By Attorney R. Paul Kuhn, Esq
Anyone working in the residential real estate trenches will tell you the same thing: Like it or not, foreclosed properties are a major part of our business, and will continue to be for the foreseeable future. But getting a good deal on a foreclosure, while enticing, is not a foregone conclusion, and if one is not careful, one can winding up owning a title problem that can stick around for years (and cost a lot to fix). A real estate attorney and his client need to consider the following when reviewing a title chain which includes a foreclosed property:
4. Was the IRS noticed? Money due to the IRS is governed by Federal law, which requires that the foreclosing attorney’s office notify the IRS twenty-five days prior to foreclosure. Moreover, the IRS has a one hundred and twenty day redemption right for federal tax liens. Conversely, a lien by the Rhode Island Division of Taxation is treated just like any junior lien holder, and no notice is required.
3. Is there a Lis Pendens on the land records for a Mechanic’s lien? If the Notice of Intention was property served, and subsequently, a lis pendens was filed in Superior Court, a lender cannot foreclose on the property without petitioning the court for permission to foreclose. However, permission shall be granted if the lis pendens and Notice of Intention are valid.
2. Was the property in Bankruptcy? In United States bankruptcy law, an automatic stay is an automatic injunction that halts actions by creditors. Under section 362 of the United States Bankruptcy Code, 11 U.S.C. § 362, the stay begins at the moment the bankruptcy petition is filed. A mortgagee, as with other secured creditors, may petition the bankruptcy court for relief from the automatic stay, but cannot proceed with a foreclosure before relief is granted.
And the number one reason a mortgage foreclosure fails is .
R.I.G.L. §34-27-3.1!!! This section of the Rhode Island General Laws provides :
“No less than forty-five (45) days prior to initiating any foreclosure of real estate . . . the mortgagee shall provide to an individual consumer mortgagor written notice of default and the mortgagee’s right to foreclose . . . Failure of the mortgagee to provide notice to the mortgagor as provided herein shall render the foreclosure void . . .”
Seems simple enough right? Except it isn’t. What at first glance looks like a good old fashioned consumer protection law, has proved to be a nightmare for all those “too big to fail” banks that bought – or sold – all these mortgages in the first place. And why? The notice has to come from the mortgagee, and in many cases no one knew who the mortgagee was. And courts review these foreclosures with strict scrutiny, meaning if the notice didn’t come from the holder of the mortgage, it violates the law, and the foreclosure fails. Simple. It isn’t good enough that the notice, although timely and correct, came from an institution that, through a series of assignments, would eventually become the mortgagee.
So Rhode Island has its very own foreclosure mess, and while no one really knows how many bad foreclosures are out there, there are enough to get the attentions of real estate lawyers and title insurance companies in the state.
What can one take from this? The message is clear: if you are buying a foreclosed property, get the work done up front by a capable title attorney. And don’t give notice to your landlord until you are sure you can take title to the property with good and sufficient marketable title.