Obligation........ (Long) looking for all thoughts - Posted by David Alexander

Real Estate Investing
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Posted by phil fernandez on March 07, 2001 at 06:24:28:

Hi David,

For what it’s worth, I’d collect the rent without hesitation. There are a lot of parties in this mess that are all trying to protect their interests. All you are doing is trying to protect your interest and position in this property. The city , large bank, the tax collector and you all have your interests.

This thing may get snarled up for a long time and how are you going to get your $10,000 back. You’ll get it back through he rental income that you will be collecting. At this point I would not go the lease/option route with your new tenant/buyer due to the uncertaincy of the situation. If your tenant/buyer tries to excercise his option can you give him clear title for sure. Just do a straight rental and collect your rent.

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Obligation… (Long) looking for all thoughts - Posted by David Alexander

Posted by David Alexander on March 06, 2001 at 21:09:18:

Or NOT?

This is not a deal I took subject to, but rather bought a second lien.

I just foreclosed on this second today. I had been talking to the first and trying to work something out to protect my interest being a large institution they dont entertain any ideas in the slightest other than pay them off, and dont understand buying their position out, which I tried before I foreclosed.

The numbers are:

Property is worth 220-230k

The First original balance of 155k (approx. 180k now with back payments and fees, etc.)

The Second, which I own is 19k (I’m in it for about 10k)

Taxes are owed to the tune of 10k and a judgement was just won last week for the city.

I figured the first would come in and cure the defaulted taxes, didnt happen.

This is a property that had been in bankruptcy for a year.
Well, now that I have it back, I have a dilemma?

Should I just go and rent the property and get my money back out and then try and owner finance it, or cash it out.
do I have any liability if I do that?

I am going to try and approach the lender again and get them to discount, and if they would I would refi it, since I now own the property.

I also have thought about trying to buy the judgement but dont know if that paper is possible to buy and then I would foreclose the first out the way.

Talk to me, scream at me, am I being immoral by talking about collecting $2500 a month until I get money back and then selling?

I wouldnt want someone doing that to me, on the otherhand I would be trying to work with someone to get a solution for all of us but the first doesnt seem to want to play.

I’m Listening?

David Alexander

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Equity skimming - Posted by JD

Posted by JD on March 07, 2001 at 17:08:23:

At first I didnt see your problem. Looking really hard between the lines, I beleive that you are asking if it OK to collect rents without making a payment on the mortgage. But I could be reading something that isnt there. Dont know what the law is where you live, but more than likely there is some law describing this as Equity Skimming (a Class V felony where I live). Odds of getting charged are probably 1 in 1000. You could probably plead ignorace if you dont make a habit of it. I would go the ‘buy the tax lien and try to foreclose off the 1st TD route’ if possible.

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Re: Obligation looking for all thoughts - Posted by Bud Branstetter

Posted by Bud Branstetter on March 07, 2001 at 08:02:06:

David,

The tax lien judgement will take several months before it goes to the sheriff’s sale. Publication and all that. You can buy or bid up the price at the auction. Since you are now the owner you get any overage.

As far as assignment of rents it applies only to after you have accelerated but before you foreclose. Here that is 21 days. You are now the owner and the bank could only do it to you after they accelerate. The attorneys I had talked to were reluctant because of the liability of interference with the landlord tenant relationship. Get that sucker rented out, Pactrust of course.

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Re: Obligation… More questions than anwers - Posted by Eric C

Posted by Eric C on March 07, 2001 at 24:53:05:

Hi David -

I’m with Kaiser. Why should the bank discount the first at all. The only (new) additional risk to them at this point would be the defaulted tax issue. So, other than the back taxes, they’re exactly where they started in this mess. At the same time, they’re big boys. I would look at that first mortgage closely though, it may also contain an assignment of rents clause; any rent you collect they may be entitled to.

On the other hand, what about the tax redemption period? Don’t you still have some time here to reach an agreement with the former owners (to transfer their right of redemption? two years, two months?) If you want it, that is.

I would think that the second mortgage holder would have the right to bring these current to further protect their position. But then again, so would the first. By foreclosing, you may have closed the door on this.

Are you now the owner/operator of this property or “mortgagee in possession”?

If you’re planning on renting, then I guess the mortgagee in possession angle is pretty much out the window. You might want to check on a couple of points, for example, your insurance coverage. Have you tried insuring your interest in this property yet? As what? For how much?

Sometimes as “mortgagee in possession” it can be hard to get insurance, and on the other hand some states don’t hold the “mortgagee” to the same strict standards as they do a landlord (for liability purposes).

For what it’s worth, I think the taxes are key here. At some point, the first is going to foreclose (unless they have other things on their plate - is this a local bank?, who holds the mortgage?, these people branch folks or what?) and the back taxes will be an issue then.

Yours,

Eric C

PS - I thought you were still in Nevada (somewhere).
Who has the judgment now? Local law firm handling it? Who brought suit?

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Where’s the problem? - Posted by JoeKaiser

Posted by JoeKaiser on March 07, 2001 at 24:27:16:

If you’re entitled, rent it out. Don’t see the problem.

Know who else doesn’t? The bank. Lenders love having junior liens backing up their positions, knowing full well that the junior lien holders will take care of problems (or risk losing their investment) long before they become the lender’s problem.

Discount? Looks tough.

Joe

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I’ve seen this done but I wouldn’t do it … - Posted by Ben (NJ)

Posted by Ben (NJ) on March 07, 2001 at 24:16:50:

Neighbor A’s property goes up for tax sale. Neighbor
B buys a lien on neighbor A’s property. Neighbor B can now foreclose out the bank’s mortgage since he has a superior position. Do I suspect that neighbor B and A are in cahoots against the bank? Yes. Can I prove it,
No. Maybe neighbor A’s dog poops on neighbor B’s lawn every morning and pees on his newspaper.Case law in NJ prohibits the OWNER from buying his own tax lien but
not a third party. That having been said, (before I get lambasted for suggesting unethical behavior), I wouldn’t do it, its totally immoral. I suppose the property owner would still be personally liable for the note but now the bank is an unsecured creditor and can be wiped out in bankruptcy. Too risky for my blood!

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Re: Equity skimming - Posted by David Alexander

Posted by David Alexander on March 07, 2001 at 17:35:30:

I guess that was my question from the beginning if this was equity skimming or not since I am a lienholder?

Pretty much am going to try and refi the first, get my money and go from there.

David

P.S. I wouldnt look good in a TuTu, or with a roommate named bubba, we just wouldnt get along… :slight_smile:

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Re: Obligation… More questions than anwers - Posted by David Alexander

Posted by David Alexander on March 07, 2001 at 01:05:38:

Just got back… and headin’ back out in a week or so for the rest of the month.

I bet your right on the assignment of rent clause. I’ll check. But I still wonder how that favors on my end since I’m the second and I didnt sign that Note or deed of trust, I dont have the obligation.

It was a local firm that handled the taxes. It is a big institution that holds the first.

Since I just filed the trustees deed today, I’ll be doing an eviction rather quickly, and getting a writ of possession.

I dont anticipate having a very hard time putting insurance back on the property since I have the deed, just will put a landlords policy on it like I always do.

Tax redemption for home owners in Texas is 2 years I believe, but since I foreclosed on the second I dont think it means a thing. I might better go buy that sucker (if possible) just to make sure.

David Alexander

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Re: Where’s the problem? - Posted by David Alexander

Posted by David Alexander on March 07, 2001 at 24:48:02:

I think that my first of my intentions werent completely clear now that I reread it.

I mean rent it out and “Keep all the rent for the first few months until I get my money out” then put it up for sale.

Any liability there? Immoral… again like I said, I wouldnt want this done to me however I would work with the other parties and at the very least return phone calls.

Big Institutions… go figure.

David Alexander

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Re: I’ve seen this done but I wouldn’t do it … - Posted by David Alexander

Posted by David Alexander on March 07, 2001 at 24:43:04:

You lost me…
Which way are you leaning here??

I simply have filed a trustees deed today because I had to foreclose on a property that wasnt paying. The first lien hasnt been cooperating and now the city will foreclose us both out if I dont act fast.

I’m simply saying I plan on collecting rent on the property get my money out and then work on selling, but I do plan on taking care of me first.

Immoral or not?.. That is the question?

If I could buy the tax lien I would do it in a heartbeat, simply to have more control over the first.

If the first would discount I would refi them, but if they are half as helpful as they have been, I dont see that happening either, cant get them to return phone calls.

I do however plan on getting my money out of the property, one way or another.

David Alexander

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Re: Obligation… More questions than anwers - Posted by Eric C

Posted by Eric C on March 07, 2001 at 01:59:33:

Hey David -

Hi David -

I think that the bank can exercise the “assignment of rents clause” whether or not you were a signatory to those docs or not. I believe it’s more of a right that the first reserves (or retains) as a remedy rather than an obligation of the original (or subsequent mortgagor).

You’re right about the redemption period. Two years, two months for residential homesteaded property. But that right of redemption can be transferred or assigned.

Question is, “why didn’t the bank pay off the first”?

Most lenders have the right under to make tax payments and add them to the balance of the loan. In this case it would have saved them 25% (of the defaulted tax balance) at a minimum.

In other words, curing the problem after the sale costs them more,a lot more.

What were they thinking?

  1. This property is so valuable - somone will come along and bail us out for $180K plus $10K in taxes? or

  2. We are too busy to deal with these small issues and the PMI (and other insurance) will take care of us at a reasonable cost and with little effort; or

  3. We are so deep into this that we’re not sinking one more dime, no matter what. Hopefully there will be some insurance to help with the loss.

Do any of these scenarios make sense to you?

In any case, I would certainly try to get that right of redemption if you can, it may a fairly cheap option.

Yours,

Eric C

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Re: I’ve seen this done but I wouldn’t do it … - Posted by Ben (NJ)

Posted by Ben (NJ) on March 07, 2001 at 07:09:33:

I wouldn’t blame you for renting the property out. I was leaning toward longer-term solutions. Since you are willing to buy the tax lien, you can turn the tables on the bank and either foreclose them out or collect interest until they pay you off (which they don’t seem to be in any rush to do).