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If we have a house (that we don't want) that has been sold at sheriff's sale does a quit claim deed make sense?

Sunfield, MI |

The bank bought the house back at the sheriff's sale this week. The same day I was approached by a realtor in the area who offered a quit claim deed and then to buy the property from the debt collector. Are we really 'free and clear' if we go this route?

Attorney Answers 2

Posted

I am not sure I understand your summary. What do you mean the realtor "offered a quit claim deed?" Do you mean the realtor offered to PURCHASE the property from you? If so, the realtor is going to need to pay off the "redemption value" of the property; (what your lender bid on it at the sheriff's sale.) If the property is not redeemed, it will belong to the lender, six months from the date of the sheriff's sale.

If the realtor is asking for YOU to provide a quit claim deed to THEM, then you will be transferring whatever interest in the property that you have, which, at this point, is simply the right to redeem the property. Presumably, the realtor would then redeem the property and become the owner. If that happens, the lender *could* pursue you for any deficiency in the loan. It is unlikely that they would do this, but it is a possibility. Under current federal law, (which is set to expire December 31), you would not receive a taxable gain as a result of having any deficiency waived by the lender.

This is unlikely to help you in terms of your credit record. It will still show up as a foreclosure. From an outside perspective looking in, this is a potentially good deal for everyone but you. If the realtor were willing to give you some financial incentive to do this, then it might be worth considering. Or if the realtor is a friend and you want to do him/her a favor. Otherwise, I am not sure how it helps you.

If there is something else going on, and I have misunderstood your situation, please feel free to post additional details.

James Frederick

*** LEGAL DISCLAIMER I am licensed to practice law in the State of Michigan and have offices in Wayne and Ingham Counties. My practice is focused in the areas of estate planning and probate administration. I am ethically required to state that the above answer does not create an attorney/client relationship. These responses should be considered general legal education and are intended to provide general information about the question asked. Frequently, the question does not include important facts that, if known, could significantly change the answer. Information provided on this site should not be used as a substitute for competent legal advice from a licensed attorney that practices in your state. The law changes frequently and varies from state to state. If I refer to your state's laws, you should not rely on what I say; I just did a quick Internet search and found something that looked relevant that I hoped you would find helpful. You should verify and confirm any information provided with an attorney licensed in your state.

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Posted

I probably should have included this initially, sorry. A little back history...I bought the house in 2003 while I was still single. I got married a few years later and moved in with my husband and put the house on the market. Unfortunately the housing 'bubble' burst right about that time and we were unable to sell it. We ended up renting it for a few years until things calmed down a little but were still unable to sell it. We had a few unfortunate renters and ended up having to put quite a bit of money into it all while losing money every month b/c we had to charge less in rent than what the mortgage actually was. Two years ago we put the house on the market and went through 3 short sale attempts and two deed in lieu attempts, at that point I got tired of being denied and called FHA myself. I was told that because the house is not owner occupied they would not accept a short sale or a deed in lieu. By that point we had stopped paying the mortgage completely and decided to let it go into foreclosure. Fast forward to this week. The house went to sheriff's sale on Wednesday and from what I've been told the bank bought it back. That evening I got a call from another realtor in town asking if I wanted to do a quit claim deed for the property. The way I understand it is that he wants to take over my interest in the property and go to the debt collectors and buy the house so that he can use it as a rental property. I have no idea what to think about this. Is it legal? What are the potential legal and financial ramifications for us? Does this help the foreclosure situation?

James P. Frederick

James P. Frederick

Posted

I really do not see that this helps YOU, in any way. You are still affected by the foreclosure. It would still be on your credit report. If you could refinance and pay off the bank, that would allow YOU to benefit instead of the realtor. With your credit problems, however, that could be difficult. I would not do this with the realtor for nothing. If they are willing to compensate you, that is one thing. If not, I would either continue to rent the place out and save the proceeds, until the redemption period is over. It may take the bank longer to take possession that you think, or they may offer you another set of options, going forward. I do not see why the realtor should benefit from this.

Posted

Be very careful here. There are a number of scams being perpetrated on unwary homeowners facing financial difficulty. Attorney Frederick is correct that they are really just purchasing your right to redemption, however you are still technically liable for any difference in the amount due to the mortgage company and the amount the property sold for sheriff's sale.

You personally still have a right to attempt a short sale in this matter and be in a much better position than just "quitclaiming" the property over to the real estate agent.

Or, alternatively, if you're not interested in that, you could try and do the "cash for keys" where the mortgage company would pay you a certain amount of money to leave prior to the end of your redemption period, as long as the property was left in good condition.

You're going to want to consult a qualified real estate attorney.

The information provided is based solely on the general information given and should not be construed as legal advice for your specific situation.

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Posted

Thank you both for your advice. I think I'm going to avoid the quitclaim and the realtor. I tried three short sales and asked about the cash for keys program but b/c it's an FHA loan and I don't live in the house we aren't eligible for either program. Thanks again!

Benjamin I. Hirsch

Benjamin I. Hirsch

Posted

Actually, you do still have an opportunity to shortsale the home, an even better opportunity now that the house has gone to sheriff's sale. If you'd like, feel free to contact my office. I'm happy to talk to you further about it.

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