The Palm Beach Post published an excellent article about the newest method some underwater owners are using to try to save their homes from foreclosure. Many people consider this a way to “beat the bank in foreclosures.” Is it a brilliant legal strategy or just the latest scheme? You decide.
The Post reports that at least two different companies (Fidelity Land Trust Co. and Equus Partners) are using a method to try to help underwater homeowners save their homes.
[It’s a] complex legal plan that begins when you deed your home [to a trust] . . . for an average fee of $2,500.
If the trust is successful in canceling the mortgage through a quiet title action, the homeowner is still responsible for the loan debt, or note, but the trust then tries to buy that debt from the bank for pennies on the dollar.
Because the debt no longer has collateral in the form of the home, the idea is the bank will be more willing to negotiate.
Literature sent to potential clients notes there are no guarantees in the legal process, but says that an “unfavorable” outcome “has never happened.”
That article points out that many attorneys fear the homeowner could be left owing debt to their original lender while paying a fee to the trust. On top of that, every title insurance underwriter I know of refuses to issues title insurance on properties where a “quiet title” lawsuit was used in this manner to wipe out a mortgage, especially through a “default judgment.”
I understand many homeowners are desperate, but remember that the deal that sounds too good to be true almost always is. How long before we read a “sad” story about someone who didn’t really understand how this worked and lost their home using this method?
If you’re considering this type of arrangement, please discuss it with an experienced real estate attorney before signing any papers.