Or use someone who does!
I just got off the phone with a very nice person who was a little confused. As the story goes, she and her husband decided had saved up a bit of money and wanted to capitalize on the current market conditions. It’s a great time if you are looking for bargains.
They attended a Trustee Sale (foreclosure auction). Cashiers checks in hand, you can imagine their surprise when their bid actually won the 3 bedroom, 2 bath house!
It was close to their home, they knew the area, but hadn’t actually viewed the property. The best part? The home was reported to be worth in the high $400,000 range. Their bid? ONLY $40,000! They had struck gold on their first auction! It was just like the ads on TV!
The sale was recorded. The papers signed. A $480,000 home, bought sight unseen, for only $40,000. How bad could it be?
As you might expect the house was a little run down. A couple of months of hard work later they had the trash hauled away, the rooms painted, the landscaping done. It was just about time to find a renter.
That’s when they found that little yellow card tacked on their front door. It was a Notice of Default, the first step in a California foreclosure procedure.
But they paid cash. They didn’t have a loan. How could anyone foreclose on them?
As it turns out, what they bid on in the auction was the Second Trust Deed. The house was abandoned, heading to foreclosure. It had a first and a second mortgage. They paid $40,000 for the second - but the first was still in place and tied to the property.
Now the owner of the first mortgage was foreclosing on the property to recover the unpaid balance of the note. Guess what? They have every right to do it! If the property does foreclose it’ll be sold once again on the county courthouse steps. These people will probably lose their $40,000 as well as every dime they put into the rehab.
The State of California has a well defined hierarchy as to which lien takes priority over other liens. Here is a quick run down: California Lien - ing
As you can guess, had they used the services of a professional, the outcome would have been very different. I am reminded of a long favorite quote by Brian Brady, “If you thought dealing with a professional was expensive, wait until you find out how much dealing with an amateur costs.”
I think they just did.
Always use a Professional.
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{ 5 comments… read them below or add one }
Shocking, absolutely shocking. Foreclosure sales are no place for amateurs. Gotta have a professional check that title before you bid. Wow.
A bit scary, actually. There must be some disclosure terms being breached here, which the couple can file suit over, I hope. You can’t expect someone to forget 40k+ just like that.
That’s sad. I don’t know what I would do if I lost 40,000!
Diane - There is no replacing a thorough title search, is there?
Franklin - I bet there was (disclosure forms) and I also bet they signed all of them. Who would they sue? The Auctioneer? The Trustee? The 1st Lender? The 2nd Lender?
I don’t expect them to forget about it either. If your neighbors brothers best friend suggested you buy stock in XYZ and you did, only to find out that they had filed for bankruptcy the week before, would you hope to sue Charles Schwab? How about the NYSE? Same situation.
LaShon - Or maybe more. The $40 just got them into the place. They had to haul trash, repaint and repair. How about property taxes? I’ll bet they paid those and the insurance as well.
My sympathies to the home-owner.
That quote should be made a classic!
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