Help please, lien priority? Need advice!
Ok, hang in here with me on this one. I need guidance.
Condo in foreclosure. Back in 10/02 I tried to help the Seller by attempting to reinstate the loan. I was going to rent back to him for a few months. He signed the deed over to me, authorizations, etc. There is a 1st and supposed 2nd mortgage.
1st - approx $50k
2nd - approx $14k
Condo value - $65k, I thought at the time, now looking like $75k if I do a little to it
I paid to reinstate the 2nd (stupid me) but the 1st's balance according to the attorney was much higher than I thought so I let it go as a learning experience.
Now, 7 months later, I'm waiting for it to go to sale so I can perhaps redeem and sell it for the higher amount - values have gone up a bit. Seller is still living there and knows he can live "rent free" for 6 mos after sale due to redemption period. So I decided to try to short the 2nd because last time I talked to them they were open to it.
Called the county to get contact info (lender name) for the 1st because I had lost the attorney's phone number. Now the interesting part.
County said the only mortgage recorded was the 2nd. No 1st mortgage filed (well, this is the 1st, but you know what I mean - other lender is missing in action). No foreclosure proceedings filed at the courthouse, no sheriff's sale scheduled that they could tell. Hmmm...
So I ordered preliminary title work through my title company and they gave me a preliminary commitment with the condition of the $14k loan being paid off. Again, no mention of the larger mortgage.
So, I'm thinking... do I pay the $14k loan off and sell it? Hope the title insurance covers me if the bigger loan comes back? Scary thought.
Better thought... what if I were to sandwich myself in there somehow - I know the Seller would sign a mortgage to me - especially if I gave him a couple thousand to move out and move on. I already have the deed. So if I give him a couple thousand, can I have him sign a mortage for $50k and file it on the property, so if it goes to sale by the larger loan, they have to pay me off as well as the $14k loan? If they're not recorded, I'd take priority, right? Is there anything illegal about that if the Seller signs it?
OR, after I get it signed and recorded, I call the larger mortgage company, advise them their people never filed their mortgage and they are in 3rd position, and short sale them for next to nothing to clear the title of that loan?
I see a lot of opportunity here due to this mistake on their part, but I don't want to do anything illegal or that can come back at me. However, no need to pass it by, either, if the Seller is perfectly willing to cooperate. I have to hurry - they're going to realize it sooner or later since they are working on foreclosing.
Advice??
Anyone know the answer to this one? This is a fascinating question.
[addsig]
I got this answer from a knowlegeable friend.
Very interesting! Odd situation indeed.
As I see it, you're basically taking title owner's word that there IS another loan, that should be in 1st position. Is this right? But you've really seen no evidence this is so?
If that's the case, and the title company will issue a title policy with only the recorded lien, I'd say go for it and let them worry about it, should anything ever happen to wake up the missing lien.
In my book (and the law, generally) the written, provable always takes place over the unwritten, non-provable, and if you haven't actually seen the original loan & Deed of Trust docs, and all you have is the owner's oral "tale", you really don't have any actual knowledge or notice there IS another loan that might be ahead of the $14k.
[addsig]
There are some sticky things here because if you KNOW of a lien, I don't think it's covered. I know there WAS a SUPPOSED lien (I talked to the attorney for the bank at one point) but who knows what ever happened to it?
What I would REALLY like to do is have the Seller sign a mortgage to me in the amount of about $60k - then if that bank does finish its foreclosure proceedings, they would have to pay me off. The Seller doesn't care because he's letting the property go. And if I give him $2k for moving money, who's to say I can't file a lien for a higher amount? Home Equity Lines do it all the time!
What I'd really like to do then is go to this mortgage company, say "Hey, you're in 3rd position because you never filed, you're not getting a penny" and offer them $500 for a release of mortgage just to make sure there are no clouds on the title or nothing to come back and bite me.
Does anything sound wrong with that? After all, when it comes to lien priority, it's a "race to the courthouse" and even if I knew about that mortgage, I can't see anything legally wrong with this approach.
I'd REALLY like some input, though... I'm not trying to do anything wrong, and I'm a Realtor, so I have to be extra careful for liability sake... I don't want to get stuck with something down the road, I just think it would really help me negotiate. As for the "2nd" ($14k), they THINK they're in 2nd position and are willing to deal if I get a payoff statement from the "1st" (another reason to not cut them out completely) so ultimately I could end up getting this place for next to nothing, with legitimate lien releases. See where I'm going with this?
PLEASE - are there any attorneys or experts out there that can give me some advice?
Someone else had also said that you can't encumber someone else's property. So, if I record my deed, can the 1st mortgage company still file their mortgage and foreclose? Is it good if it was SIGNED before I took title, or does it have to be RECORDED before I take title?
I'm going to contact an attorney tomorrow and see what they say about all this.
Here's another friends reply.
this situation seems so improbable to border on impossible. Personally in 4
decades I've never seen an institutional 1st mortgage that was not recorded.
Perhaps its in somebody else's name? perhaps different name for same person,
like married, or maiden name. IMHO, its much more likely that either the
mortgage was missed in the search, I would never rely on the word of the county
and am surprised that they would even give that information.
I'd go back to the seller and get more information and a copy of the mortgage
with the recording location, and also possibly get a deed from the seller.
I'd also search the title myself looking for that missing mortgage and get
another search from another company.
[addsig]
I'm kinda in the same boat. I know of the back taxes owed on a property and tax lien. There is supposed to be a 1st mortgage, but its not recorded at the county. I have had a RE attorney search and a title company search. Both came back and said there was not a mortgage. The title company is ready to issue title insurance, as soon as I figure out what paperwork I need to have signed.
The 1st mortgage conpany called her up, and even called me up after she told them I was trying to acquire the property. They told me I needed to do a short sale, and submit a package. This particular property is over 1000 days in arrears.
I still have not seen any paperwork on a mortgage, and am lost at what to do, so I'll keep an eye on your posts, maybe it will give me some good info too.
check out my post:
http://www.thecreativeinvestor.com/ViewTopic6569-18-8.html
Tim
bgn2fsh @ cox.net
This answer and the other 2 come from 2 attornies and a 40+ year investor, although none of the replies via me should be construed as legal advise.
The problem you would have is that even if you have only vague "knowledge" of
this other mortgage, you do have SOME, and so if you denied it to the title
company you could be considered to be conspiring to defraud.
To really be in the clear, I'd think, you would need to get the details of this
"mortgage" - lender, loan #, etc...and take that to the title co. and say "I
want you to specifically search for this". Then if they can't find it...you're
in the clear. You tried. You made it known that you thought it was there. And it
wasn't.
[addsig]
I do trust the title search; if the title company will insure it then they must be pretty sure there are no other liens there.
I have seen this happen many times where a title company or attorney messes up and doesn't record a mortgage. Regardless of whose name it is in, it is filed against the legal description so should show in any searches.
I've emailed a real estate attorney who deals with foreclosures a lot and a good title person to get an opinion... I'll let you know what I hear.
For all I know this other mortgage was somehow satisfied or something... I'm not sure
I like that last answer, and I had thought the same... if I go to them and tell them that I THINK there is another mortgage, and they can't find it, then it's not my problem. However, I'm sure they would enter it as an exception on the policy, so if it DID come back, it wouldn't be covered.
I'm focusing more on the route of filing a personal mortgage on the money I give the Seller that puts me in 2nd position, and then negotiating a release from this mysterious mortgage company so that there is nothing to come back at me. I think that is the safest route. If they know they don't have a chance of getting any money from a sheriff's sale, I would think they would settle it out for something and issue a release.
Thoughts?
One more reply from an attorney.
While Dave K is technically correct here, I'd approach it from the direction of
seeing if the title co. would issue a title policy and if they will, go with
it...without making any effort to learn more!
This is analogous to Holder in Due Course doctrine, in my opinion, in that if
you DO a great deal of research, and discover the missing 1st, then you
certainly could not then, in good faith, pretend you didn't know about it...and
if I were representing the title insurance company and defending my company
against a claim made by you, I'd make every effort to kill your claim because of
all your knowledge, and I'd say you now have no right to claim you didn't! I
think I could probably successfully defend against a title policy claim if I
could prove the claimant knew more that my company did.
But right now, not having any real knowledge about it, I'd rely on the title
company and not try to be my own expert.
After all, who is more expert in digging up liens, mortgages, title
problems...you or the title company?
So if it were my problem, I'd absolutely make NO more calls to anybody, and work
hard NOT to learn any more about the situation personally. The more you do here,
the worse you're positioning yourself, IMHO.
[addsig]
Well, I talked to my OWN title person and she said that maybe this mortgage doesn't exist, or maybe it is unsecured... her recommendation was to go forward with a sale and get the title insurance (and she works for the company!) and just let the chips fall where they may, OR...
She agreed my 2nd idea was even better - have the Seller sign a mortgage to me, file it, and go from there to sandwich myself in, then find out who the big mortgage company is and negotiate a settlement with them based on the fact they won't get anything if they foreclose. She said I have every right to file a mortgage that the seller gives me and get the priority I'm given by when I file.
Still waiting to hear from my attorney.
Angela
Angela,
I'm a little confused on this filing a mortgage. Are you filing a mortgage with you as the borrower, or are you letting the seller file a mortgage with you as the borrower? If the latter, why would you want to give away a great potential amount of money to the seller (if the first loan doesn't exist/not found, etc?)
I know that as a realtor you have a duty to the seller even if you are the buyer, but I'm not sure that this would be the best way to go (really just don't understand it I guess )
Roger
I agree with most of the other postings. Your knowledge of a possible lien would void any potential claims you would have against your title policy. I like your idea of creating another lien. What state is property in? Are you in a race recording state? If so file lien immediately before 1st finds out problem and records.
One thing to consider.. You state that you have deed but keep referring to the owner. aren't you the owner? If so you would be the one who would have to give mortgage or deed of trust. I would do this with someone I really trusted, have them get lenders title policy, and if other mortgage company does not do anything in a couple of months, I would have trusted party foreclose on their mortgage, which would effectively get you clean title subject to the 14K or get paid off. Please keep me informed of how it goes.
Sorry I've confused everyone.
I have the deed but I haven't recorded it. I was planning on having the Seller sign a mortgage to me which I would record as the lienholder. Then call the bank and let them know they're in 3rd position, and negotiate a very short sale with them. I'm not giving the Seller more than a couple thousand to get out (because he knows he can live there free until the redemption period is over and won't leave until then....) Once I clear the larger mortgage I'll file my deed, sell it, and pay off the $14k mortgage (unless I can negotiate a short with them in the meantime since they THINK they're in 2nd position after the larger mortgage). Title will be clear, and I'll get the difference.
That sounds like the best route to me.
Yes, we're what I guess you call a "race" state - are other states different?
Very interesting.. my attorney told me to Play hardball. Tell them they have an unrecorded mortgage, recording it would place them behind tax liens and IRS liens. They are in a no win situition since they will be behind the other 2 liens, and to make my low ball offer and work it out so they will release whatever interest they have in the property.
[ Edited by bgn2fsh on Date 06/18/2003 ]
On this issue I would get the title company to issue the policy...u are protected period.
Go and look at the cases on this and you will kmow what I mean.
Just because "You have Heard" of the 1st means nothing that is why there is a place called the recorders office you know!!!
If it aint recorded forget it. ESPECIALLY a first it is up the that lender to record it.
And when doing any seach by all known legal identifiers here APN Name AKA ect ect make certain you sign and date all of this title research that you get from the title company or attorney. Right on top of the page.
It shows you have done everything in your power to exhaust ALL possible occurances of the "UNKONWN Treaded 1st"
SKI
First, I want to thank everyone for their opinions. It helps a lot.
Here is what my real estate attorney told me. He was fascinated and rambled on for about an hour thinking out loud.
He said I have 2 best options.
1) Record my deed and sell the property. Have the new buyer get title insurance through a company other than my own (just for company policies), make a general disclosure about this supposed mortgage, and move on. Pay off the $14k loan and take the proceeds. But he did say to make a disclosure that I've "heard" of a 1st mortgage, which is really all I've done... I've never seen any evidence of it...
Or better yet,
2) Buy out the smaller mortgage and foreclose, which would wipe out the other loan anyway and give me clear title. Forget about the deed I have, and he said to make sure to have merger language in my assigment, and to make sure that mortgage allows foreclosure by advertisement before I go forward.
They both sound like safe routes to me - if I make the disclosure, then I'm not liable if the larger mortgage comes back after sale, and;
If I foreclose, they don't matter anyway unless they do something called foreclosure by action to fight their position, which I can't see happening over a $50k loan that they've been sitting on for nearly a year.
I don't know how low I can get the $14k mortgage down but I called them yesterday and they told me they're just sitting on it and not taking any action, so I've got time.
So I'm going to try to do one of these and I'll let y'all know what happens!
Thanks again for all your help!!