Unique Question (maybe)

Comments(5)

• 
  edmeyer18th December, 2004

  I have noticed that your post has gone unanswered. It is very interesting and deserves a response, particularly, since it is your first post. That being said, I do not have a definitive answer, but I have thought about it. I hope you will let us know what your attorney says.
  
  I am assuming that your right of refusal gives you the right to step into any acceptable offer made to the seller and take the place of the potential buyer. By acceptable I mean one that a seller would accept. In the case of a foreclosure, the sale is forced and the seller must accept the auction price. Therefore, if the foreclosure must honor your first right of refusal, then you have the right to step in and grab the winning bid.
  This would have the effect of reducing the value of bids if the property is expected to go much below FMV since who would bid on it knowing that you will grab their good deal. If the property will sell nearer FMV, your right of refusal will probably have no effect since you are not likely to exercise it.
  
  If, by chance, your right of refusal is tied to a specific price (below FMV) , it might have a similar effect as an option that was recorded earlier than the foreclosing note and really influence the auction price.
  
  These are just my ramblings unaided by hallucenigenic subtances!
  
  Welcome to TCI,
  Ed

• 
  Dancerat19th December, 2004

  It is my understanding from my attorney that once the foreclosure is started and the trustee sale is held, all encumbrances and junior liens are wiped out, so unfortunately, stepping in with my "guaranteed price for first right of refusal" is negated at that point. My question is I wonder if I can step in before the trustee sale since I have an interest in the property and have an encumbrance on the title and buy out the listed debt owed plus all court and attorney costs and subrogate the senior lien and make it mine, which would be my first option... although I don't really know if I can do that. I will let everyone know.

• 
  edmeyer19th December, 2004

  This probably is not in your documentation, but if you have an option to buy that is recorded after a loan is in place you want to have protection in the event there is a default on the loan. It was common to have wording in the option that would have some penalty for the seller for not protecting your position. For example, if the optionee cures a default, the default amount might be deducted from the purchase price or future option consideration, etc.
  
  I am not sure if it is statutory or needs to be placed in the documentation that allows a junior note to cure a senior default and file a notice of default of their own. I think that this is at the heart of your question. I think you are hoping for some statutory protection of your position.
  
  At this point can you negotiate something with the seller? What comes to mind is to cure the first and generate a second in the amount of the cured amount. This way if there is a future default you have the protection of being able to cure the default and start foreclosing yourself. Since the second is subordinate to your right of refusal, the right of refusal might be in effect on the foreclosure of your second note and allow you to pick up the property at your own foreclosure sale. Clearly, if this interests you, you need to run it by your attorney to see if it will fly.[ Edited by edmeyer on Date 12/19/2004 ]

• 
  JohnMichael20th December, 2004

  The right to refusal is a contract that gives you the right to match the terms of a proposed contract with say the current owner, this contract is between you and the other party and is only enforceable between you and the other party.
  
  The foreclosing lender(s) interest in the property is senior. Your right to refusal is inferior to the foreclosing lender and has no recourse to stop a foreclosure proceeding based upon your right to refusal agreement.
  
  In some states Borrowers have a complex right of first refusal when a state agency, a federal agency, a limited partnership or a corporation acquires property in a foreclosure proceeding. The right of first refusal may not be waived or assigned, except to family members by inheritance.
  
  You will need to check the state law on this issue where the subject property is located.
  
  See BLACK'S LAW DICTIONARY (7th ed. 1999), at 1325 (defining "right of first refusal" as "[a] potential buyer's contractual right to meet the terms of a third party's offer if the seller intends to accept that offer". The scope of the "price and terms" of a third-party offer that the holder of a right of first refusal must meet should be carefully set forth in the right of first refusal. See, e.g., Hahalyak v. A. Frost, Inc., 444 Pa. Super. 494, 502-503 (1995) (holding that language of right of first refusal was "clear and unambiguous" and that "terms and conditions of any proposed lease" included only economic terms of proposed lease and not agreement of proposed lessee to vacate existing space in the building or agreement of another party to pay "inducement fee" for such vacated space).
  
  See some forum discussions on this subject at:
  http://www.thecreativeinvestor.com/modules.php?op=modload&name=Forum&file=viewtopic&topic=24682&forum=12
  
  Some information can be found on this issue at:
  
  http://caselaw.lp.findlaw.com/cgi-bin/getcase.pl?court=9th&navby=case&no=9435903
  http://www.abanet.org/rppt/publications/magazine/1999/ja99kc-prty.html
  http://www.willamette.edu/wucl/wlo/dis-res/04news/20040125.htm
  [addsig]

• 
  Dancerat20th December, 2004

  Well, I found this under Washington law - it reads as though I can cure the senior default amount because I do have an encumbrance on the property - but let me know what you think. Holidays are a bad time for this to happen because everyone is on vacation!
  
  RCW 61.24.090
  Curing defaults before sale -- Discontinuance of proceedings -- Notice of discontinuance -- Execution and acknowledgment -- Payments tendered to trustee.
  (1) At any time prior to the eleventh day before the date set by the trustee for the sale in the recorded notice of sale, or in the event the trustee continues the sale pursuant to RCW 61.24.040(6), at any time prior to the eleventh day before the actual sale, the borrower, grantor, any guarantor, any beneficiary under a subordinate deed of trust, or any person having a subordinate lien or encumbrance of record on the trust property or any part thereof, shall be entitled to cause a discontinuance of the sale proceedings by curing the default or defaults set forth in the notice, which in the case of a default by failure to pay, shall be by paying to the trustee:
  
  (a) The entire amount then due under the terms of the deed of trust and the obligation secured thereby, other than such portion of the principal as would not then be due had no default occurred, and
  
  (b) The expenses actually incurred by the trustee enforcing the terms of the note and deed of trust, including a reasonable trustee's fee, together with the trustee's reasonable attorney's fees, together with costs of recording the notice of discontinuance of notice of trustee's sale.
  
  (2) Any person entitled to cause a discontinuance of the sale proceedings shall have the right, before or after reinstatement, to request any court, excluding a small claims court, for disputes within the jurisdictional limits of that court, to determine the reasonableness of any fees demanded or paid as a condition to reinstatement. The court shall make such determination as it deems appropriate, which may include an award to the prevailing party of its costs and reasonable attorneys' fees, and render judgment accordingly. An action to determine fees shall not forestall any sale or affect its validity.
  
  (3) Upon receipt of such payment the proceedings shall be discontinued, the deed of trust shall be reinstated and the obligation shall remain as though no acceleration had taken place.
  
  (4) In the case of a default which is occasioned by other than failure to make payments, the person or persons causing the said default shall pay the expenses incurred by the trustee and the trustee's fees as set forth in subsection (1)(b) of this section.
  
  (5) Any person having a subordinate lien of record on the trust property and who has cured the default or defaults pursuant to this section shall thereafter have included in his lien all payments made to cure any defaults, including interest thereon at eight percent per annum, payments made for trustees' costs and fees incurred as authorized, and reasonable attorney's fees and costs incurred resulting from any judicial action commenced to enforce his or her rights to advances under this section.
  
  (6) If the default is cured and the obligation and the deed of trust reinstated in the manner provided, the trustee shall properly execute, acknowledge, and cause to be recorded a notice of discontinuance of trustee's sale under that deed of trust. A notice of discontinuance of trustee's sale when so executed and acknowledged is entitled to be recorded and shall be sufficient if it sets forth a record of the deed of trust and the auditor's file number under which the deed of trust is recorded, and a reference to the notice of sale and the auditor's file number under which the notice of sale is recorded, and a notice that the sale is discontinued.
  
  (7) Any payments required under this section as a condition precedent to reinstatement of the deed of trust shall be tendered to the trustee in the form of cash, certified check, cashier's check, money order, or funds received by verified electronic transfer, or any combination thereof.