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stineaac · Jun 26, 2008, 11:04 AM

Hi, We are interested in a home that is bank owned. The home had a first mortgage and two second mortgages. Our realtor told us that the second mortgage is the one who forclosed on the home. How do we know that the title is clear of other liens? The first mortgage was double the amount of each of the second mortgages. What happened to the other mortgages (first one and the other second)? If a home is bank owned, are all mortgages/liens on the property automatically cleared? Thanks for the advice.

Christine

LisaB4657 · Jun 26, 2008, 12:51 PM

No matter what advice you may get here, and no matter what laws you may read, there is absolutely no way of knowing whether the title is clear unless you have a title search performed by a title insurance company and then buy the title insurance policy. Someone may tell you that a foreclosure automatically clears all liens. Guess what? Sometimes it does and sometimes it doesn't.

Call a title company before you take any action on the house.

George_1950 · Jun 26, 2008, 12:58 PM

Welcome to AMHD. It is rare when a second mortgage holder forecloses because it must generate enough cash from the sale to payoff the first mortgage before it realizes sufficient cash for itself. My guess is that the bank paid off the second. If you are really interested, go to the bank and get them to go over the history of its loan on the house and any other 'second' mortgages. If you still have questions, go to the courthouse and have a clerk show you how the real estate indexes work. If you are still confused, hire a real estate abstractor or attorney.

stineaac · Jun 26, 2008, 01:14 PM

Thank you for your responses. George-1950 - are you saying that the second mortgage
(260k) needs to sell the property to cover the amount of the first mortgage ($475k) PLUS what it has invested ($260k). What about the other second mortgage ($245k)? We are trying to figure out if we can low ball them in a bid. They are asking enough to cover the first one and one of the second mortgages but we were hoping to get it for a lot lower. We will definitely check with a title company to see if the title is clear. I'm just curious how to find out what is actually owed so we can be more aggressive with our bid. Thanks again!

George_1950 · Jun 26, 2008, 01:19 PM

Is the house vacant? Can you locate the former owner(s)? Ask him (them) about what happened?

stineaac · Jun 26, 2008, 01:31 PM

The house is vacant and I believe has been for about 2 years. A female owned it. Apparently she started renovating and ran out of money. I wouldn't know how to contact her plus it would be a bit awkward, since she lost the house. From what I've heard, the house was purchased in 2004 for $685k (first mortgage of $450k, within one year the two second mortgages were taken out for approx $250k each), then in 2006 it was on the market for 1.5m then a few months later it was on the market for $900k and now it just came on again for $645k.

George_1950 · Jun 26, 2008, 01:43 PM

If I were you, I go to the courthouse and research the indexes (buyer index and seller index - the actual names may differ somewhat) and find out what is going on; that is, if the realtor can not answer your questions, all of which are reasonable. As far as I am aware, a second mortgage holder cannot foreclose the title from the owner without having paid off the prior lien(s), which would make it the actual owner. Has your realtor disclosed who the actual owner is at this point? It must not be the female. As far as I am aware, a foreclosure would also extinguish tax and materialman's liens, but you need to know this. The highes quality of ownership is 'warranty deed'; is that what the realtor says the owner is offering to you? It should be.

stineaac · Jun 26, 2008, 01:55 PM

The owner is a bank. I am not in the area (I am in another state). I'll ask my realtor to go to the courthouse. I got this information (all the numbers and bank names) from RealtyTrac.com. The bank that owns the property is not the same name as any of the banks that gave the first or the two second mortgages.

George_1950 · Jun 26, 2008, 02:44 PM

Originally Posted by stineaac

...The bank that owns the property is not the same name as any of the banks that gave the first or the two second mortgages.

Interesting; so how did that bank come into ownership of this property?

stineaac · Jun 26, 2008, 02:50 PM

I have no idea. Do you think the bank won the bid at the foreclosure auction (I'm assuming there was an auction)? Realtytrac.com didn't say it was resold since the 2004 sale in which the female bought the home.

westnlas · Jun 26, 2008, 03:01 PM

Get on-line to your local assessors' office. Do a property search and determine the last selling price. That will give you an idea of what it sold for, but may not show the 3rd mortgage. I don't think there can be 2 second mortgages on a property at the same time, just like there cannot be 2- first mortgages. If there is a third mortgage, unless the 3rd mortgage holder forecloses and can either pay off or reaffirm the existing 1st and 2nd mortgages, they lose their position.
Offer as little as you want. The seller will either reject the offer outright or present a counter offer. It really doesn't matter what's owed, but what the seller would be willing to take. Sometimes, people understand that it's better to take a small loss now than a larger one down the road.
Since the 2nd mortgage holder foreclosed, generally, all they need to do is keep the payments on the first current. They could rent the house for most of this expense if necessary.

Fr_Chuck · Jun 26, 2008, 03:39 PM

If it went though normal foreclosure procedures, the home is sold at auction and the 1st mortgage is paid first and if any money left the second, then the third.

But the proof will be if the bank selling it will give you a warranty deed with promise of clear title along with a title search done by a title company and purchase of title insurance ** which should be done for any home being bought

JudyKayTee · Jun 26, 2008, 03:40 PM

Originally Posted by westnlas

Get on-line to your local assessors' office. Do a property search and determine the last selling price. That will give you an idea of what it sold for, but may not show the 3rd mortgage. I don't think there can be 2 second mortgages on a property at the same time, just like there cannot be 2- first mortgages. If there is a third mortgage, unless the 3rd mortgage holder forecloses and can either pay off or reaffirm the existing 1st and 2nd mortgages, they lose their position.
Offer as little as you want. The seller will either reject the offer outright or present a counter offer. It really doesn't matter what's owed, but what the seller would be willing to take. Sometimes, people understand that it's better to take a small loss now than a larger one down the road.
Since the 2nd mortgage holder foreclosed, generally, all they need to do is keep the payments on the first current. They could rent the house for most of this expense if necessary.

Lisa gave the best advice - she is, after all, a real estate Attorney.

Why take chances? Run a title search. Do it yourself doesn't always work and if there is a mistake, guess who pays - you.

Run a title search, if you buy get title insurance.

stineaac · Jun 26, 2008, 07:35 PM

Thank you so much everyone for your responses! My realtor just told me that the second mortgage is the one with the loan but they also owe the first mortgage loan (maybe they bought that?) So she said that she was told they won't negotiate much because what they are asking is what they owe. Have you all had experience where banks sold for significantly less than what they own/owe? AFTER doing a title search (and getting a clear title), we would like to offer significantly less (this is a major fixer upper with no kitchen and partial baths - may not be appealing to a lot of people). Thanks again for all of your advice!