Archive for January, 2013

A recent court case has again illustrated the wisdom of the old saying, “If it seems too good to be true, maybe it is not true.” This case involved an experienced real estate investor who became interested in a property that was the subject of a Notice of Trustee’s Sale. The property, which included land and buildings was worth more than $700,000, and when the investor learned of the pending trustee’s sale he approached the owners about buying directly from them. The owners said they would not sell and were going to bring the loan current. Time went on, the investor tracked the status of the sale which was continued several times, then finally the sale was held 161 days after the original notice, and it was delayed from ten in the morning until 11:45. The investor bid $130,000 although he was prepared to spend up to $450,000, and his low bid was accepted. Wouldn’t we all like to have a result like that? The trustee issued a standard deed, incorrectly stating that the original sale date in the original notice was the date of the actual sale, and that the borrowers were in default. The buyer then began a lawsuit to evict the borrowers.

In fact, the borrowers had entered into a forbearance agreement with the lender and the series of six continuances of the trustee’s sale was to recognize their installment payments under that agreement. The lender refused to accept the final payment because it was two weeks late, but that payment was still more than eleven days prior to the scheduled trustee’s sale.

The borrowers sued to set aside the sale and argued that because the sale was more than 120-days after the original notice the trustee had no power to sell and the sale was void. The trial court agreed with the buyer that the conclusory statement in the trustee’s deed that the sale was in compliance with the law shielded the sale from being set aside. The Court of Appeals disagreed, and held that the fact that the trustee’s deed did not mention the forbearance agreement or the six continuances meant that the borrowers were free to challenge the deed’s claim of compliance with the law and that the fact that the sale was more than 120 days after the original notice meant that the trustee lacked any authority to sell.

The buyer argued that he was a purchaser for value without knowledge of any procedural defects and was, therefore, protected by the trustee’s deed which was regular on its face. The court noted that the buyer was an experienced investor who knew how the foreclosure process worked and who had bought many foreclosure properties. The court held that this experience plus the fact that the investor had approached the borrowers to buy the property directly and was rebuffed, and the series of continuances of the sale put the buyer on inquiry notice that there were likely defects in the sale that he should have investigated.  The court determined that if the buyer had investigated he would have learned that the borrowers were not actually in default at the time of the sale, and therefore the buyer was not protected against having the sale set aside.

The court indicated that experienced investors will be held to a higher standard in such cases. This is a significant development in the law that affects investors in foreclosure auctions. The court noted that the repeated continuances of the sale and then the delayed start of the sale on the day it was actually held likely chilled the bidding and resulted in a low price that effectively confiscated hundreds of thousands of dollars of the borrowers’ equity. We can learn that it is wise if a trustee’s sale is repeatedly continued and then the auction price seems unreasonably low, to inquire into the reasons for the continuances. It is also wise not to bid at an auction that is more than 120 days after the applicable notice of sale. The foregoing is for education only and should not be construed as legal advice.

About the author…
Doug Owens practices real estate law and general business law from his office in Seattle. He offers a 10% discount for REAPS members and he can be reached at (206) 985-6679 or [email protected]

“REAPS is the oldest – and largest – Professional Association for the real estate investor this side of the Mississippi. We provide education and networking resources for real estate investors, those who want to be investors and anyone who provides value to our members. Our goals are to motivate and support our members and guests through education, discussion, legislative action and networking. We host over 40 live events a year around Puget Sound and they are all open to the public. If you’ve never attended one of our meetings, just email our office at [email protected] and be our guest for free!”

 

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Buying real estate at foreclosure auctions can be one of the most lucrative deals available. It is also the riskiest way to buy real estate. It can be the biggest loss as well if you don’t research what you’re buying. No luxury of title guarantees, escrow services, or in most cases an inspection. Once the cash is handed over you own it; no guarantees on property condition. Hopefully you have done some due diligence on that property you think you really want, prior to showing up to a foreclosure auction.

 
Here are some common red flags:

  1. Reconsider bidding on properties that are either in the flood plain, previous meth labs, zoning/permit violations, or tagged uninhabitable, these issues are going to add a significant amount of time and money to resolve in order to flip that property.  Go to www.kingcounty.gov in content tab click “maps,” then click “IMAP” in middle of page click start “map” and input your parcel # or address. This screen will open up a wealth of information, for example if you go to “district reports” you can go to permits and see the violations. Other counties have similar sites, play around and see what kind of information you can find.
  2.  Recorded Sheriffs sales – If you’re a flipper these properties come with another layer of difficulties that can take over a year to resolve; time is money.
  3. Don’t buy condo’s that are not ?FHA approved? – Unless you actually want a long term rental.

Laurie has 20 years of experience as a Real Estate investor specializing in the acquisition, rehabilitation and the sales of distressed property in King, Snohomish and Pierce Counties. As owner of Turnkey Properties, Inc. her company has flipped over 125 properties in Washington. Find Laurie online at: Ltarantola.com.

“REAPS is the oldest – and largest – Professional Association for the real estate investor this side of the Mississippi. We provide education and networking resources for real estate investors, those who want to be investors and anyone who provides value to our members. Our goals are to motivate and support our members and guests through education, discussion, legislative action and networking. We host over 40 live events a year around Puget Sound and they are all open to the public. If you’ve never attended one of our meetings, just email our office at [email protected] and be our guest for free!”

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