Need advice...heres the scenario - Posted by shortsale

Posted by sean flanagan on August 05, 2003 at 12:20:46:

I could refi into my name but would probably use a hrad money or private just for the short term. These deals come along all the time and I try to use my name as little as possible. It is just to easy to do these dceals in other peoples names. Wells has one of the worst reputations in regards to negotiating. Anyways, thanks for the advice!

Need advice…heres the scenario - Posted by shortsale

Posted by shortsale on August 03, 2003 at 24:15:12:

Hi. Heres my situation and any advice or ideas will be greatly appreciated. I took a property subject, got the dded and have been making payments. As part of my agreement with the seller, he agreed to make up 1 payment in the future. I caught the loan up by taking a 5k down payment from a new buyer on a land contract. In the mean time the previous owner disappears and not only never makes the payment, but also files ch. 7. To date I have been unable to locate him. As a result, the lender, Wells Fargo, has released him from the loan and accelerated the note due to the 30 days running and the late fees. I was unaware of this until last month. Luckily, last month my buyer violated his contract with me, giving me the right to cancel the land contract (love Lou Browns contracts). Today the Sherrif served him papers to move out within 20 days and of course he is seeing an attorney to try to sue me first thing Monday morning. So, with this in mind, should I

a) somehow continue my foreclosure on him for defaulting?

b) refund his original down payment?

c) offer him my 30k profit on the back end by dropping his payoff 30k and hope he can refi in less than 20 days?

d) Try to find a private lender to help?

e) roll the dice and walk away, letting Wells Fargo take the house back?

I have no money in the deal and the guy did default on our contract, but legal fees add up quickly!! Anyone got any feedback?

Re: Need advice…heres the scenario - Posted by JohnBoy

Posted by JohnBoy on August 03, 2003 at 22:04:45:

Your post is confusing.

You state you brought the loan current and you have been making the payments.

Then you state the seller agreed to make up one payment and never has. So was the seller suppose to make up this payment by making it you, or making it to the lender? If he was suppose to make it to the lender then you never brought the loan current and made all the payments. Otherwise there wouldn’r be any late fees the lender is claiming. You made up all but one payment and made the mistake of trusting the seller to make one for you. You should have made the payment yourself and had the seller make up the one payment by making it to you. Then you wouldn’t be in this mess.

You say the sheriff served your buyer to move out in 20 days. Who had these papers served? Were these papers served by the sheriff on your behalf, or on the lender’s behalf? I’m assuming you had these papers served against your buyer…is that correct?

Lenders don’t just release borrowers from loans just because they filed a BK. The only way a borrower is released from a loan is if they pay it off or if the lender may agree to do so by deeding them the property in lieu of foreclosure. The seller can’t deed in lieu of foreclosure in this case because the seller deeded it to you and no longer owns it. So the only thing the lender can do is foreclose to take the property so they can sell it to recover as much of their money back as possible. But had you brought the loan current and made all the payments on time and not trusted the seller to make one of them, this wouldn’t be happening.

But regardless, the lender must still go through the foreclosure process which takes time. You can drag this out by contesting the foreclosure since you are the owner of record. If you have $30k in equity in the property it may be worth fighting the foreclosure to buy time to sell it out right and collect some of that equity you have. It shouldn’t be that costly to get an attorney to represent you and delay the foreclosure while you try to sell the property. The lender might even be willing to wait a while if you call them and explain you are selling the property to pay them off.

If your buyer defaulted, why would you agree to refund him his $5k down payment??? I’d use less than half that money to get him out!

Give your buyer your $30k in equity in hopes he can refi in 20 days??? Are you nuts??? Why would you even consider that? Spend a couple thousand to get him out, put the property on the market and sell it! Then put that $30k equity in your pocket!!!

Legal fees can add up quickly, but all you need is an attorney to get your buyer out and to stall off the foreclosure. That shouldn’t cost much while you try to sell the house on the open market. For $30k in equity I would spend a few thousand to get it!

As far as finding the seller you bought the property from…if he filed BK then is address is in the court records which is public information. Just look up his BK filing. But that isn’t going to help you if he named you in the BK since you are forbidden to contact him at this point. If he didn’t name you in the BK then you can contact him. Were you served a notice of his BK by the court naming you as a creditor?

Re: Need advice…heres the scenario - Posted by John Merchant

Posted by John Merchant on August 03, 2003 at 10:34:25:

While your post isn’t real clear (e.g. how can you “foreclose” if you have the deed?), I’d stand pat and do nothing rash until you see if you DO get sued.

While you don’t want to run up legal fees, understandably, neither does he…and he’s not likely to find any lawyer who’s willing to jump into the thing unless you’ve committed some kind of really egregious fraud.

Meaning his lawyer’s gonna want a cash fee, upfront, and since he’s money-shy, how’s that gonna happen?

So just hold on, watch & see what happens.

Re: Need advice…heres the scenario - Posted by shortsale

Posted by shortsale on August 04, 2003 at 24:04:02:

I was not served a BK notice so I could contact him. Also, Obviously the payments were caught up with the exeption of the one I expected him to catch up. Obviously you know this because as you said there would be no late fees or foreclosure if I had caught all of them up. That is 100% irrelevant at this point though. I am aware that I should have made that extra payment up, but it does me no good now. And, just so you know, the person on the loan is released from the loan after Ch. 7. I have it sitting in black and white on my desk! I have done research into this and surprisingly have found that they are released from the debt if they choose not to shelter the home. IF that werent the case it would be easier.
As for being nuts and handing over equity…not at all!! I made good money up front and good cash flow since I put the buyer in the house. I never spent a dime of my money on this deal. I hardly think it is nuts to give some equity to avoid a lawsuit or even refund a down payment. I am in a position where I may not be able to follow through with my contractual obligation based on an error on my part!! Technically, I was unable to fulfill my contract before he defaulted!! Evidently you have not been sued before or you would realize that it is much easier and cheaper to avoid it at most costs! Your ideas would work in a different situation, but because there is no one responsible for this loan now and Wells has accelerated it, there is not much time. Contesting the foreclosure, if I can in this case, may be a good idea though. Unfortunately, in the real world it is not quite as simple as you make it sound.

Re: Need advice…heres the scenario - Posted by shortsale

Posted by shortsale on August 03, 2003 at 11:02:25:

Yes, that may be what I end up doing. Thanks for the advice.

P.S.- As for the post not being real clear, let me clarify…If you issue a land contract or contract for deed to the end buyer, even though you hold the deed, they hold equitable title. You must still (in most cases) go through a foreclosure process to remove them and there interest in the home. It is homeownership on there part, down to the fact that they file homestead exemption. The foreclosure is a little easier, but still a foreclosure.

Re: Need advice…heres the scenario - Posted by JohnBoy

Posted by JohnBoy on August 04, 2003 at 21:52:50:

The chapter 7 discharges the borrower from having to pay back the loan. This is ordered by the court, not the lender. The lender does not release the borrower from a loan. The court does.

While it is true you should avoid a lawsuit if possible, I would not be so quick to avoid one where the buyer is the one that defaulted. It would be different if the buyer did not default and this situation with the lender foreclosing was what is causing the buyer to file a lawsuit. What are the buyer’s grounds for filing a lawsuit? You said they defaulted. So what are they suing for?

I understand you made good money up front, but if you refund that money you made nothing up front. You say there is $30k in equity. To give that to your buyer is giving up a lot of money just to avoid a lawsuit they are threatening you with over something they defaulted on! They defaulted, and now they are saying they are going to file a lawsuit, and you are saying you should maybe refund their $5k and give them your $30k in equity to avoid them from suing you. That’s $35k of your money you are willing to just walk away from to avoid a lawsuit. And they are the one’s that defaulted on their contract with you! It would be different if it were a couple thousand we’re talking about. But we’re talking about up to $35k here. That is worth defending. What grounds are they basing their lawsuit on? Because the lender is foreclosing? This is after they defaulted on their contract with you. At least that is the way it sounds from your post.

The fact their is no one responsible for the loan does not matter. The lender may not agree to let you reinstate it, but regardless, they still have to foreclose on the property to take it away from you. You still legally own it, period!

How long does a foreclosure typically take in your state? Would that be enough time to sell the property before the sheriff sale can take place? It shouldn’t cost you more than $1200 - $2000 to stall off the foreclosure by having an attorney contest it. In my state it takes a minimum of 9 - 12 months to foreclose and that is if you don’t even respond to the foreclosure complaint. A lot longer if you do contest it. I can contest a foreclosure in my state and my attorney wouldn’t have to appear in court more than 2 - 3 times over the first year contesting it! How much does that cost to have the attorney file an answer to contest it, then appear in court maybe 2 - 3 times over the next year? About a couple hundred to prepare the answer and file it, and about $150 per hour to appear a few times over a year. About $1200 total!

For $35k in total profit and equity I will glady shell out up to $5k to defend my money by fighting a frivolous lawsuit against a buyer that defaulted and contesting a foreclosure to stall the lender off long enough to sell the property so I can get my money out of it. It doesn’t matter that I have no money out of my pocket in the deal. That $5k up front money I got from the buyer and the $30k in equity in the property, IS MY MONEY! I sure as heck wouldn’t just roll over and let my deadbeat buyer have it all just because they are threatening to sue me and because I have no money invested out of pocket!

Is there more to this then you are telling us? What grounds does your buyer have to base a lawsuit against you on? What am I missing on this? Anyone can sue anyone for anything, but if their lawsuit has no basis they aren’t going to win anything.

It sounds to me like, based on your post, that the buyer defaulted, then after the fact the lender came along the following month and filed a foreclosure complaint because the original borrower filed BK on the loan. Now your buyer is claiming they are going to sue you because the you didn’t make the payments and they can’t buy the house now because the lender is foreclosing. Is that what is happening here? Or did your buyer default after learning about the lender foreclosing? That could be a problem.

BTW, if you give the buyer their $5k back then it sounds like you will end up out of pocket on this deal. You said you used the buyer’s $5k to catch up the loan for all but one payment. So if you used that money to catch up the loan and you end up giving the buyer that $5k back, then you are out of pocket for $5k! Minus any cash flow you may have got during the time the buyer lived in the property and made their payments to you. Did you collect $5k or more off the monthly cash flow so far? It appears to me based on your post that you haven’t made much money at all yet since you stated you used your buyer’s up front money to catch up the loan. But like I said before, your post is confusing, so maybe we don’t have all the facts on this. Do we?

contesting a foreclosure - Posted by rm

Posted by rm on August 08, 2003 at 21:09:00:

On what grounds can you contest a foreclosure?

What does it typically cost?

I have met several people in the last few months who, IFFFFF their stories were true, were seriously jerked around by their mortgage companies. In one case, the actions of the lender were SO egregious that the sellers hired an attorney, who filed suit for predatory lending practices.


Re: Need advice…heres the scenario - Posted by shortsale

Posted by shortsale on August 05, 2003 at 09:48:54:

I am still not to sure how the first post was confusing? Several people have replied with advice…most on the money, and no one seems to be finding it confusing but you? Actually, I have found you posts a little confusing. I was trying to follow them and get the new point being made in each paragraph and finally realized that you said the same thing on 8 paragraphs. I am not trying to be rude by saying that, just pointing out what I observed. Anyways, in regards to the first post, since speaking with Wells a couple things have changed (which I figured would happen, but did not factor in numerically in the first post). The payoff has changed due to late fees on the rolling 30’s and attorneys fees. The roling 30’s over a year equaled out to be 2 months payments (2500) and the default on the buyer (1250) made 90 days and $3750. The atorneys fees are a few grand (approx. figure stated by them) making $6750. A payment for Aug. is now due making the total 8k.
Now lets assume it takes me 2 months to get the buyer out of the house. Thats another 2500 in payments and say 1k in attorneys fees. That brings the total to $10500.00. My back end is now trimmed to 19.5k. That is still a good profit and I would not want to flush that down the drain. However, as I stated in my first post, the contracts used with the buyer are per Lou Brown. Under these contracts, if the buyer goes more than 15 days late he has defaulted and will lose his rights to the property. There is a good chance that the judge could look at this default and say that I took advantage of the buyer and I would be stuck. The buyers default really was not that bad if it was not for the one sided contract. Unfortunately there is a good chance a judge may see it that way. IF that happens I face many more expenses with attorneys fees, reinstatement etc. which would make most or all of the equity vanish quickly.
To end, initial post was really meant for brainstorming the best way to handle this. I included the basics of the situation to get ideas. I could have spent an hour on fine details, but did not because I would get less reponses. I agree forfeiting the equity may not be the way to go, but refunding the 5k to get this guy out asap so I can sell the house and make 20k + may be the simplest way (this way I can focus on getting more deals to make more money instead of wasting my time battling tooth and nail for something that is not guaranteed anyways).

Re: contesting a foreclosure - Posted by JohnBoy

Posted by JohnBoy on August 08, 2003 at 22:59:36:

If you own the property, where the seller deeded it to you, then you can contest it. You have a legal interest in the property. You can contest it and put up a fight that you want to keep your property and reinstate the loan. It doesn’t mean you can win, especially since the DOSC was violated, but you can certainly contest it and fight it. What this does is drag out the foreclosure because you have to have court dates set to where the court will hear arguments on both sides. The court system moves slowly where this can buy you a lot more time to get the property sold. If you can sell the property before the foreclosure happens you will be able to pay off the lender which would dismiss the foreclosure suit. Once the lender is paid off then they have nothing to foreclose on.

First you have to file an answer to the complaint. You could file a motion to dismiss instead. This buys time since the court will have a hearing on the matter. If you lose on your motion to dismiss then you have to file your answer. Then you can deny everything in the complaint. Another hearing takes place. You can stall the case along for months or years depending on the circumstances.

What does it cost? Depends on the attorney you hire. Typically about $1,000 retainer, then the attorney charges by the hour billing you for his time. Once the retainer amount is used then you are billed by the hours put in after that point. It may only cost a couple grand to stall the foreclosure off for a year. The court hearings are months apart where the attorney only needs to file the answers and motions and appear for any court dates which is only about an hour or two of his time for each hearing. 3 - 4 court appearances could take up to a year depending on the court and how good your attorney is.

Re: Need advice…heres the scenario - Posted by JohnBoy

Posted by JohnBoy on August 05, 2003 at 10:38:01:

Do you have the ability to refinance the property yourself? If so, I would bet the bank would forgive the late fees and attorney fees if you agreed to pay off the loan and save them from having to incur additional costs to complete the foreclosure.

If you did this that would resolve any issues with your buyer suing you over anything on your part pertaining to you not being able to perform. For $30k in equity this is something I would most likely be willing to do, unless this is $30k equity on a $300k property or something. Then I would forget it. But if this a lower price property I would want to keep that equity and be willing to refinance to do so.

The bank would have to be nuts to not agree to forgive the late fees and attorney fees to get paid off and avoid additional costs to foreclose, not to mention the time it could take to complete the process.

I’m just completing a simular deal myself. The borrower is 3 years behind on payments. Over $60k worth of back payments, late fees and unpaid taxes. The loan was over 10% interest. We have reached an agreement to settle this deal. The lender has agreed to forgive all the back payments, late fees, attorney fees, rewrite the loan at 6%, 30 year fixed, plus reduce the principle amount by $5k, and pay all the unpaid taxes owed. That’s over $70k in debt being forgiven! Not to mention the amount of interest the lender will lose after reducing their 10% rate to 6% over the next 30 years!

The original loan was worth $264,876 in interest over 30 years. The new loan is worth $133,212 in interest over 30 years. That comes to about $131,664 in reduced interest over the life of the loan, plus the $70k+ in debt forgiveness up front.

Your case appears to involve late fees on a rolling 30 day late and some attorney fees totaling about $8k. I would bet they would forgive that money in exchange for paying off the rest of their loan. This would allow you to keep your $30k equity and avoid any damages to your buyer claiming you breached your end of the contract in any way. This should only cost a few phone calls on your part to resolve this, assuming you are in a position to refinance the property.

If the lender says no, then threaten to fight the foreclosure and drag this out for YEARS! The lender I’m working with said no at first, it was tied up in federal court for over a year before the case was dismissed, then they filed in county court, they had 9 attorneys on this, we got one attorney involved, and now they agreed to settle! Imagine that! :slight_smile: It has cost about $1600 to settle this after two years.