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Pre-foreclosure Investing and Foreclosure Sales – Do you know what's on record? Part I

February 7th, 2007 · 3 Comments · Foreclosures, General Contractors & Mechanics' Liens, Trust Deeds

With constant news reports that foreclosures are on the rise and investment gurus preaching real estate schemes, our office has been getting a lot of calls about how to buy at foreclosures.  We don’t teach how to classes on high-risk investing (we leave that to the professionals), but we can educate our clients on the risks.

The primary factor for a foreclosure purchaser, whether equity purchasing or at Trustee’s sale is to understand what liens have priority. 

There are a number of different types of liens that can affect a property, such as Abstracts of Judgment, Mechanics’ liens, garbage liens, child support judgment liens in addition to the normal mortgages (or rather, deeds of Trust for California) that you would expect to see.

Smart investors do their homework.  Some investors have relationships with title companies and will actually obtain a Preliminary Title Report.  What does that guarantee? Well, absolutely nothing.  The report is a snapshot of what liens a quick search revealed and how the vesting of title is held.  The results are only an offer to sell title insurance subject to those exclusions. 

Often those reports will miss Abstracts of Judgment–especially if the debtor has a very common name.   Abstracts are recorded by judgment creditors who have obtained a judgment against the debtor.  They are in recorded in the county and attach to any property that debtor may own in that county.  The Judgments are good for ten years but usually can be renewed.  In some cases, the debtor may have filed bankruptcy and discharged the judgment.  Does that make the Abstract go away? Not necessarily.  If the Abstract itself was recorded before the bankruptcy petition was filed, it is deemed a perfected security instrument that stays attached to the property.

However, once the underlying Judgment itself has been discharged in bankruptcy, it can no longer be renewed so the Abstract itself can never be recorded again once the Judgment has expired.

Will you be bidding on a property subject to a judgment lien ahead of you? If you acquire that property, the judgment creditor will have the power to levy against the property until that judgment is paid.  While you could always cross your fingers and hope to outlast the creditor–keep in mind that Judgments accrue interest at the rate of 10 percent per annum. The best approach is to negotiate with the judgment creditor.  An attorney can be a good investment at any juncture in the process to advise as to the risk of the transaction or to negotiate a discount on the liens.



3 Comments so far ↓

  • John

    In the US nearly 750,000 owners are in trouble – this is up about 96% for the first eight months of this year (2007). You must first asses your ability to make payments on your loan before you consider the steps that need to be made to stop foreclosure and the refinance options available to you. If you are buried in debt then you may not b able to carry the burden of even a lower payment. You must ask yourself if the lower payment is better for your budget than getting in a lower rent situation. If saving your home from foreclosure is a viable option to consider then you must make contact with the lender who is trying to foreclose on your property. It is likely that they are already in contact with you so this may be easy to do. If you are several months over due you might need to make up a payment or two to negotiate with them to stop foreclosure. You can also show proof of your progress to refinance your home and stop foreclosure. The loan company or lender you are dealing with may have private investors that can help you out. Many foreclosure investors are in constant contact with lending institutions seeking loan opportunities for foreclosure properties.

  • Bob Fitch

    Very informative blog! I would like to link your site.

  • stop bank foreclosure

    It is interesting to read people are going the deed of lieu route in recent times. If there are any other loans other than the foreclosing loan against the property, the lender accepting the deed in lieu will need to pay those off to obtain clear title. The same applies for any possible judgments that may have been recorded. Then there is the question of who is on the property title. Are all the owners interested in providing a deed-in -lieu? Do all those owners really understand exactly what they are giving up? Are they going to come back a year later and say they didn’t understand?

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