Bay Area

[Keelhauler00]

My wife and I signed our closing documents last Wednesday to buy a Bank of America REO in California. I pointed out to the title company 2 months ago that there was a 2nd Lien on the property and they said don't worry about it. Well, I'm worried now because the lien is still on the property and our loan lock expires on Friday. The 2nd is held by Countrywide, and since they are a part of B of A, I figured it would be painless to get this done. My realtor and loan broker have been working hard on this the past couple of days and the escrow agent seems to be working hard too, but I'm afraid we're going to lose this house. It is everything we're looking for in a house for our family, but needs some work.

Any suggestions so I don't feel completely helpless?

[sheriff]

Your loan lock expires friday, which means the interest rate may vary slightly on it but you won't lose the loan.  Make sure  the loan that was foreclosed on was the first, not the second.  If it was the first, the second lien is automatically wiped out.  It is just a matter of getting the title issues cleared up.  If it was the second that foreclosed, that is a different story.  Don't let them use this to get more money out of you.

[buyinghouse]

  Yes, don't give them more dough. Unless you're desperate and want this home badly. Don't do it because you have to buy it but because you need to.

  Did you call the loan officer so he can extend or do something about the loan? Don't wait, call, move!

  Good luck!

[norcalnative]

Sounds like if it truly is an REO that the bank which holds primary ownership of the property has done an incomplete take over. REO means that the Bank owns the property outright and is selling it as a owner. In the case of an outstanding note on the property which does not come from the bank that holds title to the property - would suggest the selling bank did not complete the process of taking full possetion of the property. Are you sure its not a Short sale? Given this is typical of a short sale not typical for a proper REO. Also possible that the note has been cleared up but not officially documented in the chain of evidence which case it still rests on the bank holding the title to clear this up before handing you the keys etc.

[Keelhauler00]

It turns out B of A is the second lien holder and have foreclosed on the house. The Bank of New York Mellon is the current title holder. I pointed this out a few weeks ago when we got the preliminary title report, but was told not to worry about it. Now B of A needs to settle with Bank of New York to allow the sale to go through, but that seems like a lengthy proposition. There are no other house in my area on the market so I'll ride it out a little bit, but my family and I are pretty devastated now to find out after nearly 2 months of being in contract that the seller doesn't really have the right to sell the house.

[Curmudgeon]

The key question would be, "what is the amount of the first lien?"   Which can, of course, include unpaid interest and penalties as well as the principal amount on the recorded mortgage.  If the amount owed on the first is less than what you are offering for the house, it should be fairly reasonable to sort out.  On the other hand, if the first mortgage was more than the current value of the house, then you are just wasting time dealing with BofA.

[Keelhauler00]

Unfortunately I don't know. I haven't been able to find anything online. The title shows there is a 2nd lien on the house for Countrywide in the amount of $166,000. When I look at MERS, the only mortgage listed is a B of A mortgage. I'm not sure where to find out how much the Bank of NY loan was for.

[Michelle1x]

I have never heard of a second mortgage in CA actually foreclosing on a house.  For BofA to do this it assumes their loan was non recourse (meaning it was purchase money and stays with the house vs following the debter like a credit card), and then the laws are that BofA will have to pay off the 1st mortgage net of all fees, then they collect the leftover money (but not more than the original debt, as I understand it).  California laws are very consumer friendly vs say, Arizona and Nevada which let the banks destroy thousands of people financially in the housing bubble and bust. 

[M-R]

I think you don't need to worry about the current lien on the house. First of all, the second lien holder would only foreclose on the property if the current property value exceeded the first mortgage - otherwise the second lien holder would not expect to recover anything after paying the first lien holder off and would rather let the first lien holder foreclose. So the second lien holder will only foreclosure if the REO sales proceeds cover the first mortgage AND leave some funds to the second lien holder to cover costs and at least recoup some of the claims on the second lien. Your preliminary title report should list the original amount of the first lien.

From your perspective, you are dealing with a seller (B of A) who entered into a sales contract with you and happens to have a mortgage from Bank of New York Mellon on the property. The seller also agreed in the sales contract to transfer the property "free and clear" of any liens at closing.  You are basically in the same situation as any normal home buyer where the seller has to pay off the mortgage at closing with the sales proceeds received from the buyer (REO sales have different disclosure and liability rules than normal sales, but there are no differences regarding liens).  The same is going to happen here: You are going to pay the sales price to the escrow company, and the escrow company is going to pay off Bank of New York Mellon before sending the remaining funds to B of A and transferring title to your name.

In the unlikely case that the sales price does not cover the first mortgage, B of A as the current owner would be on the hook for the difference (but in this case they would not have foreclosed as the second lien holder). In any case B of A is obligated under the sales contract to transfer title "free and clear" in escrow - and you could sue them for non-performance if necessary. However, there is no reason to believe that B of A would not perform, is there? In any case, Bank of New York Mellon's consent is not needed - their mortgage claim will simply be paid in full by B of A in escrow. End of story.

You should contact your title officer and have them explain the process to you in detail. The title company is warranting to you that the property will be transferred free of previous liens, otherwise they will hold the transaction and not release your funds.

[Keelhauler00]

I spoke to my mortgage broker who is going above and beyond to help us in this situation. He finally got through to someone at Landsafe, who ran the title. If you have a few minutes and a cup of coffee, enjoy the story.

Apparently the previous owners bought the house with an 80/20 loan, so there was 0 down and 2 loans. When the loans were filed with the county the 20% Countrywide loan was listed in first position, and the 80% Bank of NY loan was listed second. This clerical error was never caught, until now.

The Asset Manager at B of A has some sort of relationship with the Bank of NY where she sells their REO properties. To make this right, she will need to get B of A to understand that there was a clerical error and they should not be in first position. As it stands now, BofA will be repaid in full, leaving BofNY hanging with 166K less than they would have received from the foreclosure.

The Listing Agent wants this to just go away because it is such a hassle. And by go away, I mean cancel the sale of the house, wait until the banks get their act together, and relist it sometime down the road. My mortgage broker isn't sure how likely they are to try and help after my realtor's boss tried playing hardball with them and threatened all sorts of lawsuits. I'm going to ask my realtor to call in the morning and apologize and hope we can enlist their help.

We really want this house, we've been living in a bedroom at my inlaws for months now and we're ready for our own space again.

Thanks for reading.