There is some interesting case law on this issue. So who knows, maybe I’ll make case law by finding an angle on that one.”
You come up with the best stuff, Kristine! I would love to hear more about possible scenarios along with case law on that issue if you get a few free minutes.
Keith: The CA rent skimming law doesn’t apply here. Believe it or not, it’s written to apply only to the 1st year of a note/deed of trust. And there are exemptions, like if the owner has medical bills and collects rents and doesn’t pay the mortgage. For fun you might want to read it. The first time I read it the only thing I could think of was that there must have been a snow day in Sacramento on the day of the scheduled public comments for the bill. And that the only person who spoke, the one with the medical bills concerns, had a snow plow. But they don’t have snow in Sacramento. So, like, I don’t know.
Natalie: I always say stuff like that about case law. It’s my way of feeling a little less powerless in the face of the the banks. And my fantasy that a title problem could be solved just because I want it to. The current law and amendments are definitely in favor of a lienholder getting the property back via trustee’s sale, even after the SOL expires. But the courts admit the law is far from perfect and the language is still vague. Leave it to me to take advantage of vague language. Ask my husband.
If you’re investing in low-income areas you need to explore whether the lender has charged-off the loan and make an offer- lots of offers. Depending on the circumstances banks are anxious to settle rather than foreclosing and taking title. Banks do not want to assume potential liabilties associated with owning property in low-income areas (squatters, drug dealers, code enforcement etc.).
Hi Nike. Curious why you think it matters if the lender charged off the debt. Maybe it’s different where you are. I’m in CA, a trust deed state, so the note and deed of trust stay valid…forever. Well, not forever, but almost. Even being out of statute of limitations on collection of a note, which is 4 years here, doesn’t invalidate the deed of trust. The lender has to foreclosure or accept a deed in lieu in order to get title. What was your idea?
[QUOTE=Kristine-CA;884105]Hi Nike. Curious why you think it matters if the lender charged off the debt. Maybe it’s different where you are. I’m in CA, a trust deed state, so the note and deed of trust stay valid…forever. Well, not forever, but almost. Even being out of statute of limitations on collection of a note, which is 4 years here, doesn’t invalidate the deed of trust. The lender has to foreclosure or accept a deed in lieu in order to get title. What was your idea?[/QUOTE]
Kristine,
To charge off a debt means to write off the value; to re-value the assets (the loan) and set a new value that reflects the market value of the asset. In the extreme, the lender drops the value to zero. While the debt is valid and the lien is still secure on the property, the lender has taken the view that they will never collect so they are going to just forget about the loan. They take the hit to their capital and then write off the loss against their income so the taxpayer shares the hit.
If for some reason the lender sells on the loan for more than they have it valued on their books or the borrower pays up, the lender will take the difference between the internal value and what they received and show that as income.
In the prior reply, the negotiating point is the lender might be valuing the loan for less that the face amount so they will accept less if you were offering to buy the loan or pay off the loan. If they have it at zero value, anything above zero would be a profit to the lender. In some areas where the back taxes and repairs will exceed the value of the dirt, the lender wants nothing to do with the property so they will in effect, just walk away from their claim.
I didn’t say anything about invalidating the security interest. I re-read my two responses; I do not understand how you arrived at that conclusion. Perhaps you’re too busy prattling on and on rather thinking about other ideas.
Have you talked to the lender? what is the lender’s position? Have you made an offer?
[QUOTE=Nike1;884123]I didn’t say anything about invalidating the security interest. I re-read my two responses; I do not understand how you arrived at that conclusion. Perhaps you’re too busy prattling on and on rather thinking about other ideas.[/QUOTE]
Nike1,
Rather than drive the conversation in the wrong direction, how about assuming she just did not understand what you were suggesting? No need to use the phrase "prattling on’.
Just explain what you mean. If necessary, start with the basics until you know what she does or does not understand.
We are hear to learn rather than belittle each other.
It is hard to be completely understood with email, online and other similar formats. No body language and no tone while humans only get 7% of the meaning from the actual words use. Assume a lack of understanding rather than take things personally