Tale of P’s Unwanted Two-Fer Mortgage
P. had bought residential foreclosure properties before, and thought he’d found a bargain, bidding $20,000 (equal to the amount of the mortgage lien) on a Sheriff’s Sale property with a fair market value of $150,000.
The $20,000, it turned out, was the amount of the second mortgage lien: the first mortgage was for $50,000! As the new owner of the property, P. now owed $70,000 to the two mortgage lien holders – not quite the bargain purchase he’d expected.
How could this story have had a happier result? Prior to the Sheriff’s sale, P. could have hired a real estate attorney to perform a title search and identify all liens and encumbrances. The foreclosure complaint would have revealed the existence of both mortgages.
Clear Title Trumps Pretty Properties
Prior to purchasing 23 tax sale properties, E. was advised by her attorney to factor in the cost of obtaining a court order clearing each of the titles. With title insurance in place, potential buyers would more readily have been able to secure a loan to purchase the property. The cost for obtaining a court order to clear would have been $1,200-$1,500. Instead E. chose to spend the money intended for clearing the titles to make physical improvements to the properties, with the goal of making them more marketable to potential buyers.
As the attorney had warned the properties were not marketable because the chains of title were not clear, and purchasers could therefore not obtain financing. One investor finally agreed to purchase the properties after E. paid the investor’s attorney to clear each of the titles – at a cost of $1,800 per parcel. The investor had plans for the property different from those E. had anticipated with her improvements.
In the end, E. lost money on the properties by paying for improvements not needed by the purchaser plus paying the investor’s attorney to clear the title; as well as funding the expense of insurance and property taxes while holding onto the properties.
How might this story have had a happier ending? Had E. obtained a court order or Quiet Title Order with the help of her real estate lawyer, the properties would have been marketable immediately after her purchase, and her profits would not have been eroded with the extra costs of improvements, taxes, and insurance.
Establish Right of Way Before Buyers Walk Away
T. owned 15-acres of industrial land, with a Fair Market Value of $300,000. The property was bounded by a highway on one end, neighborhood homes on either side, and a city street on the remaining side. One of the adjoining neighbors owned 12 feet of property from the edge of the street to the beginning of T’s drive. That meant T. could access his own property from the city street only with the neighbor’s verbal permission!
That very neighbor, himself considering the purchase of T’s land, refused to negotiate access with potential other buyers. During the long, drawn-out process of trying to sell the land, T. incurred substantial property tax and insurance costs, and received numerous citations from the city for illegal “dumping”.
How could this situation have been saved? With the help of a real estate lawyer, T. could have taken legal action and obtained a court order to access based on T’s usage of T’s neighbor’s land over a long period of time. The neighbor would not then have been able to impede the sale to other parties. With that “card” to play, the neighbor purchased the property himself at a lower price.
Roofing Contractor Out on a Limb
The homeowner had hired roofing contractor W. to replace the roof on his home, a job quoted at over $10,000. W. completed the job, but the homeowner refused to pay. W. hired an attorney to file a Mechanic’s Lien, and in fact foreclosed on that lien. Alas, the legal action proved to be too little, too late, because the owner had two mortgages totaling more than the value of the property. In a Sheriff’s sale, the Mechanic’s Lien would have been third in line after both mortgages!
How could this situation have turned out otherwise? W. could have employed a real estate lawyer to perform a title search before entering into the roofing contract and extending credit to the homeowner. Instead of losing thousands of dollars, the contractor would have spent a couple of hundred dollars and saved himself a lot of grief.
Convenience Store Causes Expensive Inconvenience
Commercial property owner B. leased a building to a tenant who was preparing to open a convenience store. With the landlord’s permission, the tenant made many changes to the property. A few months after the opening of the store, the tenant began failing to make monthly rent payments. Relaying on the tenant’s promises, B. allowed the situation to go on for fully eight months before taking legal action.
How could B. have better handled the problem? With the help of a real estate lawyer, B. could have, after tenant had failed to pay the first time, filed an action to evict the tenant in Small Claims Court. Obtaining repossession of the premises would have minimized the loss of rental income.