Buying a House That was NEARLY Foreclosed On...?

[GrayGhost]

Greetings Mustachians,

Here's the situation. Earlier this month, a house in my local area was on the foreclosure list but was cancelled at the last minute, the day before the foreclosure auction. I made my way to the house and found a sign warning against trespassing and saying that the owner has an attorney. I left a note with my name and number and heard nothing for a few days.

Recently, the owner has come to me with his situation. (Basically he needs a large sum of money to get what he says are high value assets out of storage.)

The house HAD a reverse mortgage filed by his mother, but she died some time years ago and it wasn't until recently that the lienholder came after the house. He says he is filing for Chapter 13 bankruptcy and acting as his own attorney to clear the foreclosure. There is also a minor lien against the house by the city for unpaid water bills.

A guy around here who does flips warned me that reverse mortgages aren't part of public record (???) and to look at his proposed order. Since he's acting as his own attorney he said that he will show that to me, and that when he initially filed for bankruptcy, the judge made sure that his house was on the list of things that he's seeking protection for.

Here are my questions.

Will a title search let us know, with 100% certainty, of any liens against the house or property, including reverse mortgages? Does a Chapter 13 bankruptcy really cancel out a reverse mortgage? It just seems odd that his mother could put a reverse mortgage on a house, get a monthly check, and leave the bank high and dry when she dies by leaving the house to her kid who can file for bankruptcy and keep the house which she left him in his will.

Any advice, insight, or mentorship is greatly appreciated. Thanks very much all.

[mousebandit]

My mom had a reverse mortgage on her house and we had to quit claim it to the bank when she went into foster care.  I am 99% certain it was recorded with the county, but I gave my brother all the paperwork, so I can't double check.

Fast answer will come by calling a bank or mortgage broker and asking them. 

But I would be hugely cautious with this guy.  He's clearly ok with unethical behavior, in keeping the home outside the terms of the RM agreement, and he probably is very broke, and very desperate. 

If at all possible, get him to tell you who the RM is held by, and contact them directly, letting them know you'd like to purchase the home wholesale, to prevent them from having to go through all the expense they're facing to reclaim it.

[NoNonsenseLandlord]

Here are my questions.

Will a title search let us know, with 100% certainty, of any liens against the house or property, including reverse mortgages? Does a Chapter 13 bankruptcy really cancel out a reverse mortgage? It just seems odd that his mother could put a reverse mortgage on a house, get a monthly check, and leave the bank high and dry when she dies by leaving the house to her kid who can file for bankruptcy and keep the house which she left him in his will.

Any advice, insight, or mentorship is greatly appreciated. Thanks very much all.

I cannot believe a bank would risk their lien position without recording something.  Once money needs to be paid back after the house is sold, the only way to guarantee that is to put a lien on it.

Otherwise, you could take a first mortgage out after the reverse mortgage.

It is definitely recorded, somewhere.

[GrayGhost]

He's clearly ok with unethical behavior, in keeping the home outside the terms of the RM agreement, and he probably is very broke, and very desperate. 

If at all possible, get him to tell you who the RM is held by, and contact them directly, letting them know you'd like to purchase the home wholesale, to prevent them from having to go through all the expense they're facing to reclaim it.

You can say that again. He's really desperate, so there's a huge opportunity, but also risks for sure.

He told me who held the RM and I'm going to call them on Monday. Hopefully that will give me a better idea of what's up.

I cannot believe a bank would risk their lien position without recording something.  Once money needs to be paid back after the house is sold, the only way to guarantee that is to put a lien on it.

Otherwise, you could take a first mortgage out after the reverse mortgage.

It is definitely recorded, somewhere.

Right, so a title search will show any encumbrances that may or may not be against the property, correct?

And the Chapter 13 bankruptcy that this guy says he's filing... it just seems so strange to me that it has given him a completely free and clear title to the house. Does anyone have any insights into this?

[Cassie]

He is not going to get free and clear title to that home. Who ever supplied the reverse mortgage will take the home unless he can pay them back.

[cchrissyy]

He also is misunderstanding chapter 13. If the house is part of the case, as he says it is, then he is not free to sell it to you. Not for however many years his bankruptcy payment plan lasts.  By "not free to sell" I mean, he can't sell it without court approval and the proceeds of the sale being taken by the court and distributed to his creditors.

[Indio]

I don't know how he can sell a home that has a RM on it without paying that back first to clear the claim.
 Maybe you could start a new subject line to attract a few of the lawyers on this site to respond?

[Drifterrider]

Is this house in Nigeria?

[ShoulderThingThatGoesUp]

Needs money to get expensive stuff out of storage? That's basically a 419 scam.

[GrayGhost]

At the end of the day, I'm not sure if this guy was trying to scam me or was woefully misinformed and/or crazy. He kept trying to insist that when you put money into escrow to buy a house, it can be used by the seller, that it is in any way safe/wise to take a (third or fourth position) lien on a house that the owner is using bankruptcy to avoid foreclosure on, and that I initially was going to give him $180k for his place when I never even floated the idea of more than $140k.

He also tried to get me to give him a loan to get stuff out of storage, including guitars worth $160k+, "Tiffany lamps" worth $30k+ each and things like that. As I have no expertise with guitars or Tiffany lamps, I said that I'm not interested in them, and even if I was, I have no way of knowing if he has them in storage or that they will sell for anything close to what he claimed they will.

The last time we spoke over the phone, I ended up muting my end of the conversation and just shaking my head as, for over fifteen minutes, he ranted against capitalism and how Buddha wasn't really fat and things like that.

I'm going to end up calling the mortgage holder and telling them that if they do succeed in foreclosing on him and need a buyer for the property, to let me know.

Otherwise, back to the old drawing board, I guess.

[Indio]

As someone who used to work in the Museum art world, there are highly prized Tiffany lamps with wisteria patterns that can command more than $30k in auction. However, there are so many knockoffs on the market that it is easy for the layperson to be misinformed about what is real Tiffany vs. fake. When it comes to artwork it is not unusual for even the "experts" to be fooled with ancient Greek status or newly discovered Rembrandt's that were hidden in an attic.
It's a good thing you took a pass on this one. It sounds too shady.

[Blonde Lawyer]

You can look up the Chapter 13 stuff online using PACER.  You just have to pay to view the docs.

[KarefulKactus15]

Im too quick to judge...

I feel like this guy is a low life who lived with his mom unemployed and cheerfully helped her with the reverse mortgage.

Now shes gone and the gravy trains over and hes desperate to get more money.



Any way, it sounds like he cant really sell the property since the RM company already started the foreclosure process and SHOULD have lien on the property.  At best it seems he could present your offer to to RM company and put you 2 in touch.


I think if your really serious about this, it would be good to consult a local real estate attorney, your stepping in some muddy waters lol.



Take my words with a grain of salt....Im still working on acquiring my first investment property....

[Dicey]

Run.

There are plenty of deals out there.

Why enable a scammer? Too easy for you to get burned.


DH and I looked at an approved short sale recently where the owner had apparently died and there was a reverse mortgage on the property. (If this doesn't quite make sense to you, it didn't to us either.) The asking price, location and floorplan were all intriguing enough though. The listing showed an empty house and said the house was vacant, no call required, etc. Our Realtor used the lockbox to enter. As we walked the property, we liked it, until I found someone passed out on a single bed in a darkened back bedroom. It was one in the afternoon. We called Security (this is in a large gated community). We thought the guy was dead, because we had called out when we entered the house, even though it seemed vacant, and I called out once I realized there was a human shape in the bed and I got no response. (Of course I was the one who opened the door. Oy.)  Security came and roused the guy. Turned out to be his parent's house that he was squatting in. Bank said the house was vacant, Listing Agent said the house was vacant, what the hell? We decided that no price is worth getting mixed up with what strongly appears to be a deadbeat offspring.

Move on to the next one.

[Mezzie]

Yikes! When we were house-hunting, we looked at a few foreclosures, and when we entered one of them, we found empty beer bottles and drug paraphanalia... We immediately left and our agent called the authorities. We didn't get more than a foot in, so I have no idea if the squatters were still there.

[GrayGhost]

I think he's more desperate that a scammer. Who knows for sure, though?

I've told him to present my offer to the RM company when he has his first trustee meeting next week. I'll call him after that and see where it goes, and if it seems like it might work out, I'll get in touch with an RE attorney. If not, I'll talk to the RM company directly and tell them to give me a call if they want to work something out.

His persistence in the "help me get my stuff out of storage" angle makes me think there's something to it, although the "need by" date seems to be getting pushed back. If it's true, I feel bad for the guy, but insisting that I make a $10,000 "deposit" on the house, that he can spend, that is "fully refundable" if things don't work out... I don't want any part of that.

I have moved on mentally, but who knows, maybe I'll get a phone call in a few weeks or months and it will be served up to me on a silver platter. I was willing to gamble a few hours of my time on that possibility.

[BAMxi]

i would cease all contact with this guy and deal directly with the RM company who basically owns/will own the house. Just a quick letter/email/call should make your offer to buy the property known to them. This guy is living on borrowed time and is going to keep coming up with things to tell you to string you along, and is certainly not going to act on your behalf in any favorable way. Best case, he wastes some of your time, worst case he gets you somehow mixed up in something you had no intention of ever being mixed up in. Anyway, best of luck. I've been on a real estate hunt for a couple years myself, and there are all sorts of crazy situations people get themselves into. I had an accepted offer on a house that was purchased by the seller at a tax auction in the fall. Luckily i was able to back out with just the cost of an inspector when we found out it had a leaking septic tank that could not be replaced due to city code and could also not be hooked up to the city sewer system for under $40k. that would have been an expensive lesson to learn. Writing the check for the inspector sucked, but i still feel like i came out ahead, all things considered.