can an unresolved loan modification application reverse a trustee's sale?


#1

I just bought a house at the trustee’s sale in California. The hold over owner told me that the bank shouldn’t have allowed the trustee’s sale to go through because they were in the middle of negotiating the loan modification. I talked to the bank’s legal dept and they said they are standing behind the decision to sell. The hold over owner plans to sue the bank to reverse the trustee’s sale. What should I do?


#2

This is an all too common refrain. Most lenders have been hyper-sensitive to “dual tracking” complaints and now provide clear/timely disclosure to a homeowner when a modification has *not* been approved. And they do so before they follow-through with the trustee sale. The problem, of course, is that virtually 100% who lose their homes, have opted to *not* make full (or any) payments during the modification negotiations … and they can’t or won’t come current if the “loan mod” is turned down.

I’m not defending banks for some past/present bad behavior, but the foreclosure did not happen because the homeowner was “dual tacked” … but rather because the mortgage was not kept current.

So record the trustee’s deed upon sale (TDUS), which you should receive shortly. Then present the “ex”-homeowner with a fair -4-Keys offer along with a "notice to quit." Politely explain that the notice to vacate is a preliminary step in a potential unlawful detainer (UD) action that you need to follow. Assure them that you can/will dismiss the UD, but only if/when they follow through by giving you possession of a "broom clean" property on the agreed upon move out date. Most will present the -4-Keys offer up-front and in writing, but hold the check to the ex homeowner for move out date (post inspection).


#3

A lot of homeowners seem to be confused about their loan modifications. If they do not have sufficient income to pay a slightly reduced mortgage payment, their mod will be declined. A lot of people think a miracle will happen with a loan mod, like the payment is going to be reduced to a 4% interest rate on a huge reduction in principal down to their current value.
I’m watching a bankruptcy case now (waiting to gsuge upcoming foreclosure) where owner is continuously repeat filing for loan mid and complaining


#4

To bankruptcy judge that bank is not cooperating, even though they are both unemployed and living off small Soc sec payment.

The sale will not get rescinded and the prior owner will have to get some money together to find a lawyer to file a case. Hurry up and record your Trustee Deed.


#5

Legislation will go into effect next year to bar dual tracking but in the meantime, if the lender did not approve the loan mod, the trustee’s sale to a BFP is final. As far as the borrower’s intent to sue the lender, the American judicial system is set up to provide everyone their day in court–including this homeowner so yes, they can file a complaint. The complaint will likely be for wrongful foreclosure theories and to quiet title against you. We deal with these types of lawsuits frequently for the investors. California has a really tough standard presently, which is the “tender offer rule” and usually only a lender’s egregious conduct can cause a court to allow a borrower to go forward to set aside a foreclosure sale without tendering. Here’s an example of where a borrower convinced a judge the lender really, really, really messed up http://tinyurl.com/8pbv29f

Bottom line - foreclosure sales have risk, and threats of a lawsuit are one of them. Ultimately, if the deed has been issued and recorded, I do not see a basis for you to rescind it unless you have evidence that the sale was void on some technical grounds (ie, the lender/trustee rescinded the NOD but conducted the sale anyway).

Dan’s idea to talk to the occupant about a cash for keys offer is a practical approach and one I often suggest. Work with a reputable UD lawyer to conduct your foreclosure. Good luck to you on this investment.


#6

I know this is not the place for endorsements, but I will say that I have worked Julia M. Wei (comment above) and lawyers at her firm, post trustee sale acquisitions. Top drawer counselor to add to your list of “who to call.”


#7

You are right idannyb and we appreciate you sharing your opinion. We also appreciate the great advice shared by Julia Wei. She is absolutely “top drawer”.