Investing in Property
Everyone has been talking for many years about the “short payoff” solution to marketing real property in an environment where we have seen an abundance of high pricing in 2005 and 2006 and 100% or otherwise high loan to value financing. Properties being “upside down” in equity position are not being listed unless a realtor can secure hard figures from lending servicers setting forth in writing a guaranteed payoff figure which compromises perhaps late charges, prepayment penalties, interest or even some principal. The problems with these “short payoff” promises are twofold:
(1). The loss mitigation desks at these servicers are so overworked that even a complete package including an appraisal, two years borrower tax returns and three months borrower bank statements, letter of hardship and otherwise clear title are overlooked or ignored due the tremendous volume of requests that cannot be processed, and
(2). If the loan is sold or transferred to another servicer or the lender itself is sold or assumed by another banking entity, the original written short payoff may not be honored.
So, therefore, with an increasing number of properties actually going the whole 4 to 7 month route to the courthouse steps, how does one buy such a property?
The sale must be published for at least 28 days giving the average investor ample time to investigate the worth of the property. The lender has property inspection reports but will
not make them available to you. If you contact the specialist may put you in touch with the local property securement company to let you inside. But usually, you need to examine the outside of the property only and find your comparables through normal means to ascertain the worth.
At the lender plaintiff’s attorney representative will make a bid no greater than the final judgment of plus any extra accrued interest and costs or perhaps a lesser calculated amount which the lender has agreed to take. The lender usually will never reveal their bid before the actual sale nor will their representative at the sale. After the lender says their high bid, other persons at the sale are welcome to make a higher bid and compete higher and higher. Bids must be made in person and can be in the name of an individual, corporation or LLC. The entire bid amount must be paid in full the day of closing usually before 2:00 p.m. Therefore, an investor cannot secure one of these properties and go seek financing later.
The biggest and most important problem to remember when you make a decision to bid on a property, there is no guarantee by the lender or the lender’s attorney as to the status of the title or whether you will be paying cash to but something still encumbered by other mortgages and judgments. The idea of is that once the lis pendens is properly filed in the court case and recorded in the public records, no new liens can drop against the property except unpaid taxes and coded enforcement liens. If there is an error on the lis pendens, it will not be effective.
Also, if all the subordinate mortgages and name judgments, IRS liens, etc. against the property owners and the property have not been properly named and also properly served according to the statute, all of these mortgages and liens remain.
To avoid throwing good money after bad, the prudent investor would consult a real estate attorney familiar with the process to check the title and the actual court file of a proposed property before you bid on it. The expenditure of just a minimal attorneys fee a couple of days before the sale can save a big loss if the property is encumbered and not capable for resale. Remember, the attorney has no duty to a third party investor about mistakes.