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Interesting things in county records for this foreclosure

Posted by Wayne Wolf on February 11, 2004 at 5:52 PM

I was researching a property this evening and came across the following things which I've not encountered before (though I've purchased a few successful foreclosures so far, I'm still a relative newbie). I'm looking for some feedback on this.

Dates are "recorded" dates.

12/30/1988 - An individual/builder is given a mortgage by his buyers for the home he just built for them, for about 160k. I didn't dig deeo into comp values for 1988 for this home, but comparable homes for this area sold for 160k in 1998, almost 10 years later. This is not a distressed community, so values have been increasing normally since 1988.

5/8/1989 - Ths individual/builder assigns the mortgage to his construction company. The indivdual is John Smith, and his company is Smith Construction.

5/22/1989 - Fannie mae issues lis pendens on this buyer's former home (still owned while building the new one).

9/8/1989 - Fannie mae gets a foreclosure judgment on the former home. I didnt track this former property fully through records, but it appears that suggestion of bankruptcy forestalled the actual foreclosure.

I mention the prior home because it looks like there is something fishy here. They appear to have WAY overpaid for the house in 1988, and it looks on the surface like this builder knew they were in dire straits on their prior home, and this builder made them pay out the nose for this property. Since the builder gave the mortgage, there were no worries about there being a large amount of "negative equity" in the home.

The next set of recorded instruments appear in 1998. On 6/22/1998 this builder records a purchase money second mortgage to these buyers. On 6/24/1998 the builder records a satisfaction of lien for the original 160k mortgage. Also on 6/24/1998 a new lender, a bank this time, records a mortgage for around 160k. This is later assigned to a secondary market lender and goes to lis pendens and foreclosure.

The builder's (who built this home 10 years previously for this buyer) purchase money second mortgage was executed on 6/8/1998 and the bank mortgage executed on 6/16/1998, and recorded as mentioned, with the PMM being recorded before the bank mortgage.

This all just looks odd to me. Why is the builder recording a purchase money mortgage as a second mortgage (the recorded instrument states this in big bold letters)? It is my understanding that a PMM was a take-back mortgage by the seller of the property (aka owner financing). There is no seller in this case. This couple bought this house from the builder 10 years prior. How and why is the builder now giving a PMM?

The bank loan should be a refinance in this case, not a loan for purchase of the home so why is there a PMM at all? The builder recorded a satisfaction for the original lien and on the same day takes a PMM.

I'm still green, but this whole thing looks very weird to me. Also, with that "second" mortgage being recorded prior to the "first" mortgage, the second mortgage is really the first mortgage and the first mortgage is really the second mortgage, for purposes of deciding who has the superior lien in evaluating the foreclosure. In this case, this PMM/2nd mtg will not get wiped in the foreclosure auction.

Any thoughts on what weirdness has gone on with this property?



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