Expert: Dick Dennis - 2/26/2009

Question
QUESTION: I am structuring a no money down transaction. My problem is getting the seller to carry back a 2nd trust deed. They fear that if I default on the 1st T.D., they will have to go through the trouble of foreclosing on the 2nd in order to reinstate the 1st.

I'm told there is a way to provide the seller with the ability to take back control of the 1st T.D. without having the trouble of foreclosing on the 2nd. If I can present this to the seller, I believe that he will feel comfortable with the carry back. Any help would be much appreciated. Thank you.

ANSWER: Assuming you're referring to California trust deeds, Adonis, when there are two trust deeds on a property, and the first goes into default, it is up to the holder of the first trust deed to file that first step towards foreclosure even if the payments are current on the second trust deed. The first TD holder is not concerned with what condition the second TD is. The holder of the second trust deed, in order to protect his interest in the property should immediately file the notice of default, even if the payments are current with the second. That means the second TD holder must have a way of keeping abreast of the payments on the first TD. He must do that to protect his position, because if he doesn't the holder of the first could wipe the second trust deed out by foreclosing on the first. However, if the second files the foreclosure action on the second TD first, the second TD holder will be protected and will foreclose on the second to protect his losing the property to the first TD holder.

That's why the second TD holder files a Notice of Default Request with the first TD holder.

There is another way of making the second TD holder comfortable: Send him a copy of the first TD coupon you already paid. That means the worst the second TD holder would be is one month behind. I wish you well.

Dick Dennis
dixiedee13@aol.com

---------- FOLLOW-UP ----------

QUESTION: Dennis,

Thank you for your reply. If I understand you correctly, you're saying that the seller should send a Notice Of Default Request to the holder of the first, so that the seller will be immediately informed in the event of any default on the first, Correct?

Utilizing this solution still requires the seller who is holding the 2nd to have to go through the foreclosure process, which I would like to have him avoid if possible.

What if the buyer purchases the property through a trust, and makes the seller the trustee and beneficiary. The trust could provide for the trustee to be designated as the beneficiary in case of default on the first. In this scenario the seller would be the beneficiary, and would not be required to go through the foreclosure process.

The seller would inheirit the property back, and would merely need to reinstate the first, without having to go through the foreclosure process. A Notice Of Default Request could also be included in this scenario to further protect the seller. Is this a feasable solution in your opinion? Thank you.

ANSWER: The answer to the first paragraph is Yes. Second paragraph: If you want him to avoid the foreclosure process, then make sure your payments on EVERYTHING is kept current. 3rd paragraph: The buyer does not dictate who shall be the trustee and beneficiary. It is up to the seller to decide who shall fill those positions.

You are getting into confusing territory. The names of the parties in a foreclosure are: Holder of the trust deed is called the beneficiary. The designated party or company who takes direction from the beneficiary in a foreclosure is the trustee. The trustor is the person who owes the money on the trust deed.

Then you have the trustee of the trust, which is usually the beneficiary of that trust. So, you must delineate what you are referring to.

Last paragraph: If the seller has sold the property, how does he inherit the property back? The only ways I know of him getting the property back is via foreclosure or buying it back or the buyer deeds him the property back.

What I told you in the first response is how a foreclosure works. If you are trying to be different and do expect to not fulfull the payments as agreed, then you are asking for trouble. If you want to make sure I understand you, you need to make clear what you are referring to.

Dick Dennis

---------- FOLLOW-UP ----------

QUESTION: Dick,

I apologize for my lack of clarity. First let me say that I have every intention of honoring all of the terms of the purchase agreement, and paying the required mortgages.

The reasons for my questions are an effort to respond to the seller's concerns, relating to the possible worst case scenarios in his mind. The seller is concerned that if he takes back a 2nd T.D., he might somehow be in jeopardy of losing his property if I defaul for any reason on the 1st T.D.

I want to assure him that I have taken steps to protect him in the transaction. This is why I'm trying to devise a way for him to get his property back, without the trouble of going through the foreclosure process, in hopes that this will put his mind at ease, and he will allow me to acquire the property under the structure that I'm proposing.

Now, let me attempt to delineate my scenario more clearly. I would purchase the property and put a new 1st T.D. in place. The seller would carry back a 2nd T.D.

In order to provide further protection for the seller, I would purchase the property through, for example, a revokeable trust. I would then be the beneficiary of that trust. I could then either assign my interest in the trust to the seller in the event of any default on the 1st T.D., or make a similar provision through the language in the revokeable trust that would assign my interest in the trust to the seller, if for any reason I default on the 1st T.D.

This would seem to protect the seller in case of default, and avoid the requirement of the foreclosure procedure, because the interest in the property would automatically revert to the seller upon any event of default on the 1st T.D.

My intention here is to put the seller's mind at ease, that even in the worst case scenario, he is protected in the transaction, because upon any default of the 1st, he would be notified through a notification of default request, and my interest in the property would automatically revert back to him in the event of default.

I hope I've done a better job of outlining what my goal objectives are. If you have any recommendations on a better way to accomplish this goal, they would be much appreciated. Thank you again for your attention to this matter.

Answer
If you reeeeeally want to put the seller's mind at ease, then you do this:

Execute a grant deed (warranty deed in some states or a quit-claim deed) to him, have it notarized, too. Then give it to him to put in a safe place. He is NOT to record it. If he does, then he has taken the property back. He is not to record that grant deed for, say, five years as long as there are no notice of defaults recorded against the property in that timespan. You trust him and he trusts you. That should make him feel at ease during that time. Then, after the 60th month, he is to return that document to you and he should feel satisfied.

He has the Request for Notice of Default and he has the grant deed giving him title should you default on any payment.

You just settled your problem.

Dick Dennis