In the last few weeks I’ve seen two nice properties up for trustee sale where the prior owner had failed on their attempt to short sale and rather than wait out the eventual foreclosure, they quit claimed the property over to a third party for $0.00 consideration (a gift).
In Case A (a once $1.6 million property in a resort community) the new “owners” were quick to set up vacation rental sites and for approximately 2 years they managed to skim (albeit legally it seems?) rents on this property before the lender got serious about foreclosing on the non-reconveyed DOT in the name of the original owner. The property was also foreclosed on by the HOA but the new owners quickly redeemed (regained ownership) as it seems the rental income stream was too substantial to give up. Some vacationers apparently had been burned by the new owners and a private detective got involved and he set up websites warning vacationeers not to rent the house as a BK judge had determined that the so-called owners were not operating legally. When the last trustee sale date came up the new owners succumbed to pressure and gave the lender a deed in lieu. So it never when to sale.
In Case B (just today) I met the now “ex” owner of the property down at the recorder’s office. He was having difficulty determining whether his house had been sold at a trustee sale. I showed him how to find the necessary docs (NOD/NTS + DOT and the TDUS which showed the new owners). I quickly recognized the property as I attended that particular trustee sale and observed the bidding action (I did not participate). Opened at $1 million and sold “third and final bid” @ $1.2 million. Just as in Case A, this so-called “owner” had gained tentative “ownership” by way of a quit-claim deed granted by a seriously underwater owner … and like in Case A, this was for zero ($0.00) consideration … a gift. This newly “ex”-owner (steps investors’ TDUS was recorded 8/2/12) was adamant that he would be able to regain ownership and continue to benefit from rental income. Like Case A, this “ex”-owner was also renting out the house to unsuspecting tenants (but on a 1 year lease vs vacation rental). Complicating matters, the “ex”-owner was also living at the property in a guest unit. This ex-owner had hired up an attorney and was convinced (in his own mind) that the house was some how illegally taken from him by virtue of an illegal trustee sale. We had a good discussion about the lender’s right to foreclose on the non-reconveyed, deeply in arrears outstanding DOT. He was also preparing to battle an unlawful detainer suit that would no doubt soon be filed (by the investors) to extricate him. The investors will have to negotiate with his tenants or may have to honor their lease. What was most galling to me was this ‘ex"-owners righteous indignation over losing a $1.3+ million property for which he never paid a single penny. His lawyer had convinced him that the MERS improper assignments (multiple) to different institutions/trustees would somehow invalidate the lender’s right to foreclose on the DOT. While we all know about robo-signing abuses and courts’ disdain towards many lenders slipshod paperwork (failure to properly record/document/supervise assignments), I don’t think the courts have ever intended that owners … and certainly not those who received quit-claim gifts … should get their house for “free” (invalidating the underlying DOTs).
My guess is that this “ex”-home owner will lose his forthcoming UD battle to the investor group, and after some 6 moths to 1 year (after spending $10K to $50K on attorney fees), he will come to realize that you don’t get a house for “free.” But his lawyer *will* get paid ;).