Kind of a mess....could I get a little advice? - Posted by Carmine

Posted by JT-IN on October 07, 2003 at 18:11:53:

C:

One possible exception to what I stated above, as to who you would have a claim against…

If you have the proper DOT filed, without flaws, that secures a lien to the real property, then your recourse would be to foreclose that interest… in a Trustee Sale. This action would be against anyone who has an interest in the property… so let’s see here… The former owner… who you have your contract with, the party who they sold the property to, and the party that bought the property, as well and any lender(s) having a DOT on the property. That is how you would go about recovering the collateral… So it would behove the current owner, with all money spent fixing the property up, to pay attention to what you have to say to him… as he could be on the bubble… (Gosh, I hate to use that word here… with all the bubble discussion of late).

JT-IN

Kind of a mess…could I get a little advice? - Posted by Carmine

Posted by Carmine on October 07, 2003 at 13:27:32:

Hello everyone…

I wanted to get some quick advice on a situation we have.

Here is some background:

A few months back, we had a motivated guy who wanted to be out of his house quickly, and so we got an option on his property and began to advertise to sell it. We got the option at his current loan value…$89k, and we were going to sell it at FMV which is around $120-125k. We secured the option with a deed of trust, which we recorded that day.

Well we found a potential buyer, and so we called the original owner to tell him we were going to exercise our option, and he told us he sold the house to someone else, who already recorded a deed. So we called up this new guy and he told us what we did is illegal and not binding in court, and he was going to set the DA on us. Then he sold the house for something like 20k to some brand new investor who didn’t have any clue what he was doing, and didn’t do a title search. This new investor completely fixed up the house (nice!), and right now he’s trying to sell it on a wrap.

Well we were going to wait until one of these guys was going to try to sell the house, and then tell him we would release the cloud on the title for a fee and just be done with it…but now we’re kind of re-considering because there is some equity left on the table.

Anyways, so I thought the process for us was to foreclose on the DOT and take the house back and then sell it, but I spoke with an attorney today who said that what we might do is talk to a title company and open escrow and let everyone know we are exercising our option…and the current owner will probably try to contest it and we’ll end up in court, where hopefully the judge will say we are in the right.

So I guess my questions are…does this sound right to anyone? Can we just exercise the option, since we have a DOT recorded first? Or would the option have to be recorded instead of a DOT? Would we end up sueing the original homeowner for specific performance somehow?

I realize this is kind of a mess, and we should have just gotten the deed in the first place. Live and learn…

Thank you very much for your time. =)

Carmine

$1 consideration - Posted by Carmine

Posted by Carmine on October 07, 2003 at 15:41:12:

We made the consideration to be $1.

Basically the homeowner was desperate to stop the foreclosure and just wanted out, and we told him we would try to get him cash when we sold it…and then the other guy told him he would even get him more cash than we offered, so the homeowner deeded it to that guy.

Then when the new owner sold it to the uninformed investor for the $20,000, he didn’t give a dime to the original owner, so the original owner got completely screwed all the way around. We are back on speaking terms with him, and told him to try to sue the guy, but he’s dead broke obviously.

I understand what you are saying about steering clear of the courts. Thanks for the advice!

Carmine

Re: can’t help you - Posted by Conscience

Posted by Conscience on October 07, 2003 at 14:44:31:

What was the consideration for the DOT?

Though I’m not too familar with the whole option process, my thinking is that if it went before a judge the judge would/could rescind your DOT by deciding that you used your position as a real estate expert to take advantage of the homeowner… that the homeowner be entitled to any equity… and may label you as a predator. I would steer clear of court, and try to get a small fee, as you had suggested, from the new owner.

But, that’s just my opinion.

Flawed Application here… - Posted by JT-IN

Posted by JT-IN on October 07, 2003 at 16:08:14:

I think your choice of vehicles, (Deed of trust) is the wrong choice and may not protect you as you had intendded in this situation.

If the consideration was $ 1.00, then the homeowner could pay you the $ 1.00 of to satisfy the Deed of Trust indebtedness, along with commensurate interest… maybe another $ 1.00. You may be slightly confused when language in a Deed lists $ 10.00 and other good and vauable consideration… You should have used a performance mortgage, instead of a monetary amount, which is ambiguous to satisfy… until the task is performed. As it is you have a monetary payoff, as would any other lender, but you are not entitled to anything like 20K… by this, as I see it.

“Then when the new owner sold it to the uninformed investor for the $20,000, he didn’t give a dime to the original owner, so the original owner got completely screwed all the way around. We are back on speaking terms with him, and told him to try to sue the guy, but he’s dead broke…”

Why woould the Seller want to suit this other investor for doing basically the same thing as what you were doing to begin with. Of course you were going to pay the seller something from the sale, but not a stated amount, so who is to know what amout that would be…

I think as this turns out, your compensation will come in the form of education, not monetarily…, but I’m no lawyer.

Just the way that I view things…

JT-IN

Oops…meant as a response to Conscience! NT - Posted by Carmine

Posted by Carmine on October 07, 2003 at 15:42:26:

sorry =)

Re: Flawed Application here… - Posted by Carmine

Posted by Carmine on October 07, 2003 at 16:28:31:

JT

Thanks for your time. I think I actually made a mistake on what I was saying earlier.

The consideration we gave for the Option was $1. Basically I thought that meant we payed him $1 to get a year option on his house. I don’t think the DOT actually has any language in it specifying consideration…I think it was specifying that it is securing the option.

For some reason I thought a deed of trust is a good tool to use to lock in an option. I guess I never thought of having a performance mortgage recorded instead, which I think would probably be better in the future.

“Why woould the Seller want to suit this other investor for doing basically the same thing as what you were doing to begin with. Of course you were going to pay the seller something from the sale, but not a stated amount, so who is to know what amout that would be…”

I see what you’re saying. We told him we would give him $1,000, but never put it in writing…and the new guy came and said he would give him $5,000…but never put it in writing. So I think the homeowner is just mad because he knows the guy he deeded it to sold the property for 20k and basically told him to go jump in a lake.

Also, I think the last guy who actually paid 20k cash for the property wants to sue someone. There have been a bunch of threats of lawsuits on all sides. Not against us, but with all the other parties I mean.

You’re right though, even if there is no way to get the property back, at least I’m learning a ton, with nothing at risk but time. Thank you again! If you have any other suggestions, besides using a performance mortgage in the future to secure an option, please let me know!

Thanks

Carmine

Re: Flawed Application here… - Posted by JT-IN

Posted by JT-IN on October 07, 2003 at 16:45:12:

C:

You may in effect, have a perf mtg in place… or a DOT that has a specific event that will satisfy the DOT. That specific event would be the Seller completing the sale of the property via terms of the option agreement.

Maybe you would be alright here… afterall.

What I might do is contract the gentleman that bought the property, and spent the money fixing it up. I would alert him to the circumstance of your recorded DOT. If he has any business accumen whatsoever, he would at least have the title checked to see if there exists a problem from your recorded DOT. Once he verifies this fact, (if in fact it is a valid lien) then he should going back to the person that he bought it from…

The important thing here is to not let too much time wedge itself in between deals… What I mean by this is… if the buyer detects the problem, better for him to do so sooner than later. Then he applies pressure against the person he bought it from… and maybe some settlement is then produced.

Your only claim is agaisnt the seller… (original owner), whereas the owner of records claim would be to the guy he bought it from… Things kind of roll backwards here… to the person that you last dealt with… like a rear-end collission. Even if you are the first car in line, you suit the guy that hit you in the rear end, not the guy who caused the whole thing… if that makes sense.

Just the way that I view things…

JT-IN

Great…thank you! - Posted by Carmine

Posted by Carmine on October 07, 2003 at 16:53:35:

JT

Thank you! That is what I was looking for!

“I would alert him to the circumstance of your recorded DOT. If he has any business accumen whatsoever, he would at least have the title checked to see if there exists a problem from your recorded DOT. Once he verifies this fact, (if in fact it is a valid lien) then he should going back to the person that he bought it from…”

Yes, I will do that today.

So if the DOT will act like a perf mortgage because it has language in it saying that if the terms of the option aren’t followed, our recourse is taking the property, then it seems like we should be protected right?

“Your only claim is agaisnt the seller… (original owner), whereas the owner of records claim would be to the guy he bought it from…”

Okay I understand that. So would we initiate foreclosure proceedings? Or would we just go into escrow with the title company and proceed with buying it, and when our claim gets contested just fight it out in court? That’s what the attorney was suggesting.

I appreciate your quick feedback!

Carmine