[WSBARP] Foreclosure Fun!

[Paul Neumiller]

Hold on.  (I am doing a nonjudicial foreclosure.)  Are you saying that the surplus funds go to pay off the junior lienholders that I thought I was going to wipe out?  So:


1.       If Creditor doesn’t go to sale, then Creditor ends up paying off the junior lienholders in order to sell the property free and clear. (Not a Good Result)

2.       If Creditor goes to sale and no one bids, junior lienholders get wiped out and Creditor gets the property. (A Good Result but may be unlikely considering FMV of property is double the loan amount.)

3.       If Creditor goes to sale and someone bids and if Creditor has to bid up to or over the amount of junior liens, then Creditor gets the property but also has paid the amount of the junior liens.  (Basically the same result as option #1 above.  Not a Good Result).

Are we having fun yet?  I have some extra facts that may now come into consideration.  Creditor, for reasons I can’t disclose, reaaaally wants the property back.  Also, Creditor actually has two deeds of trust recorded against the property and I am foreclosing on the second one right now.  The plan is that if Creditor is outbid at the foreclosure sale under the second Deed of Trust, Creditor was then going to foreclose under the first deed of trust.  The fact that the property is still subject to the lien of Creditor’s first deed of trust may dampen third party bidders at the sale under the second deed of trust.

Patrick, is this also your analysis?

[Paul Neumiller]

From: wsbarp-bounces at lists.wsbarppt.com [mailto:wsbarp-bounces at lists.wsbarppt.com] On Behalf Of Patrick McDonald
Sent: Friday, October 27, 2017 2:34 PM
To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com>
Subject: Re: [WSBARP] Foreclosure Fun!

The junior lienholders would be entitled any surplus funds before the owner. If you foreclose nonjudicially, see RCW 61.24.080(3). If you foreclose judicially, see RCW 61.12.150.

Patrick McDonald

_______________________
Pody & McDonald, PLLC
1200 Fifth Avenue, Suite 1410
Seattle, WA 98101-3106
T: 206-467-1559
F: 206-467-4489

From: wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com> [mailto:wsbarp-bounces at lists.wsbarppt.com] On Behalf Of Paul Neumiller
Sent: October 27, 2017 2:15 PM
To: wsbarp at lists.wsbarppt.com<mailto:wsbarp at lists.wsbarppt.com>
Subject: [WSBARP] Foreclosure Fun!

Thinking aloud here and need confirmation (or a slap down if needed).  Representing Creditor, I started a foreclosure action against Debtor.  Creditor accepted a Deed-in-Lieu in order to get possession quickly (and start repairing the property).  The DIL contains non-merger language so the lien of the deed of trust did not merge into the fee ownership of the property. Trustee Sale Guarantee discloses large liens against property.

So I am thinking through the ramifications if Creditor continues with the foreclosure action.  The benefit is eliminating the large liens.  The only risk that I have been able to identify (other than my additional atty fees and the time delay) is if someone tries to outbid Creditor at the foreclosure sale.  BUT, it seems to me that any excess money goes to the owner of the property so if someone successfully comes in with $1 million then Creditor gets the surplus funds as the owner (Good Result).  And, if Creditor wants to be the successful bidder at the foreclosure sale, Creditor could bid the price up even higher than $1 million because the surplus funds go back to Creditor anyway as owner of the property (again, Good Result).

I am missing something here?  I got the non-merger language blessed by the title company (and the underwriter) so I am fairly confident the non-merger language is effective.  The title company agrees with my analysis but I still have the fear of the unknown.  Is my analysis correct?  Are there other risks I need to consider in foreclosing on property already owned by the foreclosing lender?


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