Quit Claim Proposal From Investor

[xenon]

An elderly relative lives in a home on 10 acres in Florida which is eight months into the foreclosure process. The property is worth 800K but the mortgages total 1.7 million.

No mortgage payment has been made for almost five years. And yes, almost unbelievably, no foreclosure was initiated until last fall.

A real estate investor has approached with the following proposal: Sign a quit claim deed, and in exchange receive a cash payment and the right to live in the home rent free for the next year. Cash payment amount has not yet been negotiated. The quit claim would be assigned to a new LLC formed by the real estate investor.

Your analysis/advice gratefully received.

[sandyclaus]

Re: Quit Claim Proposal From Investor

An elderly relative lives in a home on 10 acres in Florida which is eight months into the foreclosure process. The property is worth 800K but the mortgages total 1.7 million.

No mortgage payment has been made for almost five years. And yes, almost unbelievably, no foreclosure was initiated until last fall.

A real estate investor has approached with the following proposal: Sign a quit claim deed, and in exchange receive a cash payment and the right to live in the home rent free for the next year. Cash payment amount has not yet been negotiated. The quit claim would be assigned to a new LLC formed by the real estate investor.

Your analysis/advice gratefully received.

That's certainly one way to resolve the matter without a foreclosure on the relative's credit. I wouldn't be expecting a substantial cash payment, given that that as of the signing of the quitclaim deed and transfer of ownership, your relative becomes a tenant in the property for the following year for free. That in itself is a pretty substantial concession worth a heck of a lot. And be sure to get EVERYTHING IN WRITING - you may also want to have a real estate attorney of your choice review any contracts to ensure that the deal is exactly as it's being represented, with no surprises.

[xenon]

Re: Quit Claim Proposal From Investor

Thank you for your kind reply.
So, what's in this for the investor? He said, "There is a lot of risk associated with this.
I will be fighting with the bank".

So what happens after he secures the quit claim?
The whole thing seems somewhat sketchy.

[Friend In Court]

Re: Quit Claim Proposal From Investor

An elderly relative lives in a home on 10 acres in Florida which is eight months into the foreclosure process. The property is worth 800K but the mortgages total 1.7 million.

No mortgage payment has been made for almost five years. And yes, almost unbelievably, no foreclosure was initiated until last fall.

A real estate investor has approached with the following proposal: Sign a quit claim deed, and in exchange receive a cash payment and the right to live in the home rent free for the next year. Cash payment amount has not yet been negotiated. The quit claim would be assigned to a new LLC formed by the real estate investor.

Your analysis/advice gratefully received.

The first thing your relative should do is consult with a foreclosure defense attorney in Florida. She needs an informed opinion of her legal status and options. There's a possibility that the foreclosure could be defeated for many mortgages are around that fail the securitization test -- notes missing, phony mortgage assignment documents-- a very complex situation for mortgagors, mortgagees and the courts in general.

Eight months into the foreclosure process, even if she accepted the deal, the "investor" cannot guarantee her ability to remain on the premises for a year. An attorney needs to look at the file and give her an informed opinion of how legitimate the foreclosure is and whether there are other options for her than conveying her interest out -- quit claim or not.

Where the "investor" is not offering to take over her position with the lender, take an assignment of the mortgage, your relative is still liable. If in fact she is that far under water there is a distinct probability that once it is sold after foreclosure there will be a substantial deficiency. Which deficiency will attach to her and to her estate for 20 years.

Tell her to see a foreclosure defense lawyer. That is the best way you can help her.

[xenon]

Re: Quit Claim Proposal From Investor

Thank you for the cogent replies.
The situation is more dire than I originally painted.
Mortgage is actually close to 2 million dollars.
Home and premises in deteriorated condition.
Attorney has been advising during the foreclosure process but apparently his bill is also in arrears.
A friend of mine who is an attorney says the judge will not look kindly on the fact that no mortgage payments have been made for five years.
Florida foreclosures are averaging 24 months or more to conclude, but that may not be the case here.
Certainly there would be a deficiency in excess of one million dollars were the property sold today.
The relative is almost 80 years old. There would be almost nothing in the estate, nonetheless it is a shock to learn that the liability would extend for twenty years.
There do not appear to be many viable options, if any, at this point.

[Disagreeable]

Re: Quit Claim Proposal From Investor

How elderly is elderly? Do they have any attachable assets?

[xenon]

Re: Quit Claim Proposal From Investor

78 years of age.
Very little in assets.

[Disagreeable]

Re: Quit Claim Proposal From Investor

It sound like it is property designated for a housing or commercial activity. Instead of the relative making a deal with the investor, I would engage the lenders attorney into the deal to arrange the final contract for transfer instead of a quit claim and pray.

[xenon]

Re: Quit Claim Proposal From Investor

It sound like it is property designated for a housing or commercial activity. Instead of the relative making a deal with the investor, I would engage the lenders attorney into the deal to arrange the final contract for transfer instead of a quit claim and pray.

Spot on. The property is currently agricultural but could be rezoned quickly.

So the present owner has no appreciable assets, hasn't made payments in years, and is deep underwater on the property. Signs a quit claim to the investor for cash and a promise of tenancy for a year. What is the possible downside? Property is going to go back to the bank soon and the owner will get the boot and a foreclosure on the credit history regardless. The other choice would be to remain in situ until the foreclosure is completed, the timing of which is unknown but could be very soon.

What advantage is there to the investor who gets the quit claim? He forms an LLC which has no assets, and then goes to battle with the bank (his term). Is the point that he positions himself to be the first in line to buy out the bank's interest at a low price?
I am unsure how this all works.

[Disagreeable]

Re: Quit Claim Proposal From Investor

I do not see a "down side" to being haunted for default payments. I simply do not see a reason to expose the relative to that, when making it a 3 way agreement, rather than a 2 way agreement can prevent that exposure.

[xenon]

I do not see a "down side" to being haunted for default payments. I simply do not see a reason to expose the relative to that, when making it a 3 way agreement, rather than a 2 way agreement can prevent that exposure.

Turns out the investor owns an adjacent property, wants to combine the two, and does not want to wait an undetermined period of time to do it. He wants to move on this now.
I can only assume that he believes that securing a quitclaim will advance his plans. Various banks have taken 50% haircuts on similar properties in the area, and that's what he thinks will happen with this one.
So he either waits for the foreclosure and buys, secures a quitclaim, or persuades the owner to visit the bank with him and make a three way deal.
But he does not want to wait, and thinks getting the owner to make a deal with him and the bank is not going to happen. So he goes for the quitclaim, and then makes the half price offer to the bank.
He says this entails a lot of risk, but I am not seeing that. The quitclaim would go to an LLC that has no assets. He stands to lose only the cash payment, legal fees, and his time.

[Disagreeable]

Re: Quit Claim Proposal From Investor

The quitclaim will not change his requirement to deal with the bank.

[xenon]

The quitclaim will not change his requirement to deal with the bank.

Exactly. What the bank will do is the wild card. But why all the gyrations with the quitclaim? Why not go to the bank, express interest, and tell them to get agressive with the foreclosure?
What leverage does the quitclaim give him with the bank?

[Disagreeable]

Re: Quit Claim Proposal From Investor

Exactly. What the bank will do is the wild card. But why all the gyrations with the quitclaim? Why not go to the bank, express interest, and tell them to get agressive with the foreclosure?
What leverage does the quitclaim give him with the bank?

It will allow him to approach the lender with a lower offer, not requiring elderly persons agreement. If the lender does a short sale, they come after elderly person for deficiency.

[Friend In Court]

Re: Quit Claim Proposal From Investor

Spot on. The property is currently agricultural but could be rezoned quickly.

So the present owner has no appreciable assets, hasn't made payments in years, and is deep underwater on the property. Signs a quit claim to the investor for cash and a promise of tenancy for a year. What is the possible downside? Property is going to go back to the bank soon and the owner will get the boot and a foreclosure on the credit history regardless. The other choice would be to remain in situ until the foreclosure is completed, the timing of which is unknown but could be very soon.

What advantage is there to the investor who gets the quit claim? He forms an LLC which has no assets, and then goes to battle with the bank (his term). Is the point that he positions himself to be the first in line to buy out the bank's interest at a low price?
I am unsure how this all works.

A quit claim only serves the "investor" for she will still be liable for the mortgage. Yet he will have the property. I would strongly advise her to "forget it." She could quit claim it to me or any of the numerous people who buy people's interests in property, pay them cash to get out. And rent or otherwise finagle during the foreclosure process.

She needs to get out from under liability for that mortgage and, frankly, the only way she can do it at this point is to (1) work with the lender for short sale with the stipulation they will not hold her liable for any deficiency, a "without recourse" clause, but most likely (2) file bankruptcy. The latter will (1) stop the foreclosure, (2) when it clears -- providing she makes sure she is cleared not just of the mortgage but any deficiency judgment, she can spend the rest of her years in relative peace.

Filing bankruptcy will give her most likely another year in the property, or close to it -- from what I know of bankruptcy court schedules -- relieve her of any liability for the property forever. And leave what income she does have free and clear for her to manage now -- free from debts.

And if this neighboring investor wants the property that badly, then he can make his offer through the trustee. Loans can be renegotiated in bankruptcy but she would have the benefit of a trustee approving the sale -- if she agrees to it.