You have to check out this wacky situation....advice appreciated. - Posted by JohnB_NJ

Real Estate Investing
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Posted by Bill (OH) on March 26, 2000 at 06:51:34:

John, be very careful with this situation—here’s why:

When the owner defaulted on the mortgage, and abandoned her property, then the holder of the note may become the new owner through what is called ‘adverse possession’. The note holder had family members living in this house for three years–in some states, that may be enough to establish adverse possession, so check your state statutes. If the folks living in the property can meet the statutes requirement, they can file a ‘quiet title’ action to defeat your effort to get the property.

You also have the question of how are you going to get these tenants to move out? Sure, you can pay to evict them–but the court costs add up as well as the ‘eviction party’ these tenants may throw for you.

Further, as clueless and careless as the note holder seems to be, I’d be very careful in doing a title search. Who knows what kind of encumberances this dummy may have put against the property in those three years.

I also think that the court is going to have something to say to the noteholder who delayed for three years. The lady who defaulted can come back in with a defense of ‘laches’…which is a legal defense that says the plaintiff isn’t entitled to what they are asking for because they knew their rights and sat on them—in this case for three years. Result–could be a messy, time consuming court fight.

Again, if you can make forty or fifty thousand from the property it might be worth it. Otherwise, I’d leave the headaches to somebody else and look for a vacant REO.

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You have to check out this wacky situation…advice appreciated. - Posted by JohnB_NJ

Posted by JohnB_NJ on March 23, 2000 at 20:36:42:

Hello Fellow investors,

I talked with a woman today that wanted to lease option one of my homes. I asked her about her credit and she began to tell me a story of her foreclosure. It goes like this…

1990: Purchases a home for 90,000. 15k down, 75k first purchase money mortgage with the seller. Terms: 30 amort. 5 year ballon 10%.

1995: Ballon due. Can’t refi because credit problems so the buyer and seller agree to amend note. Buyer pays down the note by 10k and the Mortgage holder (seller) lowers interest to 8% and extends ballon another 5 years until Nov. 1, 2000. The new note principle balance is 64k.

1997: Divorce…wife gets house in divorce but can’t handle payments and leaves (because she thought she had too). She did NOT give the mortgage holder a deed in lieu of foreclosure. Mortgage holder moves their kids into the home. I guess they want to protect the collatoral. The mortgagee files a lis pendens (foreclosure suit) but they never pursuit it. It just sits for 3 years. In the mean time, the mortgagee’s kids still reside in the home. Remember, the deed is still in my clients name still (her husband was quit claimed off) but the mortgagee’s kids are still enjoying the benifits of the home.
Now the Mortgagee has ammended (12/8/99) their original foreclosure suit and have begun to follow through with foreclosure. There is no sale date yet. The mortgagor can’t give them a deed in lieu because of several thousand dollars worth of judgements her ex-husband racked up. He was a plumber and didn’t pay a few suppliers.

So, is the owner of the house entitled to anything here?? I am not a lawyer and I have no clue. I would like to purchase this home and salvage some of the owners equity. The house is worth about 100k. Now, the mortgagee’s suit is for 75k (remember the note balance was at 64k…and the mortgagee’s family have been enjoying the use of this house for 3 years) and I am sure there will be lawyer’s fee’s added in there as well.

I know I will have to deal with the judgements, but I am sure I can negotiate them down. I am just wondering if the owner has any recourse…as to maybe fair market rent for 3 years to offset the mortgage payments that never were paid.

IF a bank was the mortgage holder, and the house was a rental, they could have the tenant pay the rent to the mortgage company to keep the deadbeat landlord from skimming the rents. But this case is so wacky because we have a seller and buyer that have no clue. The owner thought she had no right…that if she didnt pay the mortgage that she would have to leave. She was even aware she could sell the house to save some of her equity.

Well, again… I am still scratching my head on this one. I know I am missing something here… Like the owner is a landlord to the mortgagee’s adult children who don’t pay rent. I did a title search to verify this story and it checks out.

Any advice is appreciated…

I wanted to send out a special thanks to Ben(NJ). Thanks for taking the time to speak with me today about this.

Sincerely,

JohnB_NJ

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Re: You have to check out this wacky situation…advice appreciated. - Posted by ScottE

Posted by ScottE on March 23, 2000 at 22:32:34:

John,

I can understand that you may want to get this lady some cash for her equity, but she abandoned the property a long time ago. Had it been a regular lender, the foreclosure would have been complete a few years ago, barring her filing bankruptcy.

As for the note holder’s kids living in the house, I would say your lady would have no right to any rent whatever, unless it was in her mortgage (which I doubt). In fact, I believe there are a few states that make it a felony to collect rent and not pay your mortgage.

Under normal circumstances, the lender would have the vacant structure secured and winterized and possibly have the property placed in receivorship. Translation=lots of expense to the mortgagor.

The best you could probably do for her is get the deed and prevent a foreclosure from possibly being placed on her credit report. You may also get the mortgagee to take a discount rather than go through a lengthy and costly foreclosure.

I should say that I am not a lawyer and you make want to seek competent legal counsel.

Good luck and let us know how it marches out!

Scott

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Re: You have to check out this wacky situation…advice appreciated. - Posted by JohnB_NJ

Posted by JohnB_NJ on March 23, 2000 at 23:40:49:

Thanks for the reply scott,

Yes, i do agree, the owner is NOT entitled to receive any rents. And yes, if she did, that would be “rent skimming”. But my point is is that if the mortgagee is going to push up the debt due to the time delay here that I feel (just my opinion) that the owner should be entitled to be credited for fair market rent from what is owed on the note for the time it was occupied by the “tenant”. Fair market rent for this house is 900/month. Interest and late charges on the note are probably running at around $750/month. My view is offset one for the other and cut a deal.

Again, this is just a weird case. I mean, I will bid on this house at the sale but if I can negotiate with the mortgageee and the judgement creditors than maybe I can strike a better deal.

I am just churning this deal around and around in my head. It is just very interesting. Dontcha think?

Thanks again, Scott for your input.

-John