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HomeInvestingThe Truth About Buying a Foreclosed Home and 10 Other Ways to...

The Truth About Buying a Foreclosed Home and 10 Other Ways to Provoke a Migraine, Part 2


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By Seeking Ithaca, WCI Guest Writer

It has been nearly a year since I penned my last missive regarding the home auction-cum-migraine saga. Many events have taken place with both much and little progress made simultaneously. To summarize my previous exposition, I purchased at auction a home that was occupied. Thinking myself clever, I purchased this beauty at a deep discount. As it turns out, I am not that clever but am instead a living version of the Dunning-Kruger effect, and I have fallen into a two-plus year trap fraught with legal wranglings and waiting . . . lots of waiting. It turns out that squatters are evicted or ejected after following a certain legal framework, and you can’t just show up with the deed and throw out someone once you’ve bought the house.

After unearthing the fact that my squatters were practiced financial miscreants, I found myself already entangled in the ejection process which ultimately triggered my claim against my title insurance policy. What you’re about to read are the events that have unfolded since then. However, if you’ve not read part 1, you’ll be in the direst of straits trying to piece together this tale from the middle, so go ahead and peruse that first.

To highlight a few asides in the first narration, let’s reconsider the following thoughts. First, title insurance is the cheapest way to protect a real property purchase. Not only does it protect the dollar amount of your purchase, but it also provides an attorney to litigate the case on your behalf. Despite the rarity of its use, it’s been invaluable to me. Don’t neglect this important bit of insurance when buying a home.

[An aside here: it’s so uncommon to use title insurance that Dr. Jim Dahle mentions in podcast 275 that he doesn’t “know anybody who’s had to use their title insurance,” which is only partly true because we met at WCICON22, ha!]

Second, to paraphrase Robert Burns, even the best-laid plans of mice and men can go awry. When I undertook this endeavor, I surmised that the whole process would take months. Years later, I’m still not quite finished with it. Be able to shoulder that delay, both you and your family. Last, be your own advocate. In doing my own due diligence after purchase, I managed to dig up a lot of evidence pointing to the squatters’ poor character and history of intentional financial wrongdoing. This helps when the court is deciding between shades of gray in judgments. Further, I pushed for and obtained help from the title insurance attorney despite my original attorney telling me to wait; this pushed the case along much more quickly than it likely would have if I only retained my original counsel.

 

John’s Judicial Pugnacity

After I notified the title insurance company of my claim, in a manner similar to that of car insurance, I was provided with a representative who, via email, requested certain information and documents about the process. Note here: keep absolutely everything and keep it in chronological order. My ability to relate the process as it unfolded to date was orders of magnitude easier given that I could rely on my notes, communications, and documents that I’d punctiliously kept instead of my all-too-foggy memory.

After my case was reviewed, I was put into contact with a corporate lawyer (we’ll call him John) that the insurance company had retained for such purposes. Before the representative put me into contact with John, the representative made sure to point out that John did not represent me per se but rather the insurance company on my behalf. In other words, John is paid by and owes his fiduciary duty to the title insurance company, and, insofar as my and the title insurance company’s interests align, he would represent me in the matter. This is important because I’d considered letting my other attorney go, but I decided to keep the first attorney given that John didn’t actually work for me.

You may be asking what would be different between the roles of the two lawyers. Good question. It mostly boils down to the periphery of the suit. A judgment for possession of the house is what both the insurance company and I want. The insurer does not, however, care one wit about damages awards, costs incurred, collection of money from the squatters, or our feelings toward the house. Once the house had been disposed of definitively—either by being paid the insurance amount, winning the case, or losing it—John was effectively off the hook to represent me. Any remuneration owed to me by the squatters would not be the purview of John; however, I could retain my first attorney to pursue that matter.

More information here:

Rates Are Rising: How to Navigate Buying a Home in the Current Market

 

A Discussion on Demesne

Above, I mentioned remuneration that the squatters might owe me at the end of all this, aka damages. Setting aside for a moment the palpable vexation and pique in being kept from our home—the mortgage and insurance of which we continue to pay to this day—we are also incurring monetary damages in the form of unpaid rents, the original attorney’s fees, and frictional costs associated with moving multiple times. If I were to estimate just the frictional costs (minus unpaid rents), the amount likely breaks the $40,000 mark. These unpaid rents are termed mesne (pronounced “mean”) profits in legal jurisprudence and derive from feudal and, later, English common law, whereby unlawful use of land, should it render a salable product, was owed to the lord of the property. If the mesne profits were factored into the sunk costs calculation, we’d be in for around $85,000 (or more the cost of Josh Katzowitz’s Tesla Model Y). But back to the discussion.

The word demesne, from which we get mesne, shares a root with the word domain. In the time of feudal lords, the product of the domain was usually grain or another subsistence crop farmed by the serf. In today’s economy, serfdom is largely defunct (unless you count residency), and the modern value of most real estate derives from its rents. Essentially, the owner of a residential property, in which there is an unlawful person squatting therein, is entitled to, as a matter of law, fair market rents for the use of her or his property. But I digress . . .

 

Pressure

My first attorney and I corresponded with John and brought him up to speed on the legal proceedings thus far. We’d received a denial to our motion for summary judgment and settled into the war of attrition that was to be the legal battle. A date for trial was shortly filed by the court. Regarding the topics of filings by attorneys, the setting of dates, and the general logistics of the court, most filings and date-setting are performed by the judge’s clerk. This clerk deals with your requests for expedient justice with the same vigor and attention with which a teenager approaches their chores, ploddingly and with just enough apparent indifference to trigger your inner Tim Allen.

Indeed, in the same way a fan watches their favorite team lose, expect to rage with bilious impotence at the spendthrift dispensation of your precious time as dates are set. To wit, our trial was set for 16 months after we received the denial of our motion for summary judgment. Keep in mind that five months had already elapsed since the initial purchase of our home. John swiftly filed a request for production and several interrogatories, and we were now onto the discovery phase of the suit.

 

Discovery 

Essentially, discovery is a pre-trial phase of a lawsuit where the parties try to ascertain information helpful to their case. John filed a request for production, namely documents related to the squatter’s foreclosure and their communications with their lender. One of the squatters’ alleged defenses was that they were denied the due process laid out in their mortgage, and they listed three complaints in particular: they weren’t given 30 days from the date of last notice to acceleration of mortgage, weren’t told all their options regarding foreclosure mitigation, and were ignored by the lender when they submitted a request for loan modification.

Essentially, John requested any and all emails; correspondence; notes about calls, letters, submitted paperwork; etc., from both the squatters and the lender. This is an arduous process because the prosecuting attorney (plaintiff’s attorney) has to think of every way in which to attack the validity of the defendant’s claims and request paperwork from any avenue by which they could formulate their attack. A word to the wise: be patient in discovery (ours was nine months, as set by the judge). This is where a lot of the leg work of your case is being done; rushing this is like rushing studying for boards.

As information from the squatters and their lender trickled in, it became apparent that the lender was being, if not intentionally obstructive, selective in which and what kinds of information they sent. This is somewhat logical in that they don’t wish to expose too much information on the off-chance that they didn’t record every jot and tittle necessary. However, this dragging of feet also runs the risk that they’ll incur a motion to compel by either John or the squatter’s attorney. Occasionally, documents get burned, hand-written in largely illegible script (let me interject here that the absolute worst handwriting in medicine is in ortho), or buried deep in Aunt Martha’s basement with old coupons and cat litter and are thus impossible or overly burdensome to produce. This can be a legal reason to avoid production by a litigant.

As a remedy against abuse of this rationale, the requester of information can file a motion to compel, asking the judge to force the other party to produce the documents. Instead of this, which triggers a hearing date months in the future and pushes back your trial date, we decided to file a cross-claim against the squatter’s lender. This claim is separate from the original plaintiff’s claim as well as the defendant’s response. In this case, we were issued a statutory warranty deed (the name may be different in your state) whereby the seller warranties that he or she has done nothing and knows of nothing which would impugn the conveyance of a clear title to the buyer.

For example, if Ted sells me a house, but he was unaware that his great uncle had the title two generations ago instead of his grandfather, then the statutory warranty deed wouldn’t protect me or Ted from loss of the property to his great uncle (or descendants). However, if Ted knew his great uncle had title to the property or if Ted had taken out a home equity loan that was still outstanding, he could be held liable because he “warrantied” to the best of his knowledge that there were no encumbrances on the house. All that to say, if the lender sold me a foreclosed property that they knew had a title defect, they could be liable to me for the value of the property.

After this cross-claim was filed, the lender became a bit more cooperative in getting us the information requested. But only just a bit more. It was at this time that John reached out to the lender’s attorney to try to informally discuss how it was to our mutual benefit that this be settled. This discussion between attorneys happens a lot and brings up a point to consider: while it is not technically illegal for one party to contact another if the two parties are in a suit, it is generally advisable to let your attorney speak with theirs. This does two things: 1) it keeps you from legally sticking your foot in your mouth; 2) your attorney can potentially glean information from the other attorney about the other party’s position that might not be readily evident from the filings.

Despite this and other attempts, the lender was not forthcoming with the requested documents, and John filed a request for a deposition. Most of us have seen depositions on television or in movies where an attorney verbally lambasts and confuses the other party with a barrage of incisive questions. In the same way that most docs deny the kinds of shenanigans seen on Grey’s Anatomy, this is not the way depositions occur. These are documented, video and transcription by a court reporter, sessions of questions and answers, in large part between a party and the opposing attorney. The idea is similar to other means of discovery whereby you try to find out information directly from the other party without the weeks-long interval between request and response. This is helpful because you get answers quickly, and the answers are given the validity of testimony in court.

By this time, months had elapsed in the discovery process, and the squatters had not rendered responses to written requests for production. John did file the motion to compel, and it bears stating that these delays put forth by the squatters play into their hands. Remember that repercussions to delay are strictly within the purview of the judge and that, in the setting of an overburdened legal system, the judge likely will not intervene unless asked to do so, i.e., the motion to compel. While frustrating for my family and me, it should be expected that a person being evicted would put up as many roadblocks as possible in order to squat longer on the property.

More information here:

Is Renting Better Than Buying? Why We’re Financially Independent and Renting

 

Audacity

buying a foreclosed house

With the time for discovery nearing its end and depositions set for about a month prior, we discovered, by way of some friends who live in the neighborhood, that the squatters were planning to go on an all-inclusive vacation to a tropical island where the minimum stay would cost several thousand dollars. How? The squatters, who were no strangers to living beyond their means and posting vacations and purchases on social media, mentioned on the community Facebook group that they were planning their little holiday. Screenshots were taken and sent to us which we promptly sent over to our attorneys. Another piece of advice is don’t be shy to utilize social networks, both digital and personal, to dig up more information.

While I am far from a busybody and I would hazard that most physicians are too busy to be such anyway, I was not remiss that we happened to be friends with people who were keenly interested in our story. Given that one of the counterclaims against my family and I was financial hardship allegedly incurred by our “impugning the title” to their property, details like a several thousand dollar vacation to a tropical island help make your case objectively and also personally to the judge who presides over it.

More information here:

Please Don’t Post Stupid Things on Social Media–Or You Might Never Practice Medicine Again

 

The Depositions of the Squatters

In a last-ditch effort to stall discovery, the squatters demanded a date for depositions that coincided with the final days of a vacation I took with my wife which abbreviated our trip and cost us an extra $800 in airfare. We decided that it was worth coming back early to not forestall the proceedings further and took our lumps along with the others. The squatters were deposed first by John and the lender’s attorney, and it lasted a remarkable eight hours.

I received transcriptions of the deposition later and was absolutely floored by the nonchalance with which the squatters answered revealing and incriminating questions. Most tellingly, they made absolutely zero payments in the two years since their purchase of the home and the deposition date. Outside of the down payment, they’d not put a single dollar toward principal or interest. Similarly, they’d requested loan modification forms twice since the mortgage had been accelerated, and both times they’d omitted information (falsely lowering their income and inflating their expenses) or submitted an incomplete package of documents by not taking into account amounts in retirement plans and bank accounts.

John related to me later that, during the entire deposition, the squatters did not once express remorse or chagrin at the revealing of their wildly mismanaged and distorted financial machinations. However, what burned into my brain was the monosyllabic utterance that the husband of the squatting couple made in response to John’s question, “So, despite making no payments—not a one—in two years and having lied . . . excuse me, misrepresented . . . on your loan modification request forms not once but twice, you still believe you have clear title to the house?” Came the return, “Yes.”

My deposition was almost exclusively an exercise in patience. The squatters’ attorney introduced himself with a toothy smile that did not reflect in his eyes and a request to call me by my first name. Following that, he asked me a series of factual questions about where I was from, where I trained, and how I came to purchase the property. This was all listed in our responses to their interrogatories during discovery, and I assume that the point was to put me at ease. He quickly asked me a series of moral questions about whether I thought it was fair to put out a family onto the street; I responded that it was fairer than being kept out of a property I rightfully owned and for which I continued to pay month after month. This brought a quick word of caution from John to not respond sarcastically.

The opposing attorney then moved on to whether, if I were on the receiving end of an ejection notice, I would consult counsel and try to defend myself. I responded that I would not allow myself to get behind on mortgage payments to which I legally bound myself and that if I lost my job, I would sell the house and live within my current means. This sort of warped interrogatory was the preponderance of my deposition, and the attorney eventually ran out of questions. Note here that you will likely be asked the same question in multiple ways. Attorneys know that a contradiction either hides a weak spot in your case or makes that appearance, and so they try to get you to slip up and answer the same question differently.

Physicians: be wary of this; our tendency is to elaborate and explain (the word “doctor” being derived from the Latin docere, which means to teach). Elaboration generally does you no favors, hence my attorney’s admonition to keep from sarcasm and end up saying too much. For those wondering, your attorney will prep you on how to answer, not what.

 

Cliffhanger

In the aftermath of the depositions, we received notice that the judge unilaterally pushed our court date back another two months. Recall what I wrote about an overburdened legal system; the courts are better at dispensing time than justice. At this point, I began to think that court appearances really only happened on TV, and I was considering asking Judge Judy to hear our case. After a stiff drink and a reread of Marcus Aurelius’ “Meditations,” I was back to reality with feet planted as firmly as possible in the mire of the American legal system.

John shortly compiled a list of damaging admissions from the squatters and a concise summary of facts to date and prepared another motion for summary judgment. With the court dates continually being pushed back, we hoped that providing the court a way to eliminate a lengthy trial in a fairly obvious suit would be mutually beneficial and our best chance of success in the near term.

The third and final installment of this tale will be coming eventually. There is a resolution to this process, though not in the way that anyone expected. Until then, caveat emptor!

 

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Have you dealt with squatters before? How long did it take to settle the outcome? What else did you learn? Comment below!



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