Deed Without PurchaseContract? - What Would YOU Do?
Hi! I'm a newbie so please, bear with me. 
I just had a thought today with regards to deeds and purchase agreements.
The scenario is this:
Suppose you find a very motivated homeowner facing foreclosure. You are unsure that you can do the deal. You are unsure you can short sale the mortgage(s). You are not sure there is enough equity to make it worth your while. You're not sure you can flip/assign the position if you enter into a purchase agreement with the buy. But you want to help the homeowner out.
FURTHER, suppose the homeowner is SO motivated that he/she agrees to sign over a DEED to you WITHOUT a purchase agreement, in the hopes that you can do SOMETHING to close a deal that would save the credit and maybe give him/her a little cash. Would this work?
Let's assume for a second that this homeowner has unclouded title to the property.
If you were to fail in purchasing the home from the owner in time, then it would go to trustee sale, right?
This is where my scenario is really fuzzy for me...
If the DEED that the owner signed over to me were NOT recorded, then nobody would know, I could shred the thing, and go on to the next deal, realizing that I just didn't have the umph to make the deal happen for whatever reason.
OR, if I were unethical (which I'm not), couldn't I dispute the title with whomever purchased the property at the trustee sale and possibly get some kind of monetary payoff?
What would happen if the deed WERE recorded. If it were, what would happen after the Trustee sale? I'm assuming that there is some kind of deed when the property is sold there, right? When that deed was to be recorded, would there be a problem?
Perhaps I'm making up a ludicrous scenario, but it just came into my mind...
Any thoughts?
Thanks in advance for your thoughts.
allcash4homes
AS I recall - first deed to record gets the property. You buy property - get deed - dont record - owner sells again - this guy records - property belongs to him. You could then sue old owner for fraud.
State of California
The Deed that records first is considered by the Title Company who has to write a policy insuring the title.as
Primo. Your deed unrecorded they will consider on any future presentation as wild and ignore it and issue policy. If you take that deed and file a judicial action and plead a damage you will lose, unless you can make a case in fraudulent intention that is so good and so outrageous that it overcomes all the normal requirements that a deed in a real estate transaction only be considered if recorded. Good Luck Lucius
"Suppose you find a very motivated homeowner facing foreclosure. You are unsure that you can do the deal. You are unsure you can short sale the mortgage(s). You are not sure there is enough equity to make it worth your while. You're not sure you can flip/assign the position if you enter into a purchase agreement with the buy. But you want to help the homeowner out."
Your desire to want to help the homeowner out is commendable. Howevever, if you are so unsure about this property and its potential to make you any money I would simply walk. No point having 2 people stuck in a bad situation. WIth that said, I will attempt to answer your other questions.
"FURTHER, suppose the homeowner is SO motivated that he/she agrees to sign over a DEED to you WITHOUT a purchase agreement, in the hopes that you can do SOMETHING to close a deal that would save the credit and maybe give him/her a little cash. Would this work?"
At the point that the deed is given to you, you are now the owner. A contract to purchase sets forth all the terms that must be fulfilled in order to close, i.e. obtain the deed. By simply getting the deed, you have bypassed this contract process.
"Let's assume for a second that this homeowner has unclouded title to the property. If you were to fail in purchasing the home from the owner in time, then it would go to trustee sale, right? "
It would go to trustee sale, i.e. foreclosure only if the prior owner (assuming you were given the deed) defaulted under the underlying mortgage and the lender filed a suit for foreclosure.
"This is where my scenario is really fuzzy for me... If the DEED that the owner signed over to me were NOT recorded, then nobody would know, I could shred the thing, and go on to the next deal, realizing that I just didn't have the umph to make the deal happen for whatever reason."
You need to distinguish conveyance from recording. In order to transfer ownership to property the deed, properly executed (signed and notarized) need only be delivered. If he gave you the deed, you are NOW the new owner. As between the two of you, recording is not an issue.
The purpose of recording is to give notice to third parties of your ownership and to include you on the chain of title to the property. Chain of title is what you research in the public records and serves as the basis for title insurance.
"OR, if I were unethical (which I'm not), couldn't I dispute the title with whomever purchased the property at the trustee sale and possibly get some kind of monetary payoff?"
Why would you? You would have to prove that you were the record owner (remember you said you didn't record the deed and even ripped it up). Hard to prove when you have no documentation of the conveyance. If you weren't interested in doing the deal straight up, don't be a Johnny Come Lately and try to extort a payoff from the innocent buyer.
"What would happen if the deed WERE recorded. If it were, what would happen after the Trustee sale? I'm assuming that there is some kind of deed when the property is sold there, right? When that deed was to be recorded, would there be a problem?"
If you record and your name is not included in the foreclosue complaint and lis pendens there would be a cloud on the title. This cloud could be removed by a subsequently executed quit claim deed or a suit for quiet title.
"Perhaps I'm making up a ludicrous scenario, but it just came into my mind... "
Hope this clears things up for you.
Thanks in advance for your thoughts.
allcash4homes
[ Edited by jorge121 on Date 10/05/2003 ]
My only suggestion is don't get in over your head. Not knowing what you are doing could prevent someone else from helping these people out.
Find someone in your area that has this type of experience. Find out how many such cases they have done and the outcome. Let them know what you have and request help. This would then truly be a win-win-win situation.
Best of luck,
Lethe
Good advice. I agree. If you don't know what you are doing, you will be doing more harm than good by getting involved.
Great points! My inclination is to walk, too, actually...
I wonder how long it will take before I'm more comfortable with this...
My understanding is that this owner is in foreclosure. It appears that you don't have any idea if this is or isnt a deal with which you should get involved. The only thing you do know is that these people are motivated and will give you a deed to "save their credit". . Take the deed if it's a viable transaction. Pass if it isn't. This is more important for you than them. You must learn to analyze real estate transactions. You must base your decisions on more than just vague hope. I frequently come in contact with the same type of owners.. Many are not feasible transactions. I always try to leave the sellers with the best advice and their best alternatives. But, I tell them that I can't help them.
Sometimes you need to make battlefield decisions when time is short. They must be based on financial facts and figures. It's erroneous to think that you're going to "save the owners credit" Yes, they wont have the stigma of a foreclosure on their record. I assure you that their credit is already badly banged-up. If you do a short sale their credit report will indicated, "settled for less than agreed amount" which is just a couple of baby steps better than, foreclosure.
If you do take the deed, it would only cloud title-assuming someone else is interested in the property before the sale. From the point of view of the foreclosure, it doesn't make any difference. You will be wiped out by the foreclosure process (known as divestiture) . There are a number of court decisions holding that as long as the foreclosue process was correctly followed, someone who holds an unrecoreded deed or a deed recorded just prior the the sale does not have standing and does not invalidate the sale.
to answer your question, once the property gets foreclosed, it doesnt matter who had ownership to the property that interest gets wiped out unless there was some kind of procedural error on the foreclosure process such as lack of notification.