V.I.P. Trust Deed Company
Recently I wrote a less-than-complimentary article about the excessively high interest rate charged by counties on unpaid property taxes. The thrust of that column was that 18% interest rates could easily snowball into an insurmountable amount, with the eventual loss of your house or vacation lot. There is, unfortunately, another easy way for you to lose your property.
You own two lots in Riverside County; you’re several years behind on your real estate taxes, and the previous seller has a first trust deed (seller carryback) on the property. Twice a year you receive a tax bill but don’t pay it. You know that eventually you will have to do something about it, but times are tough.
Next – you’re transferred to Northern California. There is some correspondence with the tax collector and they have your new address. Approximately a year later you discover that you are no longer the owner of the land – it was purchased at a “tax sale”. Upon further checking, you find that the county “notified you” by sending certified mail to your OLD address. Also, the previous seller/lender claims that she was never notified of the tax sale either. If so, she would have paid the taxes to protect her interest.
Upon checking with the county, you verify that they did not notify you at the address they had on file and they admit that they never notified the previous seller/lender (as they should have). You naively believe that the county will reverse the sale that was held without proper notice – at least to the first trust deed holder. WRONG. Unfortunately, dealing with counties is not easy.
My example is not hypothetical. It is, in fact, a situation that I am helping to resolve right now. Unfortunately both the wiped out owner and the wiped out first trust deed holder had to sue the county and the new owner. So far, it has cost approximately $12,000 and one year’s time. The real shame here is that counties, when faced with this type of situation, have to be sued in court and MADE to do the “right thing”. This situation is far from an isolated incident and hundreds of tax sales are held in error every year. Its unfortunate that some of these victims of tax collector negligence just walk away as they don’t have the money to hire an attorney to get their property back. Attorneys who take cases on a contingency basis will generally not handle this type of case unless there is a huge amount of equity involved. For the typical homeowner with not much equity, there is no easy solution.
Is there a moral to this story? No, just a reminder that these things happen more often than one would suspect. If you’re a property owner with several years’ delinquent taxes, keep in touch with the county tax collector and make certain that they have CHANGED their records if you have moved. If you are the holder of a seller carryback trust deed or any trust deed that you’re collecting yourself, check with the county tax collector at least once per year to verify that the taxes are current. If the taxes are not current, consult with a real estate advisor or real estate attorney and be prepared to take tough action to protect your security.
Prior to making a big deal of the delinquency, contact the owner and explain your concern. If the property owner is intending to pay those taxes within thirty days, merely monitor the situation. Depending on the equity situation, you will probably have to start a foreclosure even if your payments are current. Unpaid real estate taxes, unlike most other property liens, is SUPERIOR to your first trust deed.
As you can see from the above example, if those taxes are left unpaid and the property goes to a tax sale (with proper notification), your position will be extinguished and the under bids at that sale would eventually go to the trust deed holders.
There is a similar problem that can haunt trust deed beneficiaries if their collections are not handled by a servicing company. Some years ago I devoted a column to a wiped out second trust deed holder under somewhat similar circumstances. In this case the buyer purchased the property, obtained a bank first trust deed and had the seller “carryback” a second trust deed. The buyer made payments to the bank and the second trust deed holder for a year or so.
During that period of time the beneficiary moved out of the area and put through a change of address with the post office. Approximately a year later, the owner stopped making payments to the second trust deed holder. There was some conversation with the owner and the owner basically gave the trust deed holder a sob story and promised to catch up within a month or two. By that time the real estate market was very depressed.
A couple months later the second trust deed holder (previous seller) discovered that the first trust deed holder (bank) had been in foreclosure for several months and eventually had completed the sale. There were no outside bidders and the bank now owned the property and had COMPLETELY EXTINGUISHED the seller’s second trust deed. The seller came to me to research “how could this be possible?” My research turned up the following:
When the property was sold the seller had, correctly, filed a “Request for a Notice of Default”. The trustee handling the foreclosure had complied with the foreclosure codes and notified the second trust deed holder by first class mail AND certified mail. Guess what? They notified the second trust deed holder at the OLD address as that was the only beneficiary’s address mentioned in the Deed of Trust. As you will remember, the beneficiary had moved and properly filed a change of address notice with the post office. They never even THOUGHT about filing a new “Request for a Notice of Default”. The trustee dutifully mailed out by regular and certified mail Notices of Trustee Sale, unfortunately the post office change of address order HAD EXPIRED and the mail was promptly returned to the foreclosing trustee. The trustee is under no duty to actually find or serve the parties of record. They are merely obligated to mail in the prescribed fashion.
I will close these thoughts with one of my familiar quotes from the old Hill Street Blues program…… “Let’s Be Careful Out There”.
VIP Trust Deed Company