Ex-owner filed a lawsuit against me after trustee sale,what should I do?


#1

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


#2

Two things I’d do:

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.

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.


#3

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!


#4

$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.


#5

Sean, How did you find such a good/cheap lawyer? 5K is the cheapest I found, some are asking for 10k as a retener !!!


#6

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.


#7

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.


#8

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.


#9

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.


#10

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?


#11

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.


#12

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


#13

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.


#14

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


#15

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.


#16

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


#17

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.


#18

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_law-firms-mortgage-scam-desperate-homeowners?_s=PM:CRIME


#19

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.


#20

I am at the end of my Unlawful Detainer litigation to evict a holdover owner of a house I bought at a Trustee Sale. The holdover owner has submitted a separate suit against the former lender and myself due to issues of title and fraud, in hopes of consolidating the two cases and tying it up in court for at least a year. The holdover owner has no case, title work shows compliance w/ NOD and TS. Has anyone been successful in opposing the consolidation?