Bank Says I Don't Own the House - Posted by Elizabeth NJ

Real Estate Investing Real Estate Financing
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Posted by JohnVosilla on April 17, 2006 at 10:38:16:

Sounds like there could be a final judgement out there but a sale at the courthouse steps never took place. Then the question would be has the statute of limitations in this state voided the final judgement? If not they can still proceed to set a sale date. Another question would be whether the final judgement was recorded and whether that even matters since the bank can proceed to record it anyway and set the sale date? I’m sure the title company that did the search made some judgment calls on this and perhaps they are at fault…

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Bank Says I Don’t Own the House - Posted by Elizabeth NJ

Posted by Elizabeth NJ on April 13, 2006 at 23:07:50:

Hello all,

You know, I usually have some great deals, and every once in a while, I find myself in a jam. Your advice is welcome.

I bought a nice 2 family sub2 from the out of area owner who had never lived in the bldg. Ran title, paid him for the deed which I promptly recorded, and my attorney sent letter to bank requesting payoff amount on mortgage.

Lo and behold the bank’s lawyers say they foreclosed on the property FOUR years ago. Remember, we ran title, there’s no reference anywhere to a foreclosure. The bank’s lawyers say they foreclosed & the bank bid their lien. The Sheriff’s office says they prepared the deed for the bank after the 10 day redemption period, but that the attys for the bank did not pay the outstanding fees due the Sheriff for another TWO years and didn’t pick up the deed until then and that deed has never been recorded.

It’s an FHA loan, so I called HUD. The rep pulled up the property and said well I see it was foreclosed on, but I don’t understand why HUD has never received the deed. He said the normal course would be for the bank’s attys to record the deed and then file a claim with HUD for their work. No claim has been filed and the HUD rep says it’s unlikely the bank’s attys will be able to justify the expenses they’ll probably claim now, more than FOUR years later.

My attorney says NJ is a “notice race jurisdiction” which she explained means whoever gets to the court with the deed first wins. We’re prepared to litigate if necessary.

I clearly own the property and all I want to do now is pay off the mortgage but the bank’s attorneys refuse to give a payoff figure, and the bank itself won’t help because their attorneys have instructed them to not communicate with us.

I am absolutely convinced that the bank’s attys completely forgot about this property, maybe lost or misplaced the file, until I stirred everything up asking for a payoff figure.

Anybody have any suggstions, ideas on how to force the bank to produce the requested info without litigation? The bank’s attys won’t even get on the phone with my atty, they have a secretary at the firm speak with her.

Thanks for your advice.

Elizabeth

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From the title perspective… - Posted by Gursel

Posted by Gursel on April 15, 2006 at 19:42:12:

…you own the house, subject to any liens of record. Based on your information, that’s the mortgage and a couple of judgments.

I’d be willing to bet that the title search did not “miss” the Lis Pendens. Instead, it was not reported as affecting title by the abstractor because it’s out of date.

The shelf life of a Lis Pendens in NJ is five years. The foreclosure happened four years ago. The LP was probably recorded more than five years ago.

The title officer who examined this title knew about the LP as it was notated on the margin of the mortgage and it was probably on the run-sheet of the abstractor but simply assumed, that since it’s out of date and there’s no Sheriff’s Deed of record, that the homeowner worked out the foreclosure - as it happens all the time.

Now the bad news. If the foreclosure was done right, your seller knew that she no longer owned that house because she was served not only with the intent to foreclose but also with the notice of the Final Judgment and the Sheriff’s Sale.

If we assume that the seller gave you a quit-claim deed, where she conveyed whatever interest she had in the house, what did she really give you? What interest did she have in the house four years after the Sheriff’s gavel fell at the auction?

What I don’t understand is why isn’t your title co going to bat for you? They insured you subject to the mortgage, period. The fact that the title search didn’t indicate foreclosure doesn’t mean they’re off the hook. They’re obligated to protect you here. This is exactly the reason you buy title insurance.

My only suggestion is, if your title company and your agent are not fighting for you, get a new title company/agent.

Best of luck.

Gursel

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Was title ins. purchased? - Posted by John Merchant

Posted by John Merchant on April 15, 2006 at 09:47:38:

If so, and that T Co said S had title, the T Co is liable to you for your damages.

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Lis Pendens? - Posted by Ben (NJ)

Posted by Ben (NJ) on April 15, 2006 at 07:41:04:

I didn’t go through every post here but no one mentioned a lis pendens. Did the bank neglect to record that as well? That is what should have tipped you off to the foreclosure. Absent that, you can’t be held to be a mind reader. I wouldn’t fold by a long shot. A judge may just say, “bank, you screwed up, you are lucky enough to be made whole, so take your payoff and call it a day. You are also in a strong position as a bona-fide purchaser. You will be accorded deference by the judge because you stand to completely lose your investment. As they say the 'balance of equities” is in your favor.

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Re: Bank Says I Don’t Own the House - Posted by Todd-Ohio

Posted by Todd-Ohio on April 14, 2006 at 16:36:08:

Elizabeth:

Someone below asked if you had title insurance, to which you never responded. That was my only question, also, which is the only reason I bothered to read the other responses (i.e. so I didn’t ask the same question IF you had already answered it).

You are obviously a very knowlegeable investor. My concern about avoiding “jams” like this one are the reason I finally started getting title insurance for Sub2 deals. For years I didn’t get title insurance for sub2 deals, because I’m cheap, but now I do…

So did you or didn’t you? If not, are you likely to get title insurance on future deals?

Obviously if you had title insurance, then your “jam” becomes a heck of a lot less expensive to deal with… cause litigation ain’t fun or cheap no matter how you slice it (unfortunately I speak from too much experience :slight_smile:

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Re: Bank Says I Don’t Own the House - Posted by Joe Kaiser

Posted by Joe Kaiser on April 14, 2006 at 11:11:38:

When you buy a property from someone who doesn’t own it, you have
zero. You certainly don’t “clearly” own anything.

The last thing I’d do it put a tenant in there.

This is one I’d fold.

Joe

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Re: Bank Says I Don’t Own the House - Posted by John

Posted by John on April 14, 2006 at 08:28:36:

Elizabeth,

I buy a good portion of my properties from the Sheriff Sale in NJ. I can tell you this. Be prepared for a legal battle that can take many years. Your stance is not a strong one.
Didn’t your title search show a Lis Pendens? Was a final judgement entered?
I know that NJ is a “race state” but with foreclosures, its another ball game. Deed has passed from the Sheriff so the bank Legally ownes the property. Now, your recorded deed takes priority until the Chancery Judge voids your deed and places on record the bank’s deed.

I wish you the best and I would be interested to know what the final outcome is.

My guess is the bank will not place a claim for the HUD insurance and turn the property over to HUD because of the value it has accumulated over the past 4 years. My guess is they will file a motion with the Chancery Judge at the Superior court in the county the property is located in and they will prove they have legal ownership due to a foreclosure suit.
I would try to negotiate a deal but I wouldn’t throw good money after bad, so to speak.
Again, good luck.

John.

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Re: Bank Says I Don’t Own the House - Posted by Anne_ND

Posted by Anne_ND on April 14, 2006 at 07:27:29:

Elizabeth,

I think ken’s advice is great, get a tenant in there.

I’m wondering where the seller is in all this- he probably will not admit to knowing about the foreclosure, but depending on how much you paid him you should be able to get your money back for fraudulent conveyance. If it’s a small amount I’m sure it’s not worth the effort, but that’s what came to my mind. Of course, attempting this might mean you undermine your own claim to the property, but if things get hairy I’d keep in touch with the seller.

Anne

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Re: Bank Says I Don’t Own the House - Posted by ken in sc

Posted by ken in sc on April 14, 2006 at 06:44:14:

Elizabeth,

This is a good one! I have seen banks “forget” about houses before. I, of course, cannot begin to adise you in the law, as I am not a lawyer and don’t live in your state. I would likely have the attorney run the title again just to see if they can find the foreclosure now that they know to look for it. I would try and buy title insurance (if you don’t have it now), but that is unlikely at this point. Then, I would rent the house out so that you have income. There is no loan to pay, so just keep the rental income for your war chest to pay your attorney. This way, even if you eventually lose in court, hopefully the education will cost you nothing. Likely, what will happen is eventually you will settle with the bank out of court for some sort of payment. This could turn out to be a short sale in disguise.

Please keep us posted.

Ken

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House - Posted by Nike

Posted by Nike on April 14, 2006 at 06:32:10:

There’s no record of a foreclosure action? Lis pendens? Final order/judgment allowing the bank to go to auction? That seems impossible–any of the above will put you on notice that there’s an open issue regarding title and you take subject to any outcome.

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Re: Bank Says I Don’t Own the House - Posted by Tom(MI)

Posted by Tom(MI) on April 14, 2006 at 03:40:34:

Did you get Title insurance? If so let them deal with it.

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Re: Bank Says I Don’t Own the House - Posted by jafon2k

Posted by jafon2k on April 14, 2006 at 01:38:50:

You can almost bet that the bank has lost its records of the house save for the fact that there was a single entry that says that a foreclosure took place. I have seen this several times here in NY. Particularly on vacant properties - i.e. abandoned fire damaged property. In such cases they take a look at the property and realize they don’t want to get title to the property by completing the foreclosure. They would have rather had a sale or refinance.

There is law in NY that requires a refiling of a lis pendens after three years. Probably a similar law exists in NJ when certain legal actions expire if not carried through to completion. In a sense a plaintiff can in effect relinquish their rights for failure to act or complete procedural guidelines.

There may be a law requiring the sheriff?s sale bid to be paid within a certain amount of time to make the foreclosure bid a valid bid. For example, 10% deposit required and must close within 30 days, which includes all payable fees. If bank did not fulfill this obligation then they have no claim other than a mortgage is owed on the property, and accrued interest. Banks don?t forget (bank attorney with a check list) to do things when they are at the foreclosure sale by accident. You can bet it was likely intentional.

Bank may have sold the mortgage also as a defaulted mortgage and have no docs on the mortgage. Not only the recorded mortgage is important but supporting records of payment history. – What records can they show that the mortgage has not already been paid off? Force them to answer this.

Anyway, the long and short is you got the recorded deed (they don’t) and title insurance, hopefully coverage requested at “market value but not less than a stated amount” (not purchased price coverage).

You can do a “quiet title” which forces the bank to defend their position. Let the bank walk the plank.

Note: Banks sometimes become insolvent or dissolve. State Banking Department can issue a release in such cases. Check with the state banking department to verify the banks standing and that you are not communicating with a bank that only has a similar name to a dissolved bank who was the actual mortgage holder.

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Re: Bank Says I Don’t Own the House - Posted by JD

Posted by JD on April 13, 2006 at 23:45:05:

You are probably correct that the bank lost or misplaced the property. But it is far from clear to me that you own the property. I can’t explain why the title search didn’t turn up the foreclosure action. Most likely a poor title search, but possibly something else. Foreclosure Statutes vary by States, and I don’t have specific knowledge of NJ law, but it is most likely that NJ Statutes contain somekind of Clause that says that Title vests to the winning bidder regardless if a Foreclosure Deed is recorded or not. And there may also be a Statute that says that in the event of an omitted party action/intervening interest, the Deed of Trust remains in effect on the property. As I see it, the best case scenario here is that you own the property with a Deed of Trust that has more than 4 years of interest and penalties due on it. If you are willing to pay off the DOT with all the back interest, I would expect that the Bank would take your money. But you never can tell.

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Re: From the title perspective… - Posted by Elizabeth NJ

Posted by Elizabeth NJ on April 15, 2006 at 22:23:30:

My title company is fighting for me together with my attorney. So, hopefully this will all get worked out.

Thanks Gursel for your comments.

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Re: Lis Pendens? - Posted by JT-IN

Posted by JT-IN on April 15, 2006 at 08:01:55:

Ben:

I see it as very unlikely that the Lis Pendens did not get filed, if in fact the case went all the way to sale, and a sheriff’s deed has been issued. It is possible, and if so, I agree with you completely about Eliz’s position here. But I would think that it is far more likely that the title clerk doing the search just missed some very key signals here…

I agree, either way, don’t fold the cards YET… Either the case will unfold as you elude, or she will have a day of reconning with the Atty who was responsible for the seach… at least making a claim against them for what she is out of pocket here in acquisition costs and expenses.

This is certainly an interesting one, to say the least… and Eliz… please continue to post whatever happens next in this saga… Wish you the best of luck on prevailing here, and in the very least you will earn a few more stars of accomplishment on your RE merit badge, before the dust settles here…

JT-IN

PS. Eliz… not sure if you are aware, but Ben-NJ is an Atty who specializes in tax certs, and is quite knowledgeable in the foreclosure arena. His ideas here are quite valuable to you, so be sure to check out his theory first… as in Monday morning!

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Re: Bank Says I Don’t Own the House - Posted by Elizabeth NJ

Posted by Elizabeth NJ on April 14, 2006 at 17:44:39:

Todd,

Yes, I have title insurance & this mortgage is an exception. I have a very good title company owned by an atty who is also an investor. He tries very hard to work with his clients in solving problems like this.

But again, this foreclosure did not show up on title.

Thanks for your comments.

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Re: Bank Says I Don’t Own the House - Posted by Elizabeth NJ

Posted by Elizabeth NJ on April 14, 2006 at 14:07:35:

But Joe, my seller did own the property and had every legal right to convey it to me, because the bank never recorded any deed nor is there any reference on title to a foreclosure.

We’ll let the courts sort it out.
Thanks.

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Re: Bank Says I Don’t Own the House - Posted by Elizabeth NJ

Posted by Elizabeth NJ on April 14, 2006 at 14:08:48:

John,

No judgment, no nothing, just a mortgage on title and several small judgments against the owner [credit card, etc.]

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Re: Bank Says I Don’t Own the House - Posted by Elizabeth NJ

Posted by Elizabeth NJ on April 14, 2006 at 14:11:55:

Anne,

The amazing thing is that there has been a tenant on the 2nd floor for years, and the bank never even attempted to collect any rent from them.

My seller (original owner) lives out of the area and the foreclosure papers probably went to the property, but even the tenants say they nothing about it.

When the bank’s attys found out about my buying the property and recording my deed, they started an eviction proceeding against the tenant for unpaid rent for the years the bank ignored the property, but the bank’s attys failed to show up in L/T court and the action was dismissed.

The bank’s attys are clearly reassessing their position on this.

Thanks for your comments.