Monday, August 2, 2010

Time Is Of The Essence

Saw this article today about a couple in California that bought a house at a foreclosure auction. They thought they had a great deal, but it turns out they actually bought the worthless second mortgage, not the first. A few months after the auction, they received another foreclosure notice, this time for the first mortgage. As you know, the first mortgage has seniority, so the couple was pretty much screwed. At the auction for the first mortgage, no one placed any bids, so the property went back to the lender and the couple was able to work out a deal to keep their house. Unfortunately, their daughter and her fiancĂ©e, whom the house the purchase for, have decided to move out of state, so they won’t be living in the house after all.

There are a couple of interesting points in this story. This took place in California, where there are some peculiar laws. Apparently, it is easier for a second mortgage to foreclose than a first, which is why the bank proceeded the way it did. It sounds like the buying couple did do some basic research – they saw the recorded docs for the two loans, but since they were recorded on the same day, they thought they were the same loan. That’s where they made their mistake. There are a couple warning signs they should have seen. First, check out the loan amounts as stated in the recorded documents. They should have seen they were different. They should have also seen that the loan that was doing the foreclosing was the lesser amount, which should have tipped them off that it was a second mortgage, not a first. Second, they should have looked further than the date. I know, at least in Arizona, documents are recorded not only with a date, but also a time. I would imagine California does the same. If two documents are recorded on the same day, check the time to see which was recorded first. Personally, a friend of mine encountered a similar situation here in Arizona. He was buying a foreclosed property and someone else was trying to save it from foreclosure. It came down to the time each party recorded their document. My friend’s document was recorded about 15 minutes sooner, so he got the property.

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