The deed from brother to sisters is invalid based on the facts as you describe them. The lender's ability to foreclose runs with the land, meaning that the deed of trust (which gives the lender the right to foreclose in the event of default) remains attached to the property regardless of who happens to own it. A quiet title action to clear up title would run you thousands of dollars. Consider waiting for the lender to evict the former owner and, if necessary, quiet title before acquiring the property.
The broker is correct. How much would it cost to file a quiet title action? Several thousand to tens of thousands depending on the issues involved. All quiet title actions must be tried so it will take a long time to resolve the issue and you will be “stuck” pending resolution. I do not recommend you purchase the house under these circumstances -- it's a money pit. For more on this issue see my blog post: No Default Judgments in Quiet Title Cases: Period
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My colleagues are correct; the safer course of action is to walk-away and, this type of litigation does costs thousands of dollars. That said . . . there is that old adage "the greater the risk; the greater the reward". So if you have the ability and willingness to take a risk here is what you might be looking at: The previous owner has recorded a deed behind the Trustee's Deed and as such, the previous owner had no ownership rights left to convey to her brother. This deed is a wild deed and clouds title to the property so, unless the brother volunteers to assist in correcting the problem, a quiet title action is necessary. Since the brother and his sister have recorded an instrument against the property claiming a right to title, where no right exists, a cause of action against them for slander of title is supported. Prevailing on a claim for slander of title exposes the wrongdoer to attorney fees. Often times the threat of this type of lawsuit convinces the other party to give up an untenable claim to title. Right now it is the bank who has standing to bring such a claim and if you purchase the property the burden will fall on you and you will need the bank to assign any claims they may have against the previous owner and her brother. It seems to me the brother has nothing in the deal and would not want to defend himself in a lawsuit. However, there are always those cases where someone will litigate when you think they would not and sometimes facts arise that work against you. If you believe this is a deal worth pursuing, in spite of the risk, sit down with your experienced real estate lawyer and go over the risk-benefit analysis to make an informed decision. If you decide to proceed, you may be able to negotiate a lower price from the bank for taking on this problem and you may end up with a great property for an overall great price.
Lawyers are known for being "deal killers" and I try to be cognizant of the fact that some business decisions involve legal risks. Sometimes it is worth it and sometimes it is not. It is my job is to let you know of the potential risks and it is your job to make the proper business decision once you know the risks. My answer to this particular question allows me to present some issues that might be considered relevant for a business decision and I am making no recommendation whether you should or should not proceed with purchasing this property.
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