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A friend of mine bought, several years ago, a house Contract for Deed without realizing that the Seller still had a mortgage on it. The seller promptly stopped paying the mortgage and now the bank is foreclosing.
A friend of mine bought, several years ago, a house Contract for Deed without realizing that the Seller still had a mortgage on it. The seller promptly stopped paying the mortgage and now the bank is foreclosing.
Does she have any rights?
Have your friend read the actual contract, and get to a local real estate attorney FAST. I would expect that the contract has some language in it about the seller's rights and obligations regarding encumbering the property with debt.
She may have some "rights", but that might not help her situation. Have her contact an experienced real estate attorney immediately. Since she didn't spend a little on an attorney earlier, she may need to spend a lot more now...and everything she has paid for the house is now at risk.
EDIT: Have your friend gather the contract, evidence of payments and all written communications regarding her purchase. Also have her write up a timeline of everything to take to the attorney, including when and how she was first heard about the mortgage foreclosure. It sounds like fraud, but she may not have much recourse.
Last edited by jackmichigan; 11-24-2012 at 07:13 AM..
Thank you both for your advise. I will pass it on to her.
Out here we do a Memorandum of Sale that gets recorded at the county so that everyone is aware of the owner carry contract that is on the property. If she doesn't have one recorded, I would get one recorded. It is an encumbrance on the title that needs to be cleared before the bank can resell the property. That way she can try and negotiate directly with the bank after they own the property to try and buy it, or she can at least get her money back in exchange for releasing the deed from escrow.
I'm really hoping the deed is executed and is being held in escrow or whatever local customs dictate.
Out here we do a Memorandum of Sale that gets recorded at the county so that everyone is aware of the owner carry contract that is on the property. If she doesn't have one recorded, I would get one recorded. It is an encumbrance on the title that needs to be cleared before the bank can resell the property. That way she can try and negotiate directly with the bank after they own the property to try and buy it, or she can at least get her money back in exchange for releasing the deed from escrow.
I'm really hoping the deed is executed and is being held in escrow or whatever local customs dictate.
Of course, that will depend upon state law and with some states a foreclosure on a prior-recorded mortgage may wipe out subsequent encumbrances on a property. Where there is a recorded interest, at least a number of states may require that a foreclosing party notify everyone with a recorded interest in the property. (But since many, if not most, mortgages contain a "due-on-sale" clause--or are for owner-occupied homes--it seems that many of these types of sales are NOT recorded.)
In Michigan, "Memorandums" or similar recorded documents can be recorded so that public notice is given to a Land Contract purchase (what we call them here)--but there is no requirement to do so. Also, Deeds can be held in escrow pending fulfillment of the contract terms, but that is the exception here, rather than the norm.
Best to have the attorney contact the bank and Seller immediately...and perhaps the local prosecutor.
Of course, that will depend upon state law and with some states a foreclosure on a prior-recorded mortgage may wipe out subsequent encumbrances on a property. Where there is a recorded interest, at least a number of states may require that a foreclosing party notify everyone with a recorded interest in the property. (But since many, if not most, mortgages contain a "due-on-sale" clause--or are for owner-occupied homes--it seems that many of these types of sales are NOT recorded.)
In Michigan, "Memorandums" or similar recorded documents can be recorded so that public notice is given to a Land Contract purchase (what we call them here)--but there is no requirement to do so. Also, Deeds can be held in escrow pending fulfillment of the contract terms, but that is the exception here, rather than the norm.
Best to have the attorney contact the bank and Seller immediately...and perhaps the local prosecutor.
We call them Land Sales Contracts out here. Memorandums and deeds held in escrow pending full payoff are the norm out here. I can't imagine doing it any other way as that would be so risky for the new home owner. I also can't imagine doing a LSC without attorney involvement. Agents hash out the terms and such, to save money, and then the attorney draws up the contract.
Out here when we do wraparounds like this, we put in the contract that the seller has to provide to the buyer proof every month of payment to the lender. That way scams like this don't happen.
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