Hi, I purchased a property at trustee sale few days back and recorded the TDUS within 60 days of sale. The sale took to finalize 45 days due to notice of intent to bid and I bought it as prospective owner occupant. After 30 days of trustee sale (public auction), the previous owner filed a lawsuit and recorded a lis pendens against the property. Will this lis pendens take priority over foreclosure and cloud the property title? I am going to file UD, what should I expect?
Hello Dev,
I’ve found myself in this situation multiple times. My approach has been to talk to the owner, let them know I’m the new buyer, and that if the bank wronged them, I’m as much a victim as they are. I then offer to help try to overturn the sale so I can get my money back. Once I’ve got them on my side and working with me, it has gone one of two ways… one time it was clearly a wrongful foreclosure and I knew the owner would ultimately win, so I put added pressure on the trustee and the bank and got my money back. Multiple times the owner shared why they thought it was a wrongful foreclosure, and it quickly became apparent they didn’t have a leg to stand on. In those cases, I shared my opinion (with empathy for their situation), and explained that I didn’t think either of us could get out of it. At that point, I had one realize I was right and accept my cash-for-keys offer, and another take it to court. In the latter, the bank got the case dismissed, but it definitely delayed my getting possession of the property.
The bottom line—the Lis Pendens will cloud the title until it is resolved and may also impact your UD, depending on the strength of their case. They are likely just grasping at straws, but it is helpful to know, and you are more likely to get some level of cooperation on that front before you file the UD.
Hope that helps,
Sean
Thanks Sean for your reply. After recording the deed, I realized the property is foreclosed on a second deed of trust and the first mortgage is still open. Who will pay off the mortgage till the lawsuit is active and I don’t get the house? What if the previous owner stops the payment and the first mortgage bank forecloses the property, will I get my money back?
Hi Dev,
When you buy a second at a foreclosure auction, the first mortgage does continue to encumber the property (as well as property taxes and any other senior liens or encumbrances). Not paying the first mortgage will not impact your credit, but you are correct that you do face the risk of it going to foreclosure at which point you would no longer own the property and could lose all your money. I say could, because whether you will or will not depends on how much is bid on the first at that foreclosure auction. If it gets bids above the amount owed on the first the overage would go to you (assuming you really bought the second and there are no other liens junior to the first, but senior to your position). In this situation I would recommend bidding on the first yourself to make sure it reaches a price sufficient to get all of you money back.
With regard to making payments on the first, I don’t think it makes a lot of sense given all that is going with the list pendens etc. At least based on the information you’ve provided. If your sale does get overturned it is unlikely you’d get that money back.
Given the complexity of your situation I would recommend hiring a real estate attorney with experience in trustee sales. I’m happy to share my experiences and opinions but I’m not an attorney and nothing I suggest should be considered legal or financial advice. Still, I hope what I have said is some help.