IC E-Lesson: The Long, Sad, Crazy, Real Story of the Week
So I got this call last week from a nice older lady named Millie. It seems Millie wants me to buy a house she owns in a border zone in Cincinnati. She was very happy to get my letter, but she referred me to her lawyer, Lydia, to get the information because Lydia, Millie said, was “handling all of that” for her.
Upon calling Lydia the Lawyer, I got the first part of the story. Follow along here, because it’s a little complicated.
It seems that Millie’s son had this friend named Damon. Damon was a “real estate investor” with dozens of properties all over the Cincinnati area. Way back in 2005, Damon got into some financial issues with his properties, so he asked Millie—who is a retired school teacher and who, at least at that time, had A+ credit—to “put some of his houses in her name” for awhile. Damon promised to make the payments, do the rehabs, manage the properties, and buy them back from Millie in a year or 2 when he got back on her feet.
But what Damon REALLY did, as it turns out, was prey on little old retired schoolteachers. Because by “Put the property in your name”, what he meant was, “Use your good credit to buy my property at a drastically overinflated price.
I will then spend the huge profit I made selling the house to you, and never make one single payment on the new mortgage. Nor will I do one single thing to the property or pay the taxes or even clean it up so that the city doesn’t condemn it.”
In Millie’s case, he sold her a property that he acquired for FREE. Millie paid $70,000 for it. What’s more, Millie, even with perfect credit, somehow ended up with a 10.35% subprime mortgage. And what’s even more, Damon didn’t make so much as the first payment on the loan. Oh, and he did this to Millie with SEVEN different properties.
And no, he’s not in jail. Why is he not in jail? I have no idea. He has—I kid you not—21 foreclosures, 6 domestic violence or aggravated menacing arrests, 1 arrest for violating a protective order, 3 for cocaine possession and trafficking, 2 for insurance fraud, 1 for “telecommunications fraud”, 2 for trespassing, and miscellaneous traffic-relate tickets and arrests—and he still managed to convince and old lady that he was a “nice boy” and should be trusted .
But wait—there’s more. Millie got the new mortgage in July 2006. In December, 2007, the lender filed foreclosure, because Damon wasn’t making the payments on Millie’s mortgages. In August, 2008, the property was set for sheriff’s sale, then withdrawn by the lender and dropped.
Why? Millie’s lawyer and I suspect that it’s because by this time the property was subject to a number of orders and liens from the City of Cincinnati AND had several thousand dollars in back taxes owed against it. The lender probably had a BPO done, discovered that the property was worth less than the amount of back taxes and liens, and abandoned the foreclosure rather than take on an REO that would only cost them more money. And if they dug a little deeper and discovered that they’d given a subprime loan for 150% of the actual value of the property to an old lady with great credit, that probably put the icing on the cake.
So as of this week, here’s where Millie is with this property:
- It has an ARV of around $55,000.
- It’s been nearly a decade since any work was done to it, and it needs $30,000 in work, making the value to any investor pretty much $0.
- Millie owes $2700 in city liens for lawn mowing, board up, and so on, and, theoretically, $70,000+ interest and penalties on the still-recorded mortgage…
Which is, in itself, another story.
Because if I could get this house for free, I’d still take it. However, in order for that to happen, the mortgage holder would need to release the mortgage, which you’d think they’d be perfectly happy to do after 8 years of non-action.
Problem is, there is no mortgage holder.
See, the subprime lender that originated the loan was absorbed by Washington Mutual around the time that the loan was made. WaMu hired Deutschebank to service the loan; it was Deutschebank that filed and dropped the foreclosure. WaMu was then acquired (or, depending on who you ask, foisted upon) by JP Morgan Chase in 2008 when it went belly up.
Unfortunately, Chase has no record of this loan; it was probably written off by WaMu before it went out of business, but those records were not transferred to Chase and are long lost.
It’s extremely unlikely that anyone is being paid to service a loan that’s been written off, so there’s no servicer to contact. Lydia and I have several strategies to try to get rid of this mortgage, the first of which is to file a “quiet title” action and see if anyone responds.
But in the meantime, what we have is a property that may or may not have a valid lien against it. No one knows. No one informed Millie as to whether the lien had been released or not; there’s nothing recorded at the courthouse that would indicate that it had. She can’t sell it without dealing with the lien, but she can’t deal with the lien because no one knows who has the legal right to enforce it.
Oh, but wait, there’s more to the story.
Since the house just a few miles from my office, I decided to go take a look at it. When I called Millie to get the key, she informed me that a nice neighbor boy named Mark was “taking care of it for her” and had the key.
So yesterday, I called Mark to set up an appointment. Mark was a bit hostile—he wanted to know what I intended to do with the property, wanted to let me know that it wasn’t even worth the back taxes, wanted me to know that his time was extremely limited and that he wasn’t sure he’d be able to open it for me.
Turns out the reason is that Mark isn’t “taking care of the house” for Millie. Mark is a 28 year old unemployed contractor who lives with his parents—and is squatting in Millie’s house. Oh, he denies it, but he has a complete bedroom set up there, as well as approximately one ton of random and probably stolen building materials lying around the house.
No, the heat is not on in Millie’s house. Mark has been warming it by burning wood in a tin bucket in the GAS fireplace (FYI, gas fireplaces have flues about 1/3rd the size of wood burning fireplaces, and one of the best ways to burn a house down is to burn wood in a gas fireplace). And no, the house does not have running water or working plumbing.
Don’t think about that last thing too hard.
Millie’s house also needs pretty much everything else that a house could need. It’s a mess. The situation is a mess. And I wish I could tell you that it’s the worst situation I’ve ever seen—or even that I’ve seen in the last 6 months.
If you’re looking for an actual LESSON in all of this, instead of just a “Ya can’t make this stuff up” war story, it’s probably this: there actually IS a way to acquire this property. It’s called a “quiet title action”, and it involves getting the deed to the house and then filing a suit against the bank and the city that basically says, “If you think you have some legal interest in this property, speak now or forever hold your peace”.
If they don’t respond—and I doubt they will—the judge would, after a few months, “Quiet the title”, meaning that he’d declare their interests null and void. At that point, the liens would be released.
Problem is, this process will cost about $1,600 and take several months. If this was a more expensive house or in better condition, there would be no question that you should do it; under the circumstances, it’s a maybe.
This—the quiet title action—is a strategy you should learn more about, because as much as I’d like to say that Millie’s story is unique, I’ve heard some variation of it a dozen times this year. I’m guessing that, at least here in flyover country, there are thousands of these “zombie properties” around. Knowing how to deal with them, when they’re worth dealing with, could be a huge boost to your income.
Thank you for the detailed explanation, very helpful on both the seller-side situation and the quiet title information.
Down in the SE we have many of these properties as well. The mortgages all seem to have gotten lost in the shuffle.