BUYING FORECLOSURES - UNDERSTANDING DUE DILIGENCE !! !! !!

By
Real Estate Attorney with THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY
https://activerain.com/droplet/5g2v

Wow! I just bought at a foreclosure sale and got a $400,000 house for $50,000!!!  We actually had TWO calls like this in the past week. Too good to be true? Listen and Learn of the heartache to come....

I have written about issue this twice this summer and every time another buyer comes in moaning that they were "duped" into buying at an inferior foreclosure auction my heart goes out to them.  For explanations of the lien priority see ASSOCIATION LIENS AND MORTGAGE PRIORITY and ASSOCIATION FORECLOSURES - FRAUDULENT NON-DISCLOSURE

The most common complaint is that the buyer was misinformed because of non-disclosure.  This all comes down to issues about "due diligence" and a lack of understanding and appreciation as to what "due diligence" is all about.

In the two instances I refer to, the first was the typical "to good to be true" scenario.  First mortgage filed for foreclosure but canceled its sale date in August.  Frustrated by the delay, the Association decided to move forward with its lien foreclosure and got to a foreclosure sale date prior to the lender getting to their sale date.  Our client purchased at the first to occur sale date and learned that in just six weeks the lender sale will be occurring, wiping out his deed!  The right due diligence would have tracked BOTH lawsuits so that the existence of the first mortgage lawsuit (for $500,000) will wipe out any sale benefit from bidding on the Association foreclosure auction (judgment of $15,000).  As it is the buyer got the short term ownership for $50,000.  This is essentially lost money unless we are successful in negotiating incentives for the Association to vacate sale - but we also need a sympathetic judge to agree to the deal.

The second event was much more complicated.  Owner got a first mortgage of $400,000 and a second mortgage of $50,000.  They then refinanced the first mortgage and should have gotten a subordination of the second mortgage - but there is none of record.  That means that the second mortgage became the first mortgage and the refinance which we would assume would be a first mortgage is actually by law, the second mortgage.  So the buyer bid on the foreclosure of the supposedly large first mortgage and now 3 years later the smaller mortgage is foreclosing. Here there may be an opportunity to invoke the concept of "equitable subrogation" which would put the refinance in the same position as the mortgage it paid off.  Then the owner can "re-foreclose" the smaller mortgage now properly relegated to 2nd position and eliminate its priority and lien on the property.

The bottom line is these buyers by failing to do proper due diligence have cost themselves tens of thousands of dollars in legal fees to try to save their investments and in the second case, to save their home.

___________________________________

Copyright 2018 Richard P. Zaretsky

Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make.  This article is for information purposes and is not specific advice to any one reader.

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1615 FORUM PLACE, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660  RPZ@ZARETSKYLAW.COM - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide www.ZARETSKYLAW.com

See our easy to find articles at

TABLE OF CONTENTS - SHORT SALE AND LOAN MODIFICATION ARTICLES

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Fred Griffin, on leave of absence from ActiveRain 12/13/2018 10:45 AM
  2. Gabe Sanders 01/09/2019 10:00 PM
Topic:
Home Buying
Location:
Florida
Groups:
Investors
Short Sales and Forclosures ONLY
PALM BEACH COUNTY SHORT SALES
Legal Aspects of Short Sales, Foreclosures, Loan Mods
Investment Property (USA)
Tags:
foreclosure auction
foreclosure bidding
foreclosure attorney palm beach
real estate attorney palm beach
real estate attorney florid
real estate lawyer fl

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Rainmaker
3,140,320
Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

xcellent blog for us to know about and past on to buyers.  I hope we are not going to run into a lot of foreclosures again soon.

 

Nov 06, 2018 06:44 AM #1
Rainer
495,033
Dörte Engel
RE/MAX Leading Edge - Bowie, MD
ABC - Annapolis, Bowie, Crofton & rest of Maryland

Dear Richard,

This is where a good title company can be worth a lot.

Nov 06, 2018 06:45 AM #2
Rainmaker
281,232
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Thanks for the comments. The issue is there are still people looking for bargains and they don't have the correct training to understand the complex roadmap for a proper due diligence of the property and its legal background.  Most people just do the physical due diligence and skim over the legal issues.  End result is nasty.

Nov 06, 2018 10:07 AM #3
Rainer
441,380
John Dotson
Preferred Properties of Highlands, Inc. - Highlands, NC - Highlands, NC
The experience to get you to the other side!

Richard,  You give two MORE great reasons to have your eyes wide open when buying a foreclosure.  Of course every state has different laws pertaining to foreclosure, but that doesn't mean there are not pitfalls everywhere.

Buyer Beware

Nov 13, 2018 01:25 PM #4
Rainmaker
1,427,423
Kat Palmiotti
Grand Lux Realty, Monroe NY, 914-419-0270, kat@thehousekat.com - Monroe, NY
The House Kat

I just came over here from a reblog this morning from Gabe Sanders . Buying a foreclosure requires a lot of upfront work to make sure they buyer knows what they are getting into!

Jan 10, 2019 02:56 AM #9
Rainmaker
281,232
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

No question about it Kat!

Jan 10, 2019 06:19 AM #10
Rainmaker
3,238,584
Sally K. & David L. Hanson
EXP Realty 414-525-0563 - Brookfield, WI
WI Realtors - Luxury - Divorce

We suggest this is only a purchase for buyers with lots of "what if" money !

Jan 10, 2019 07:50 PM #11
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Rainmaker
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Richard Zaretsky

Florida Real Estate Attorney
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