Ex-owner filed a lawsuit against me after trustee sale,what should I do?
Submitted by John
from CA
- 04/25/2010 - 4:26pm
I bought a house from trustee sale last month, the ex-owner just filed a lawsuit agaist the bank (First Franklin), mortgatge broker and me. now there is a lis penden (Fraud and Intentional Fraud) on the title for the house,(I am in the process of eviction the ex-owner).
I contacted the bank legal department, they told me they are not going to tell me what they are going to do. Does the bank has a obligation to defend for me? or Should I spend the money hiring a lawyer? or shold I wait to see what the bank going to do (it may take much long)
Please advice.
Thanks in advance.
John
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Two things I'd do:
1. I'd go talk to the owner. Let them know that if they have a valid case it is in YOUR best interest to help them get the sale overturned so that you can get your money back. Get them to realize you are just an innocent 3rd party caught in the middle. With this I can usually get them to show me what they believe to be their case. If I think they have a strong case I get on the phone with the trustee and lender and start demanding the sale be overturned - I've had success with this as they tend to listen when one of their co-defendants is saying they'll lose. If, on the other hand the owner has no case I let them know I won't be able to help because I think the lender - as evil as they may be - are legally right, and that I think they'll lose. If you do this HONESTLY, you may find it helps turn the tide as they then realize they are throwing good money after bad in fighting a hopeless battle. If they are filing pro se (self representing), I'll even offer to pay for a couple hour consultation with an attorney of their choice, so long as the attorney is reputable. If the attorney is honest about the process the owner will realize just how difficult fighting a lender is, and again, reach the conclusion they should move on.
2. Hire a good attorney - one who's dealt with these things and won. Ask around down at the steps, someone should have a referral. Know that the bank has more to lose here than you do, so they will likely take the lead on fighting the claims, but they aren't going to defend you and you will need to have your attorney answer the complaint. The defenses are pretty simple. You weren't a party to the loan fraud if any, and you are a bonafide purchaser for value. If you are comfortable waiting it out you might just leave it at that and let the lender do the heavy lifting. If you are anxious about time, try to get yourself removed from the case. If it is a case of fraud by the lender then the homeowner will still have their claim against the lender, and since you are a bonafide purchaser the sale shouldn't be overturned. I've never had to go that far, so I'm not sure, but bring the idea up with counsel.
Finally don't stop your eviction. The owner will likely fight it, so you will need an attorney here too, but its not out of the question that you'll win the eviction despite the lawsuit. Especially if the owner doesn't understand the process - they may think simply filing the lis-pendens stops the eviction, but it doesn't.
Sean,
Thanks a lot for your help.
Unfortunately, I am facing very tough old woman whom I can not reason with. She probably knew someone familiar with the law, She filed the lawsuit by herself.
It only cost her probably a few hundred dollars and I have to spend thousands (maybe tens of thousands) of dollars to fight this batter. Asking an attorney to file the demur will cost me $5,000+, I can not imaging what it would be like if the judge does not agree with demur and we have a long court battle!!!
America judicial system really sucks!
$5k sounds like an awful lot to me, especially for just a demurrer pleading. The last one of these I faced I spent maybe $1500 to file an answer to the complaint in the required timeframe, and then I let the lender take the lead. They crushed the plaintiff pretty quickly with their $700/hr attorneys. Took a little time and hurt my ROI a bit, but no big deal.
Sean,
How did you find such a good/cheap lawyer? 5K is the cheapest I found, some are asking for 10k as a retener !!!
Ask other investors at the steps. You aren't the first to deal with this. I think the problem you are having is that the attorneys you are talking to have never dealt with this and therefore need time to research the law on your nickel, rather than simply write the answer or demurrer. Mine had been there, done that.
Based on your experience, how likely is a lawsuit to occur in a trustee sale? 1%, 5%, 10% of the time? Also are there things to look out for in advance that would possibly lessen the likelihood of these type of situations like buying vacant homes only?
Please advise.
Thank you!
My experience was around 2%, a little higher if you include problematic unlawful detainer (eviction) actions that required an attorney.
If you can keep a cool head, most get resolved fairly quickly. If the person has a case help them get the sale reversed and move on. If they don't, they usually realize pretty quickly they are throwing good money after bad.
I've never had an issue with a vacant home, so focusing on those could help.
John, how about an update..... I am in the same position as you described here (only my second property, lucky me, eh?) In my case, the former owners were just awarded a temporary restraining order barring me from evicting them, for now. I am debating on whether or not to go pay $$$$$ to put up a fight, or alternately spend just a couple of bucks to answer the complaint and let the bank's guys duke it out.
The former owners seem to have the slightest chance at winning, but I do believe they will ultimately lose. I'd love to get out of the deal. The trustee say no and I can't even talk to the banks attorneys.
Manny,
I have much better luck than you do!!!!
Out of 4 properties I bought this year, I have to do eviction on all of them, among those 2 ex-owner has suited me, another lawsuit one is coming (I believe).
The judge awarded me that particular property after 4 months in court and I spent close to 10K attorney fee.
Anther house, the ex-owner is asking for jury trial and the judge has granted the request.
It looks like those law offices & paralegals are sending mail to the ex-owner, telling them that they can help and save the lost house by filing a lawsuit against the new owner and the bank.
It is a very TOUGH BUSINESS, much TOGUTH than I thought!!!!
John
Also,
How about a counter suit, filed by me? If the ex owners end up losing 9 months from now, what of the odds of me getting awarded damages against them? IE, decreased resale value in this declining market, attorney's and court fees. Lose of use of the money for more flips, ect......
I know getting damages awarded and collecting them are 2 different things.
Manny - have you tried getting the trustee to rescind the sale and giving you your money back? I'd start with that unless you really want to go along for the ride.
I talked to the attorney for the Trustee about getting it rescinded. He said no way, it's up to the bank.
After trying on the phone for quite some time and talking to about 10 people, I won't even be allowed to speak to the attorney for the bank. They told me that if their lawyers wanted to speak with me, then they would call me. One of those "don't call us, we'll call you" scenarios. I supposed I can try again.
It is a pretty skinny deal already. I'd love to get out of it, but I don't think that's going to happen.
For now, I am hoping that I can recoup damages from the losing party when this is all over. Anyone have success with that?
My guess is that it would be hard for you to recoup anything from the homeowner if they lose. However, if the lender loses, I'd think your chances would be quite good.
Given that the bank won't play ball and rescind, I'd go to the homeowner, explain that you are caught in the middle, tell them you asked the trustee to rescind the sale, and ask if they can provide you with proof of the banks wrongdoing that you can use to help convince the bank to rescind and let you out. I've found folks to be very receptive once they realize that my motivations may align with theirs if they actually have a case. Once I review their "evidence" its often super clear they have no case... at which point I nicely explain why I think they'll lose, and beg them to reconsider as the case won't benefit them and will hurt me, not the bank. If I've been truly honest with them they'll often realize they are fighting a losing battle and work with me to do a reasonable cash-4-keys deal and move on. However, in one case the women actually had clear proof that the bank screwed up, which allowed me to get back on the phone with the trustee and lender to explain that they were going to lose, and that they'd better rescind or that I'd have a heck of a case against them for my damages after they lost. In that case the lender came back and rescinded after saying there was no chance.... I just had to do the legwork for them to show them they were fighting a losing battle.
Hope this helps a little. Really sucks to run into this on your second deal. As I said above I've thankfully only had a few of these... roughly 1 out of 50.
If the lis pendens is improperly filed, you may have a claim for slander of title. If the lawsuit is still pending and you are trying to short circuit it, I suggest a Rule 11 motion (in federal court) or a 128.7 Sanctions motion in state court. Lastly, if you have a pending contract for sale, you may have a claim against the borrower for intentional interference with contract/prospective economic advantage. You are a BFP and California's law favor the finality of sale to you.
Julia -
I know you are new here. Just wanted to point out that you filed a reply, here, to a year OLD post. (Filed 8/27/2010).
It took me a while to find your reply because it was attached WAY up the line.
Just occurred to me, you probably won't see this!!
I saw the same Mike. Hopefully she keeps posting though as it was an interesting response.
I have tried that approach with the ex owners. They had a forbearance agreement in place with the bank that required them to make specific payments for about 6 months. The last payment was a balloon payment to make up for the prior delinquencies. They did indeed make the payments while trying to negotiate to get the balloon added to the balance of the loan. Supposedly, the bank made a verbal agreement to allow this. Unfortunately, it was not put into writing. The bank went on with the trustee sale after the balloon payment was not made.
After trying so hard to to save their home (spending a lot of money on payments, in good faith to the bank,) they ex owners are not going to give up now. They obviously have a attorney who is willing to take their money and is telling them they have a good shot at winning.
Personally, to me, it looks the bank kinda screwed them by going through with the sale, even though they may have legally be in the right.
Of course that is if the ex owners are not lying and producing false docs.
There doesn't seem to be any slam dunk proof to show which way the case will go, but I do believe that they will ultimately lose.
Bummer
hey guys this has been a very informative board and topic, considering im am currently dealing with this situation... i am a licenced CA realtor with a client/friend who recently lost his primary home to a trustee sale 8/20/10,
Long story short clients were on a stipulated repayment agreement with CMI. three month trial period of monthly payments due Jul, Aug, Sept 1st along with a $32,000 down payment due with signed agreement. CMI recieved the 32k with the signed agreement, July's payment which the claimed to have recieved late, and the August payment that was also cashed on time with no problem. come August 20th homeowners get a knock on the door from a gentleman claiming their property was currently being sold by the trustee. come Monday the 23rd i found out it was sold to a 3rd party at trustee sale. since then the homeowners have retained a group of attorneys and also filed bk to protect additional distressed mortgage loans. CMI has been contacted several times claiming the finalization of the sale is on HOLD... the reconveyance co. has also stated that the sale was on hold... now for piece of mind from prior experiences does anyone have any suggestions to what the homeowners should do, or has anyone had a similar case with a bank sending a home to a trustee sale during a repayment agreement.
Yeah, sometimes the homeowner loses, but sometimes the guy that bought loses even more, take a look at this Reno, NV guy that got hosed! http://kristopherkent.com/?p=29
Stuart - The only reason your guy in Reno, or the folks cited in Boulder that he also mentioned "got hosed" is that they didn't follow the basic rules of auction investing. With 5 minutes of research on the internet they would have found out that there is no title insurance at trustee sale, and that you have to do title research to know what you are buying. Check out our buying at auction forum: http://www.foreclosureradar.com/forum/buyers-and-investors/buying-auction for lots of in depth info on this.
Sean, maybe you can help (PLEASE!)... A few weeks ago in Sept 2010, we bought a home (er... i mean a LOAN) at a Trustee Auction for $137K. Then we found out a week later that we only purchased the 2nd loan. The first loan is still there and it's $380K !!!!! The home is worth less than that, probably around $325K. We immediately asked the Trustees for rescission, alot of emails and an office visit!... they wouldn't do anything. Then we asked the bank (Wells Fargo/Wachovia), alot of letters! ...they don't seem to want to do anything (we havent heard from them.) Should we still keep sending rescission letters to the banks??? If we don't hear back from them, what's next? Are there Time Limits for all this...?
I hate to hear this. I've had this happen a couple of times and have been fortunate to get a rescission in both cases (we had carefully done our research, and the lender had played games that we threatened to take them to task for).
Try talking to the homeowner and see if they had some reason the bank should not have foreclosed (like a letter agreeing to postpone). Outside of that, and as much as I hate to say it, you may be stuck. If so your best bet is not to throw good money after bad and just let the first foreclose. If it's vacant and there is some time before the first is going to foreclose perhaps you can get a few months rent (would be good to be honest with the tenants that the home will likely be foreclosed on in the future). Won't help much, but perhaps its something. If the owner is still there, they technically owe you rent from the day of the sale as well. Good luck.
Sean, Thanks, but it IS hard to hear that we possibly lost $137,000!!! The (even more) complicated situation here is... there was also a judgment on the house for $550K (or $485K) in the 3rd place. By purchasing the 2nd loan at auction, most people say that eliminated the judgment. So I'm sure Wells Fargo is happy we purchased that loan to eliminate the judgment, and for that matter... the owner of the 1st is probably happy too so I'm not so sure how much she would want to work with us. However, the plaintiff in the court case (that judgment) probably IS NOT happy that we were bamboozled into purchasing that 2nd loan since it eliminated his judgment. [We really feel as though somehow, in some way, we were set up...? Am I wrong to think that? The realtor we were working with was VERY insistent that we purchase this property. As I unravel the situation (and the shock slowly wears off) I'm starting to see the layers here.] / We think that the 2nd loan was keeping the 1st loan current because the 1st isn't late (yet). / We want to get an Attorney but the more experienced ones in these situations will cost upwards to $40-50K. We just can't afford to lose MORE money if it's a losing case. / As far as renting the place, that's difficult too because the pool is not filled with water (well, I guess I could try to rent it out with an empty pool). Also, if we're renting, we would need insurance. Can we even get insurance on a house that's not in our name? (as far as we know it's not in our name) because we never transferred that "Trustee Deed upon Sale". An Attorney told us NOT to transfer it, that the Trustees would do it for us. / The original owner is out of state and the place is vacant (and it's in great shape actually, ready for a renter as is, except for the empty pool). Sean or Michele, Any more advice would be helpful...also, if you're interested let's email or talk outside of postings... we are desperate. We are not rich people. I'm a public schoolteacher. We are hardworking people who save money, drive older cars, don't go out to eat... $137,000 was almost all our savings. We just can't believe this has happened to us! Paul and Todd
Paul,
Using FCRadar I believe I have found the house for which you have purchased the second. Something definately seems strange that the NOD filing on a initial loan of $124K is $13K. Seems high to me unless they waited almost 2 years to file an NOD. I would be curious to know the charges,fees, and unpaid principal they used determine a published bid of $139K. Maybe they were keeping the first current? Is this an acceptable charge for the 2nd to pay? I don't know the answers but I feel for your situation.....
Yes, I believe a second can make payments on a first to protect their position. Also we are seeing higher and higher past due amounts as lenders delay foreclosures longer.
Hi Paul,
The judgement in a 3rd position would have been wiped out regardless of who purchased the property at trustee sale. The first is in a secure position so it doesn't matter to them if the property went back to the bank or sold to an investor. The only one to "benefit" is the 2nd because they did not take the property back and collected a hefty sum from you at Trustee Sale. The Trustee will prepare the Trustees Deed and send it to you to record. You now own the property but you own it with a 1st mortgage. If the 1st forecloses then your ownership would be wiped out.
Sean made a great point to contact the previous owner. You are looking for ANY reason why the sale should be rescinded. You may have a potential errors and omissions claim but you would want to talk to your realtor about that.
As a very long shot you may want to contact your elected officials. You have a very good story that may get the attention of someone that is willing to help (or at least make the calls). I wish I could think of something else that you could do. This is such an unfortunate situation.
My parents had owned a house. To make the story short the realtors came into the house with the new owners and started a constructive eviction, by having the restroom floor demolished and changed. With out notifying or providing a 24 hr notice before entering. They wanted us to leave the house in less than four days they did not have a court order. The second day a large container for trash was placed in the side entrance. Those persons cleared the kitchen, restroom, and the living room and placed most items in the large container. With out our approval. The rooms where not touched at least not yet. That was the Fourth of July. A holiday!!! Yes we where there and it was unreasonable, they did not have an eviction notice. With out consent they went to the garage when we where not at the house and placed every thing outside. They wanted us gone by tonight. Because the house was to be cleared for "fumigation" and they where to change the locks. The house has been sold, yet the for sale sign is still there. Which makes u think that they had a third party/association to buy the house and to renovate it and have it sold to another buyer therefore making at least a 120000 grand a piece on the short sale they made my parents go through because they where not granted a modification. Four salaries really!!! Since we got a lawyer they have been harrasing my father at work.
Hi Lety,
They were "forced" to do a short sale? They would have had to provide documentation, hardship letter, sign a listing agreement, agree to the terms of the deal and sign the grant deed to close the escrow. Something doesn't add up here.
My parents are not fluent in English, the realtor made them believe that they had no other choice. My father has two jobs, my mother works, so does my brother and I. My parents where current on their payments before they decided to get a modification. And from there the hardships began.
Hi Lety,
Your attorney can certainly advise you on your legal rights. I wish I had some advice that could make this all go away. Without knowing all of the details it is very hard to tell you if there is hope in getting their house back. You attorney should be able to give you a better idea of what the outcome may be if you fight this. Once you clearly understand exactly where you stand and what options you have then you need to sit down as a family and make a decision on how you want to proceed. It may very well be that your parents were taken advantage of but don't let this situation continue to victimize your family. You can stay and fight and see if you have any legal recourse or you can decide to use this as an opportunity to get a fresh start. You have many blessings just in the fact that you are all employed. It may be time to let go of this terrible experience, stop giving it any more of your energy and focus on your quality of life! My hope is that without the burden of a big house payment you can find a great rental and maybe your father can scale back to just one job. I have found in my personal life that sometimes you find strength in letting go. I am a firm believer that homeowership is the American Dream but America is also the Land of Second chances! My guess is that you and your family will recover from this and in a few short years be buying another home possible better than this one for probably much less.
I wrote a blog a while back on my own experience with losing a home. I hope this helps. http://activerain.com/blogsview/2145286/fighting-foreclosure
Update from way up above.
After this experience, I am totally disillusioned with our justice system. One week short of a year, the lawsuit was finally decided in favor of the defendants (Chase and myself). 6 or 7 hearings and very frustrating chances for the plaintiffs to amend their complaint. I had to fork out for the cash for the eviction (no big deal), but rode on the work of Chase's attorneys. In the end, Chase was awarded attorney's fees due from the former homeowner. God only knows what that bill is. I wish them good luck collecting. I am not even going to attempt to recoup anything. Those folks have got to be broker than broke now. Especially after listening to the 2 different attorneys who were glad to tell them that they had a shot at winning. They even got a second guy after the first one gave up (just hand over another 10k to get me started......)
While it was quite the educational experience, it was very trying and frankly scary at times.
One year of my money being tied up and a lot of lost opportunity.
What a waste, for everyone......except for the attorneys.
Manny - thanks a ton for coming back and letting us know what happened. Hopefully the attorneys that misled this homeowner were some of those recently rounded up by the states AG... http://articles.cnn.com/2011-08-18/justice/california.mortgage.fraud_1_l...
Very sorry to hear about that long delay. It can vary between judges. Recently we had one where the judge gave the borrowers 1 shot to amend. After that, the case was dismissed without leave to amend. This would have been good news for my buyer client except that the borrowers then filed an appeal. My client does a reasonable amount of transactions in a year, and most of them are fine (even with the skinny margins) so to have a borrower go these lengths to derail the f/c sale is fairly uncommon for him.
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