Posted by JoeB(Atlanta) on March 11, 2000 at 16:11:44:
Hi Ben, we used to dance w/these “adventuresome deals”, but the busier we got w/simpler, less aggravating deals the less we now “engage” these types of sellers.
So, decide how full your deal plate is versus spending lots of time/effort on this one…
AND if you decide to go to battle I would definitely speak to the best real estate litigation atty you can find and ask him/her what you could be in it for (time/money) on the best case to worst case scenario w/this trial atty-homeowner. Then you do the evaluation on the discount and profit you’d need…
Best of success (let us know about the bloodshed–if you choose to attack),
Joe Brillante
I am foreclosing on a tax lien on a beautiful suburban home worth about $500,000. The pay off figure on my lien is $46,000. The bank who holds a first mortgage (junior to me) is owed $237,000. Bank is in foreclosure on this property for the SECOND time in five years. (do you smell motivated seller?) and has agreed to sell me the note so I can proceed with my foreclosure to final judgment. Here is the rub: I just found out that the property owner is a tough,
experienced certified civil trial attorney (this means he has done so many trials to verdict that he has achieved a special designation from the state) He may have also commited bank fraud in that he took title to the home in a corporate name representing to the bank that it was going to be rental property but he moved right in. Anyway, i am expecting a full scale BLOOD BATH of a defense from this guy, replete with mulitple, drawn out staggered bankruptcies, motions and delays up the wazoo, (of course since he will be his own attorney it won’t cost him a dime. I will also have to pay the taxes during all this ($10,000) per year). I have two choices: 1) don’t buy the mortgage note, let the bank pay me off and walk away with a decent profit the interest on the tax lien 2) discount the note
HUGELY in order to make all this potential aggravation worthwhile. What do you pros think? If I choose #2, what should my offer be?
There are pluses and minuses to buying the bank’s position(you didn’t say if it would be discounted.) The big plus is that your attorney fees and court costs will be added to the judgment. You will be able to hire the best foreclosure lawyer in town and instruct him to push the case as hard as he can. As a general rule, civil tial lawyers generally know zero about mortgages and foreclosure law, so the owner might not be as big a threat as you think. That said, I’ve seen (slick)laymen stall a foreclosure in the Courts for 3-4 years. Most Eastern States tend to favor borrowers against lenders, and this is an important factor. You’ll be sitting with a huge cash outlay with taxes and interest expenses mounting rapidly. There are several end game scenarios: 1) Owner sells house and you get paid off and don’t benefit from his equity; 2) Owner gets lucky and hits a big fee, with which he pays off the tax lien, reinstates the mortgage and leaves you has his lender; 3)You pay owner something for a deed in lieu of foreclosure; 4)You finally beat owner in Court, get possession after an eviction action and you find the $500k home is now trashed down to about $350k.
My advice is to get your ace foreclosure lawyer to go over the entire situation and advise you how to proceed. S/he’ll be the one who can best assess the risks and probabilities. Heqq, S/he might even know the owner and be able to cut a good deal for you.
The fact that he holds title in a Corp Name is a mixed blessing: it suggests he may have judgments/liens (read IRS) against him personally, and he took title in corp name, so they wouldn’t attach to the property. This raises the issue of a possible subragation action by the IRS, if they can show that the bank knew, or should have known of the IRS liens at the time they made the loan to his corp. This would explain why the bank, in a seemingly secure position, would be willing to sell at a discount. This is just speculation, of course, but it is one plausible explaination of the curious circumstances surrounding the loan. If I were you, I would certainly find out if the IRS is lurking in the weeds before I bought the loan at any price. If you think a trial lawyer can be devious, wait 'til you get a load of the IRS!
Having said all that, if none of the above exists, his holding title in a corp name provides some benefits to you: no homestead exemption; & an enforcable assignment of rents via a receiver if the corp files BK (he pays rent during BK or you can evict).
If you decide to choose what’s behind door #2, I’d do lots of homework first, and as others have recommended, partner up with a RE attorney to keep your costs down.