Foreclosure due to a hidden loan

[tgifryday]

Situation: I bought a house in Sac with the help of a group of real estate agents about a year ago. In the pile of paperwork I apparently signed (I'm in Canada unable to see the papers until they are brought to me in a few days) a loan with the seller for 22K on top of the two larger mortgages and everything else. Unfortunately, the loan never popped again in my life and I was never reminded of it in any way shape or form for about a year, while making all payments on the two mortgages. Also, the house is being rented out. Just recently I received a notice of foreclosure because I defaulted on the loan. I called the company and they told me about the loan, which, while being vaguely familiar, was really *news* to me. I called the original seller and he told me he tried to get a hold of me but he didn't have my phone number and so after a while he got tired of not getting payments and he had city county records file for foreclosure.

Some other details I have at the moment:

- The seller never received a check from me and somehow never received the information from the real estate brokers
- I never received a notice of late payments
- The notice of foreclosure came after the foreclosure fees were incurred, apparently.

Some questions:

- Is there a way I can show that I had no idea I was defaulting on any payments until today?
- Is there a way i can pay the missing payments now and re-instate the loan without incurring the foreclosure fees that I'm told i cannot avoid.
- Is there a way i can show that the seller didn't do due diligence in trying to get a hold of me? After all, my name and phone numbers where all over the sale paperwork.

Basically, I feel stuck. I've been in Canada for the last two months (and yet very reachable by cellphone). And then this foreclosure suddenly shows up, without any intended lack of integrity from my part. And the real estate agents I worked with before I'm having a real hard time getting a hold of. I really want to work with the seller on this, and yet the extra $950 or so "fees" seem incredibly steep for something I didn't intend at all. Could the seller have called me or something, perhaps? I really know sooo little about real estate but I'm open to learning really quickly. Does it really make sense for the seller to try to foreclose on a 22K loan, get the house sold, perhaps get some $$ on the auction and whoever buys the house will have to take on my two mortgages and then try to sell the house again? Also I hear that anything that the house sells for above the loan amount will go to the current owner (me). Is that right, in which case I could take that $$ and invest it further (but then again, living with a foreclosure on my credit report).

Many questions from a newbie, I know. Thanks to all in advance for helping!

tgifryday

[DionEvalueMortgage]

Well, my friend, while I am not title expert by any means here somethings for you to consider.

Technically, I believe your already in foreclosure, so fighting the fact of foreclosure will not stop the process. Think "ignorance is no excuse", you can not just tell a bill collector that you never recieved a bill and thus should not be assesed with a late charge. That doesn't work with library cards and it won't work with a mortgage even if it is private.

The best thing to do I think is look into purchasing the foreclosure out and yes...paying the fine. Then perhaps look into the legal ramifications of the process. Depending on what your current LTV (Loan To Value) is you may be able to get a loan to pay off the note. I would recommend an equity line if your credit is good enough not an entire refiance! An equity line is your best bet because if a lender looks into all the notes on your home they WILL find your foreclosure, sometimes banks are a little sloppy when it comes to their equity lines and don't really do a ton of title searching because they are already a second or third position.

The other peice of advice I would say is get in touch with a couple (more than one!) title companies and ask them what it would take to satisfy the note. If the guy who owns the note is willing to be talked to then perhaps you could arrange a deal. Get him to sign a satisfaction agreement and then get an equity line or refiance while he holds some other collateral like your car title (if the value is there) or something.

I guess the moral of the story here is. Don't look at this like a "point the finger" situation. A foreclosure on your credit whether private or not, is terrible! And don't count on getting any money for your home, if that were the case people would enjoy foreclosures. The key lies in satisfying this one private mortgage that right now can only be found during a title search and is not on your credit yet. Because of that your not really in a bad position. Anyway you look at it, you have to make that go away and the only way to do that, is pay it off.

I would be curious what Dan and Aldo have to say as well. Again, not an expert in this matter by any means just trying to use some common sense.

[Keith(CA)]

For the sake of this discussion, I'm assuming by "Sac" that you mean Sacramento, CA. I'm definitely not a guru nor an attorney, but here are my thoughts anyway...

- Is there a way I can show that I had no idea I was defaulting on any payments until today? Can the seller produce a promissory note bearing your signature? Since he has a lien on the property I assume this is the case...in which case, you could have amnesia and it wouldn't matter. It's not the seller's fault you forgot about your obligation. The old "dog ate my homework" excuse ain't gonna work here.

- Is there a way i can pay the missing payments now and re-instate the loan without incurring the foreclosure fees that I'm told i cannot avoid. What does the Notice of Default (NOD) say about that? Follow the link below...

http://www.leginfo.ca.gov/cgi-bin/calawquery?codesection=civ&codebody=2924 (then click on link #1)

...to California Civil Code §2924 which discusses the foreclosure by trustee process. It is a long read, but you said you were ready to learn.

It took a NOD being recorded in order to commence the foreclosure process. The wording of the NOD should contain the amount required to reinstate (if possible), or it will contain the entire balance due (including fees and/or penalties). Whatever amount it says is the amount you must pay. If you can reinstate, then I would do so before time runs out. If the penalties/fees are simply too much in addition to the one year's back payments, maybe you can negotiate to get those fees rolled into the backend of the loan (i.e. make a few extra payments after the note would have been retired in order to pay those extra charges).

- Is there a way i can show that the seller didn't do due diligence in trying to get a hold of me? After all, my name and phone numbers where all over the sale paperwork. The seller is under no obligation to track your whereabouts. It is your responsibility to notify your creditors when you move. You wouldn't expect your credit card debts to be excused just because you moved and they couldn't find you. You owe the seller money and he is entitled to be paid, period. You allowed the debt to be secured with a lienhold interest in the property; thus, the seller is entitled to foreclose to collect on that debt.

Basically, I feel stuck. I've been in Canada for the last two months (and yet very reachable by cellphone). And then this foreclosure suddenly shows up, without any intended lack of integrity from my part. And the real estate agents I worked with before I'm having a real hard time getting a hold of. Your agents were paid by commission when you bought the property. That's how they get paid and they aren't interested in doing any free work after the fact.

I really want to work with the seller on this, and yet the extra $950 or so "fees" seem incredibly steep for something I didn't intend at all. Could the seller have called me or something, perhaps? If the $950 is simply the cost of hiring a trustee to perform the foreclosure (they aren't cheap), this sounds steep...but check with an attorney or title company because there are statutory limits on some of these charges. Basically, though, it's additional money your seller had to pay out of his pocket because you weren't paying him as promised. What isn't fair is that this guy had to cough up extra money to collect on the debt. Your intent has nothing to do with it. You cannot shift your responsibility onto the seller. You were the negligent party, so you would do well to accept it and just take your lumps.

Does it really make sense for the seller to try to foreclose on a 22K loan, get the house sold, perhaps get some $$ on the auction and whoever buys the house will have to take on my two mortgages and then try to sell the house again? I would be willing to wager that your seller does not want the house back. He wants his money. The way to legally tip his hand and make sure he gets paid is to initiate a foreclosure. There's nothing personal about it...it's business. Find out what it will take to reinstate the loan.

Also I hear that anything that the house sells for above the loan amount will go to the current owner (me). Is that right, in which case I could take that $$ and invest it further (but then again, living with a foreclosure on my credit report). Whoever buys the property at auction is buying subject to all senior liens and encumbrances. And all overbid amounts are applied in full to each successive lienholder junior to the foreclosing one.

Honestly, I would not have given you a year without payment. Your seller was gracious in the extreme to have waiting so long. No one is the bad guy here, but you got your wake up call via a foreclosure notice...so get it taken care of and move on.

Examine the date that the NOD was recorded. You have 90 days until the seller records a second notice called a Notice of Trustee's Sale (NTS). At that time the date for the sale will be established, but cannot occur for at least another 21 days after the NTS is recorded. All told, you have a little under four(4) months to get things taken care of before the sale occurs. Use this time wisely.

[Dan Auito]

In addition to what was said above document everything you have said as well as everything everyone else has said, make copies of it all and send a copy to the California real estate commission for starters.

I would retain a real estate attorney who practices in California to have him work at halting further foreclosure proceedings while the matter is put into proper perspective.

In the end with the way the prices have been escalating you should be able to refinance the whole thing and pay the seller off on his 3rd, tell the seller that is what you are going to do, odds are he wants to try and get it back because it is worth more now and he will be making the gain on the appreciation that is really yours.

Get the lawyer and give him or her every detail of this series of events, eventually I see you refinancing the whole thing and coming out in a much better position than what appears now.

Get a real estate attorney(member of California bar assoc) to represent your interests I see someone trying to get your equity!

www.findlaw.com (find an attoney)
www.alllaw.com/forms/real_estate (sample forms/ lawyer search)
www.attorneyfinder.com/index.html (find an attorney)
www.attorneylocate.com/index.html (find an attorney)
www.legalscholar.com/links/realestateassociations.html (every lawyer on the planet)
www.turnpike.net/lawnet (questions answered free)
www.legalscholar.com/links/realestateassociations.html (law resource)

Keep us posted!

[Keith(CA)]

tgifryday,

I found an excellent link to a California specific publication that addresses timelines, your options, statutory limits on fees, etc. It is actually written to the real estate broker and real estate investor communities, but should provide you with some authoritative information nonetheless.

Good luck...and Happy New Year!

http://www.firsttuesdayonline.com/Magazine/2004%20Archive/Reinstatement%20and%20redemption%20periods%20durin g%20foreclosure.htm

[tgifryday]

Wow! Thanks so much to everyone for all the information! I've been talking to a mortgage broker friend and someone at the original company and they are at a loss (so far, but looking into it) as to what is going on. The 3rd 22K loan does not show up on her radar but he found it was created (instated?) three months after I bought the house. Still don't have access to my papers until next week when I get back to California, and the notice of default was posted on Dec 10th or 14th, so we're at the beginning. I also finally reached my real estate agent -- who didn't seem surprised at the mention of the loan -- and will be calling him again on Monday.

For those who said the lender was lenient, well I do realize he was -- from his perspective. I also believe that in all matters of law, intent and *some* reasonable due diligence is also important. So yes, in fact I didn't know about the loan, and yes, in fact I was always willing to pay for it -- never missed a mortgage payment, why would I not pay this loan too? So it may be that I'll have to take this to court. I'm planning on having a greater conversation about this with a lawyer and also gather all the information i can about this situation.

Thanks again for everything!

A bientot,

Philippe