The Games Are on At the Auction: Home Advantage?

Editor’s Note: While the banking industry have made it “illegal” for a homeowner to have a relative buy the home at foreclosure auction and then give it back to their son or daughter, there are many games at play in the auction. And don’t forget there are no auction police around. They have to figure it out in order to do something about it. And if your claim is fraud, which it probably ought to be, it becomes a he-said, she-said sort of thing that they don’t want to get into because that could mean you might have the right to legal discovery which would blow open the whole can of worms. It is obvious that the credit bid submitted to buy the property by the pretender lender is not a credit bid. A credit bid could only come from the creditor and the party submitting the “credit bid” is not the creditor.

So one thing emerging is that if you submit a bid  of SOME amount, even $100, and then invalidate the credit bid, you might end up with the house. Not so fast — it won’t be that easy most of the time but several reports received by this author indicate it has gone just that way. The higher the bid from you the more likely a court will confirm it, although there are some states that do not require confirmation of the bid, which is like non-judicial foreclosure in favor of the borrower. The key is to invalidate the credit bid. The next thing is to assert that your bid had to be accepted because it was the next highest bid and the only valid one. Obviously you need an attorney with guts and brains to do this.

Another interesting practice that has been in motion for for the past 2 years is peer-to-peer auction buying. The buyers know each other and have made a deal before the auctions on BOTH their homes. Each buys the home of the other. Usually they have the money to do it from relatives or some source. But the invalidation of the credit bid could be used in this scenario. After the auction is complete on both homes and the title is issued the two buyers either rent or swap titles. Now both are back in position where they can get a mortgage or loan from somebody that reflects the actual value of the home. In those states where the non-judicial sale or judicial sale prohibits the “lender” from pursuing a deficiency, the game is over. In other states I wouldn’t worry too much about it, because it is a regular law suit and they would have to prove how much they lost. If the pretender lender brings the suit, they didn’t have a dime in the deal and it is an admission that the credit bid was bogus. If anyone else files the suit they are alleging that the credit bid was submitted by someone other than the lender. Either way you win.

Then you have the games required to just do it using conventional means which are described in the article below.

The main point that I want to make here is that regardless which strategy you pick, including just walking away from the house, there is very good legal support for the proposition that a foreclosed house has neither been foreclosed nor sold and that the “former” homeowner is still in fact the legal owner of the house. This leads to all sorts of lawsuits and actions for damages. So whatever you do, you are probably missing an opportunity to get some money or the house back if you don’t file suit for quiet title and damages. Naturally this blog is no substitute for legal advice, so you should secure the advice and services of a licensed attorney before you make any decisions.

But here is a little word of caution to LAWYERS about MALPRACTICE. Don’t let your laziness or your failure to bring yourself up to speed on securitization get you into trouble with the bar or in a lawsuit later for attorney malpractice. And start re-tracing your steps for clients you have seen over the last 3 years.

  • Whether you practice in property law, civil litigation or bankruptcy, if you don’t know the basics of securitization and if you don’t advise your client to get the information pertaining to their transaction and determine the identity of the creditor and the net amount of the obligation and whether there really is a default after loss mitigation payments, then you have failed to give advice to a client who needs it.

  • Later, just as the last few weeks have revealed, you may end up with egg on your face. I wouldn’t be too surprised to see some legal malpractice cases started by people who went to lawyers who didn’t notice that the notarization was invalid, that the document was fabricated and that the signatures were unauthorized and forged.

October 29, 2010

What It Takes to Buy a House in Foreclosure

By RON LIEBER

ATLANTA — As in any economic downturn, the wave of home foreclosures has attracted voracious opportunists — investors among them who are buying, fixing and then renting the places out.

In their wake are aspiring owner-occupants. How hard could it be, they ask, to pick up one of these houses on the cheap and make it livable?

For an answer, consider Jennifer Kuzara, 32, a grants manager for a nonprofit organization here. From early 2009 to early this year, she spent about 1,000 hours on her foreclosure project. The gang of helpers she assembled included two real estate agents, a banker, an architect, a contractor and her parents.

To stand a chance of making the project work in the neighborhoods where she was willing to live, she needed $100,000 in cash. Ultimately, Ms. Kuzara and her parents were exposed to a fair bit of risk, all in the name of a bungalow in a middle-class neighborhood.

And while the specifics are particular to Ms. Kuzara, plenty of people in foreclosure-ridden markets in Florida, Arizona, Nevada and elsewhere are in for a house hunt that is going to look a lot like hers. The headlines may be raising all sorts of questions about whether the foreclosures were legitimate. But there will always be people who want to buy when things are really cheap and are willing to press ahead when the quest seems most challenging.

So this is the story of what it will take for their search to have a happy ending.

It began in 2006, when Ms. Kuzara had nearly six figures in student loan debt and the housing market was at its most heated. She was virtually certain that she would never be able to afford a home. “I remember thinking that it might have been the end of my American dream,” Ms. Kuzara said.

Two years later, after she had finished her Ph.D. course work in anthropology at Emory University, and begun full-time work in the nonprofit field, the housing market began to turn. Not long after, a friend was considering buying a foreclosed home as an investment property and encouraged Ms. Kuzara to look at the listings.

Through another friend, Ms. Kuzara found Lisa Iakovides and her business partner, Michael Redwine, real estate agents at a company called Atlanta Intown. They established some price parameters and some items that would be deal breakers, like mold and crooked rooflines.

Then they shopped for neighborhoods. One, East Atlanta, made the short list, even though Ms. Kuzara hit the floor of Mr. Redwine’s car one day when she heard gunshots on the way back from visiting a home there. She and Ms. Iakovides hadn’t even started up the walkway of a house in another neighborhood, Peoplestown, when a neighbor loudly made her feelings known about white people moving in.

Other homes told stories in subtler ways. “Squatters had taken them all over,” Ms. Kuzara said. “Some moved in furniture and their families. But there was one where I never would have known until I opened up a closet and saw a little stack of sleeping bags and blankets. And on the top ledge there was a knife, a fork and a spoon.”

Ms. Kuzara vowed to leave cookies and a nice note for whomever was living there if she bought that home, but she didn’t get it or many others. By the time she entered the fray, investors were already swarming. She bid on at least 10 homes over six months and lost them all.

The house she finally bought had been divided in half and turned into apartments, which might have been why she did not have to fight so hard for it.

The 1,100-square-foot bungalow sits high on a small piece of property in the Edgewood neighborhood. It is one of those places where you can walk a few blocks to the left and find two stores with a fine malt liquor selection, then stroll 10 minutes to the right to Bed Bath & Beyond for high thread-count sheets to sleep off the hangover. Ms. Kuzara’s block has a halfway house for former substance abusers next door and a beautifully renovated home across the street with an alarm service sign planted prominently out front.

Ms. Iakovides managed to get a preliminary $39,000 offer accepted by the bank on the home in early August 2009, and she began trying to set a closing date. Ms. Kuzara drove by the home each day, planning the renovation.

But one day she found the front door wide open and called her real estate agents in a panic, worried that vandals were casing the place or that squatters would take up residence. Without really asking the bank’s permission, the agents called a contractor to padlock the door. “Who would we have asked?” Mr. Redwine said, incredulously, as if the bank that still owned the house was actually going to return his calls.

Ms. Kuzara’s next step was to get together the money to pay for the place and the $60,000 or so in repair work. After trying early on in her hunt to cobble together various combinations of tax credits, down payment assistance programs and government loans, it became clear that most banks preferred all-cash offers for their foreclosed homes.

But Ms. Kuzara had no cash. Her parents, Mark and Jennie, had some savings but not nearly enough. So her parents borrowed $25,000 at about 8 percent interest against a life insurance policy and $50,000 more at a lower rate from his 401(k) and bought the $39,000 home themselves. They used the remaining money for the renovation, planning all along to sell it to Ms. Kuzara as soon as the repairs were done.

For that to work, however, Ms. Kuzara would need to qualify for a mortgage to buy it from her parents. She had no money for a down payment, though. To qualify for the Federal Housing Administration loan that she needed, the home, postrenovation, would have to be appraised at a high enough amount that her parents could give her some of the newly created equity for a down payment while still getting all their money back.

And therein lay the risk. Because Ms. Kuzara bought one of the worst homes on a nice block, her agents were convinced that the renovation could yield an appraisal at the value that the bank required.

It helped that they had ushered in a contractor they had worked with before, whom they could count on to stay within the strict budget. Under his supervision, the renovations were finished in less than two months.

Then came the deciding moment: the appraisals. One came in at $130,000, while the other was for $145,000. As a result, the bank allowed Ms. Kuzara to borrow $100,000 to buy the home from her parents and thus make them whole. Then she used some of the remaining, newly created equity for the required down payment.

Ms. Kuzara moved in a year ago this weekend, and today the cozy house has three bedrooms, two baths, a front porch for dinner parties and a backyard for her two dogs. She’s furnished the place with chairs from consignment stores and thrift shops and has assembled a nice collection of vintage cookware and dishes.

She pays $828 a month on her 30-year fixed-rate mortgage, including taxes and insurance, and she has a roommate who chips in $500 month.

Including the weeks when she painted every inch of the interior, Ms. Kuzara spent about 1,000 hours on her foreclosure project — poring over listings, researching every last one in county databases, visiting houses and making her eventual home habitable.

So anyone who wants to do what she did needs to be ready to put in that much time. You may need a source of funds or willing co-conspirators like Ms. Kuzara’s parents. And you will need a team of people who know the rules of the foreclosure game cold.

The odds of success are certainly long. But for those with the patience to pull it off, it sure seems a whole lot of fun to play this game and win.

“It turned out to be a sweet little house,” said Mark Kuzara, Jennifer’s father. “And I think somewhere down the road, she’ll sell that house and come out pretty nicely on it.”

11 Responses

  1. Hey Concerned… got into this mess while helping a friend that had a rough patch and actually had WF try to pay “property taxes” on land owned free and clear, land that WF had no interest in… as a researcher that peeked my interest, why them, and why that large parcel of land… this was not a “paperwork” snafff. All was too coincidental… and it seemed that they knew everything about their situation… gut instinct told me some’thn was very fishy… that was 3 years ago.. and the advent of those actions by WF are pretty clear today.

    Am not a lawyer, real estate investor or anything in between… just an American with my eye’s wide open and an ear to the ground. There are plenty of us out there that have sat up and taken notice.

    Blogs like this are a great source of information, since Neil has extensive experience in these issues, MBS, law ect… feel like I have received an online PHD in finance from his extensive and Real Clear opinions on the issues at hand. He truly has helped me help so many people that everyday are dragged into this abyss by no action of their own.

    Concerned, we all should be very concerned regardless of our situations.

  2. Hey PJ,

    I have an “Assignment of Deed of Trust” document that was ‘signed by’ Debra Lyman’, a Litton Attorney. The notary is Karen Quilller.

    I found one other sample of Lyman’s signature that appears significantly different.

    Now with my ‘Substitution of Trustee’ document that was ‘signed by’ Marti Noriega, another Litton employee. Marti’s signature is more common. A number of the signatures are similar on those samples, but NOT all of them. The signature of the notary to Marti’s signature varies drastically.
    Marti Appears to have signed the document on the date it was printed while the notary, Melissa Bell, has signed and dated her signature several days after that pre-printed date.

    These documents are generated by Litton in Texas. Both notary stamps are from Texas.

    The Substitution document asserts that America’s Wholesale Lender was the original beneficiary but that MERS is the present Beneficiary.(MERS was the nominee on the original deed of trust).That document is signed by Marti as the Assistant VP of MERS.

    That document also shows the “Trustee Sale” number,

    If you want to avoid buying a house with a clouded title, avoid those where you see any prior assignments or substitutions with a “TS” number shown.

  3. I’ll “buy” your house and video record the event with the faces of the “bank” buyers.

  4. “banks preferred all-cash offers for their foreclosed homes.”

    That’s usually the only thing criminals will accept when selling Stolen Property.

  5. Hey Raja, only saying that it is a good idea for EVERYONE to get verification in writting from the State Registry/ Oversight board , what ever that may be if in fact the Notary was registered. Once that is obtained, and if the individual is not legally recognized/registered in the state while using their “rubber stamp”… then it would seem the deposition would serve not only their action, but to put the violator of State privileges and law in jail.

  6. Please everyone who got defrauded put if not justyour home but mote importantly your due process claim
    that much your legal rights free house isn’t the issue to be free of fear of loosing due process and constitutional rights and not to fear the conder will be duped again all qe have left. Is law that’s thr only place we should be able to trust and after these past few years that trust has Also been greatly damaged i never worked so hard for something I believed in and I think it’s worth it

  7. PJ,
    I filed the complaint with the Secretary of State Texas. Three witness testified from my side. Then they asked the Notary to explain under oath and you know what happened. Notary is admitting that she signed the document, but her signature on the present affidavit and the instrument are again not identical. I appears that some one”may be house counsel” drafted the the response from the notary.

  8. Raja… have been helping a few people with “notary issues”. Before filing complaints have requested in writting to the Department of Revenue, which oversees notary registriaon , that a record of their registration with the state be verified… guess what in all 3 instances there is no record of registration with the named notary in each state.

    This is not legal advise, but as a suggestion do not ask the question before you have the answer… in these case’s in writting from a state agency.

    Also have been finding in the case of these particular “false” notaries… that they have robo-signed under various signatures for various entities, in multi-bale capacities other then as a notary on the documents all over the country… all of which were available from online “county record” filings.

  9. This is a prime example of why we have the housing mess of the ages!
    The biggest purchase of a lifetime and this poor lady didn’t have a clue!
    She didn’t have to go thru all that. She did what far too many other people do, act without knowing all the facts.
    Why do people risk losing $100,000 on rigged game?
    Willingly plunking down hard to come by money for the opportunity to be another victim of fraudulent mortgages!
    How does she know the bank owned that property?
    How much research into the title history did she do?
    What county records did she pull and check out?
    Did she get an independent appraisal on the house to see what it was truly worth?
    NONE, NOT ONE THING TO PROTECT HERSELF AND HER MONEY!
    SHE DIDN’T EVEN CHECK IF THE TAXES WERE PAID UP!
    It’s called due diligence and I wouldn’t put a nickel on property without doing some kind of checking!
    FOR GOD’S SAKE, IT’S REAL MONEY NOT POKER CHIPS!
    SHE WOULD HAVE DONE BETTER PLAYING THE LOTTERY!
    I wish her well, but the odds are against her because she has put her trust in the lying, thieving bankers!
    BECAUSE NOW GETTING CLEAR TITLE IS NEXT TO IMPOSSIBLE
    And without a clear title she can’t be sure that she even owns the property.
    However, since she dealt with Bank of America, she doesn’t and they have already sold the note repeatedly by now.
    Best of luck, Kiddo, you’re gonna need it.

  10. b davies
    Do you have some assignments/instrument signed by the lady “Suchan Murray” I filed a complaint against her and the Notary to Secretary of State Texas

  11. http://www.scribd.com/doc/40489838/Kentucky-Order-FORECLOSING-ENTITY-MUST-SHOW-CHAIN-OF-TITLE-AND-ASSIGNMENTS

    KENTUCKY JUDGE ORDER PROPER DOCUMENTS BE IN PLACE TO FORECLOSURE—FROM GLENN A.

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