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Texas Atty
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Category: Bankruptcy Law
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Experience:  JD
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I just purchased a property through first mortgage (FM)

Customer Question

Hello, I just purchased a property through first mortgage (FM) foreclosure auction. After the sale, I was immediately notified that another title holder not named as defendant on the foreclosure, had filed a voluntary bankruptcy in an attempt to derail the FM auction sale. This title holder purchased the property from someone else who acquired a certificate of title from a previous HOA foreclosure of the property. Should I be concerned regarding clear rights to the property??
Submitted: 11 months ago.
Category: Bankruptcy Law
Customer: replied 11 months ago.
OK more info.. The title holder (PURCHASER2) filed Voluntary Bankruptcy the day prior to the FM foreclosure auction. FM Lis Pendens was in 2007. HOA Lis Pendens filed in 2008. HOA foreclosure was in 2010 and purchased by PURCHASER1. The original FM foreclosure (2007) was the foreclosure sale I won two days ago. FM Lis Pendens (2007) properly named the HOA as a defendant. The HOA foreclosed in 2010. So the FM sale went as planned because the current title holder (PURCHASER2) was not a party to the FM foreclosure case. PURCHASER2 filed Voluntary Bankruptcy the day before my purchase is stating rgiths to the property.
Customer: replied 11 months ago.
assume the FM foreclosure has superior rights and was filed prior to the HOA case. Btw, PURCHASER1 won the HOA auction for $7,000. Then sold the property three years later to PURCHASER2 for $196,000. FM FORCLOSURE ACTION was never satisfied by either PURCHASER.
Expert:  Texas Atty replied 11 months ago.

Hello and thank you for contacting us. This is Dwayne B. and I’m an expert here and looking forward to assisting you today.

Customer: replied 11 months ago.
Hello Dwayne. Are u available? Pls see attached file as well.
Expert:  Texas Atty replied 11 months ago.

I am here

Customer: replied 11 months ago.
Hi did you see the condo doc rgd lien subordination?
Expert:  Texas Atty replied 11 months ago.

If your question is "Should (you) be concerned regarding clear rights to the property??" The answer is clearly "yes".

My guess, without doing more fact finding, etc. which we can't do on here, is that you are going to have a problem getting a clear title.

Expert:  Texas Atty replied 11 months ago.

I did see the attachment, which is what I assume you are referring to, but if that is a condo doc it doesn't really apply/override the laws re: foreclosures, bankruptcies, notice, etc.

Expert:  Texas Atty replied 11 months ago.

You have A LOT of issues involved in this case. FOr instance, a bankruptcy automatically prevents a sale from being made even if the seller wasn't aware of the bankruptcy. However, there is some duty to timely notify everyone of the ownership of the property either by filing something in the county deed records or by actually sending notice to whoever would be involved. Filing something in the county deed records serves as "notice to the world" but the bankruptcy court may have issued a notice to the newspapers, etc. which also serves as notice.

Customer: replied 11 months ago.
Sorry needed to go out the car since my phone died.
Expert:  Texas Atty replied 11 months ago.

What you probably want to do is hire a lawyer that does either Civil Litigation or Real Estate and then have them contact the local title insurance company and see what they will need to provide a clear title if you get ready to sell the property. Without a clear title the property really has no value.

Customer: replied 11 months ago.
Normally you have 24 hours to pay after the auction because of the holiday Kama I have until Monday 12 noon. To pay the balance of the purchase which is 223000. My deposit is 11000 dollars. County says they will issue a certificate of sale to me or refund the full amount if they cannot for whatever reason.
Expert:  Texas Atty replied 11 months ago.

You probably want to talk to the title company without the lawyer then early Monday so you can decide whether or not to move forward. Normally a sale like this wipes out the debt before it but with the bankruptcy the same rules don't apply and it is very fact intensive.

Expert:  Texas Atty replied 11 months ago.

The county may even be willing to let you have a little more time to investigate, all you need is a couple of days and then you will know for sure.

Customer: replied 11 months ago.
The Hoa foreclosure slash sale and purchase is subordinate to the mortgage foreclosure which was filed prior. That sale was for 7000 dollars in 2010. That investors sold it for 196000 in 2013 to the person who appears on the title now
Customer: replied 11 months ago.
my purchase supposedly overrides that HOA transaction. My normal Title Company rep says I can get the title for the property and live in it but may have trouble selling it in the future
Expert:  Texas Atty replied 11 months ago.

I agree with that assessment regarding you likely being able to live in it and then likely will have problems selling it.

However, if the bankruptcy court had issued the stay then the sale wasn't a valid sale since the county lost jurisdiction over the property at least temporarily. If the county was owed any money then that wouldn't have been likely to have been "wiped out" by the bankruptcy (although it isn't 100% certain) but if they were just conducting the sale then things changed again.

You almost certainly wouldn't be able to sell it and you couldn't get it refinanced or use it as collateral since you can't get title insurance. There usually is a way around it, just not one that you can discover in the first few hours of Monday.

Customer: replied 11 months ago.
The Foreclosure department at the county did not allow the current title holder to use their recently filed bankruptcy to cancel the auction sale because they were not a party to the foreclosure. They are not listed as a defendant. But the HOA which sold at there auction is listed as a defendant
Customer: replied 11 months ago.
My title agent also mentioned there is a possibility the bankruptcy filing could be denied.
Expert:  Texas Atty replied 11 months ago.

Yes, that's another reason it is confusing. There is also some case law which states that even if a person isn't a party to the bankruptcy, if they know of it and know of the stay then they are bound by the stay issued by the court. I believe in that case they were held in contempt for not obeying the court's stay.

Customer: replied 11 months ago.
The hoa purchaser purchased with a superior lien filed. So they assumed the risk. Am i wrong?
Expert:  Texas Atty replied 11 months ago.

Based solely on the info and facts provided in this exchange you are not wrong in that assessment. However, the stay issued by the bankruptcy court would mean that the sale/auction likely wasn't valid.

Customer: replied 11 months ago.
These people have been renting the property since for obvious reasons. So am I wrong to assume the county will give title to the property to the superior lien purchaser?
Customer: replied 11 months ago.
wipe out any subordinate liens and or purchases that may hv resulted from it.
Expert:  Texas Atty replied 11 months ago.

I can't answer as to what the county will do. I think they should issue the title, and then if the other people involved want to "fight it out" they should do so in the courts. However, I'm not sure that the county can actually do what they are supposed to do effectively since the auction/sale took place at a time when they were aware a bankruptcy had been filed. I've seen similar cases before and the auctions/sales were declared void but there weren't as many entities involved and the timing was different. Bankruptcy judges are extremely protective of their right to issue stays and have people follow them.

Expert:  Texas Atty replied 11 months ago.

I think you are going to come out of this fine, and likely with the property but it may take some work ahead of time and you will likely have to hire a lawyer and then get reimbursed by someone.

Customer: replied 11 months ago.
Typo in previous comment above... Current title holder purchased w a superior lien in place so they assumed the risk of the present sale. My opinion
Expert:  Texas Atty replied 11 months ago.

You may very well be right. This is one of those rare cases in which there is just not a clear answer because there are so many variables in place. Usually in a case like that then the judge does the equitable (fair) thing which would be to award you the property with a clear title and to have someone, possibly the county, bear the brunt of the fees, etc.

Expert:  Texas Atty replied 11 months ago.

What they should have done is just postpone the auction and asked the judge to lift the stay as to them.

Customer: replied 11 months ago.
Hi dwayne. What you stated is my gut feeling. County has 10 days to issue a certificate of sale and title. I have to believe that if they cannot issue a certificate of sale because of the bankruptcy filing, they will nullifying the auction sale and refund all monies
Expert:  Texas Atty replied 11 months ago.

I think that is a safe assumption. However, what I am worried about is that they will issue a certificate of sale that isn't going to be recognized by the title companies later.

Customer: replied 11 months ago.
It was my first option purchase and an ideal home for my family for many reasons. The purchase price is $50,000 less than the sales comparisons in the area
Expert:  Texas Atty replied 11 months ago.

I'm sure it is suitable for that but that is a lot of money to tie up in something that you wouldn't be able to resale later.

Expert:  Texas Atty replied 11 months ago.

A lawyer should be able to get it sorted out for you though, and the fees reimbursed to you by someone else.

Customer: replied 11 months ago.
sir. That is my main concern at the moment. I am wondering if through legal action these people can be removed
Customer: replied 11 months ago.
In the future
Customer: replied 11 months ago.
Thank you for advice Dwayne. I will try to find a local atty first thing monday morning. Hv a great day.
Expert:  Texas Atty replied 11 months ago.

Probably, but you still have the statute of limitations to deal with and you don't want it to expire. You probably want to go ahead and visit with the lawyers and get a course of action in mind.

If your question has been answered then I'd offer my best wishes to you and ask that you please not forget to leave a Positive Rating so I receive credit for my work. Of course, please feel free to ask any follow up questions in this thread. I want to be sure that all of your questions are answered.