Using a Quit-Claim as a Gambit

[JustFileSuit]

This Thread is specifically to focus on the idea of countering Lenders who go through the entire foreclosure procedure, then simply "do nothing" and leave the home titled to the Debtor, so that the lender can take their sweet time to find a buy while shovelling off the responsibilities and liabilities of the property onto the debtor. I will be attempting to set forth a gambit that I have suggested in other threads on this section of the Forum.

[justbroke]

I think this is the perfect place to discuss potential remedies for a debtor facing this. As I stated in my last post in another thread, if we could actually get lenders to "Eat Wood"... that would be fine with me.

[JustFileSuit]

Part 1 - What is a gambit?

What is a gambit?

The concept of the "Gambit" is taken from the world of competitive chess matches, where a player boldly "offers" a sacrifice of a piece in order to unsettle, demoralize, or out-maneuver the opponent. Since so much of foreclosure law is like playing an intricate chess match, I offer the analogy.

The classic gambit in chess was in the Fischer-Spassky match held in Iceland when Richard Nixon was president, and the Russians and the Americans were locked in competition over "everything." Bobby Fischer had opened with the white pieces (all as I recall; give me a break here as this was almost 40 years ago) and Boris Spassky was playing Defense with the Black pieces. These high-level players typically go through the match much like your foreclosure suit; gritting teeth and contesting every move of the opponent, grudgingly yielding tiny squares as they go.

Spassky had left three pawns sitting way over on the right-hand side of the board after castling out his king and rook, all those pawns in a neat little row and without support (tempting?). Bobby had freed up a bishop way over on the other side of the board, but lined up so that he could pick off the very last Black pawn. Now in chess circles this is known as a "sucker move," because if white picks off the pawn target, then Black can trap the Bishop (by moving forward the adjacent pawn to block off retreat) and eventually take the Bishop, a valuable piece, for free. Since even duffers know this to be true, Spassky ignored the free White Bishop and did not move to "protect" the pawn target.

So now it was Bobby's turn at play, and he just swooped his Bishop clear across the board and plucked off the end black pawn - much to the amazement and incredulity of the assembledpundits (watching around the world by live television feed - hard to believe today, but this absolutely riveted the entire planet!).

It was a classic Gambit. Fischer was saying: here, I dare you to take my Bishop, I have whacked your lowly pawn, but I am so good, it does not matter if I go down a mighty Bishop, since you are so incompetent - I DARE YOU!

And Spassky took the bait. The planet was electrified.

Now what? Well, the dynamics of the play has changed. Fischer has a momentum advantage, he has busted up the Black kingside, and Spassky is absorbed in a multi-move exercise to capture the Bishop (which, eventually, he does, but losing another pawn in the final count.).

So what is the lesson for us? The "gambit" is an unexpected move that gives to the opponent what he thinks he seeks, but really opens to door to his defeat and destruction (Yes, Fischer went on to win the tournament, to the huzzahs of his countrymen).

You, too, can be the master of the Gambit. In our Quit-Claim case, the gambit is not a Courtroom maneuver, it is a title deed transfer maneuver, which undermines the opponent (and hopefully works his aggression against him and to your advantage). I will explore how to do this in a following Post (these Posts are being broken up to avoid blowing up the Server with too long a single post).

[JustFileSuit]

Part 2: Know your Opponents!

To do a gambit successfully, you have to have a good appreciation of the dynamics of your opponents,and what they think their objectives are.

In the "typical" foreclosure case, as we discussed at length in the previous thread on the issue of using a QuitClaim, the Debtor has been hanging onto the property, and the last lender in the chain of title has been suing him in some Court for relief by foreclosure. What does the lender really want?

It is suggested that the lender just wants the money on the remaining value of the Note (remember, you have a Note which you signed, and you signed a Mortgage as a security instrument to follow the Note around. ). The lender is looking at you and sees someone insolvent, and figures they are only going to get paid if they file suit in foreclosure. So now the "file" goes out to the foreclosure lawyers.

Now who do you suppose are these guys (the lawyers)? Do you seriously think these are really bright guys and the final challenge in life for them is to go file some lawsuit against some hapless slob who is flat broke? No chance. These attorneys who specialize in running "foreclosure mills" for big banks and finance outfits are rather dull fellows. When you study what they do, you note that they just mechanically follow a format that they use, all pre-printed on their computers, and just fill in some blanks and into the Court House it goes. Probably 99% of these suits are not even contested. The Judge rubber-stamps the Judgment and the law firm picks up their $1500 or $2500 or whatever, and on with the next. Nothing intellectual about it.

They are dullards. Not surprising, since the bankers that they are working for are also dullards. Nobody is using much imagination in these suits.

The attorneys have a few ways to get their Judgment to go get the money: (1) They can file "Suit on Note" so that they get a judgment for the money you borrowed. Now since the Fed discount rate is about zero this does not cost them much except for the paper hassle of having a non-producing loan on the books; but if they are content to just sit on the Judgment, hey, they can wait for ten or fifteen years and maybe things turn around for you and they can start collecting on the Judgment. In this scenario, they simply record a lis pendens on the property and you cannot sell it without paying the Judgment. But you couldn't anyway because there is a perfected Security Instrument - the Mortgage. Plus it is upside-down.

(2) They can file suit in foreclosure, in effect a suit in rem against the property, so that they can wrest the property away from you and go sell it (or, maybe, use it as free housing for a Bank Director, if it is a really nice place!). And since their lawyers are dullards, this is invariably what they do.they do it because they have always done it, not because it is smart.

OK, but your place is hopelessly underwater, so YOU don't want it either - at least, not with the Note and Mortgage you placed on the place. You might want it for half the price, say the new "market value" in this illiquid market, but the bankers don't see it that way.

But when you think about it, if your house in underwater, then do the bankers really want the house? What are they going to do with it? Not much; there is no market. Certainly no market for what the Note of the house is for. So why would the bankers sue in foreclosure on a property that is underwater and which has no market? Because they are not very bright, and have not thought it though. They just do what they always do: hand it to the lawyers, and the lawyers now proceed to file suit in foreclosure demanding the property - because they are also not very bright.

If they had any brains, they would just leave you in the place, modify the Note, and take reduced payments, maybe interest only, for a few years, and then when things turn around either sell the Note for a larger amount than they could get now, or just go back to the original terms and eventually collect the full value.

But they don't do that, so they in effect force the issue. You cannot pay, at least not today, so you end up in the bankruptcy court and the unpaid overage is blown off through a discharge. Now the case in the State Court goes into Judgment, and the Court issues a Judgment of Foreclosure and the lender thinks he is all set.

Except the Lender never gets around to actually doing anything with the Judgment against the Property, and leaves YOU sitting on the title so that YOU are liable for the mailman slip-and-fall, and the bank's deep pockets (at least in theory, deeper than yours, since the banker has Mr. Obama to bail him out) are not on the line. You still are. And you are stuck. You end up keeping on paying, possibly for years, and the Bank does not "eat wood". And if a condo, YOU still get to pay, and pay, the ongoing condo fees, and whatever else is out there.

How do you get out from underneath this mess? You thought the Ch 7 would relieve you, but it didn't really, at lest unless you have absolutely nothing, so you end up with this millstone.

In my next post, I will describe how to use the Gambit to blow all this up. this so far is just to set the stage. Back soon.

[HHM]

Just get to the point, long posts = no one reads.

As for actually using a QuitClaim. That is gonig to be a state specific issue. What you need to find out is if state law requires both the grantor and grantee to acknowledge the deed (most do). If that is the case, this tactic may not work. And even if state law does not require acknowledgment from the grantee of the quitclaim, the legal effect is questionable. Think about it for a second, do you really think rules of conveying property allow you to convey interest to real property to anyone, without that person's knowledge.

[frogger]

I was advised to actually vacate completely and turn over the keys to the lender.

Keys = Possession

[justbroke]

I was advised to actually vacate completely and turn over the keys to the lender.

Keys = Possession

Alas, but possession (of keys) does not convey ownership. Did your attorney tell you that keys = possession?

[frogger]

Alas, but possession (of keys) does not convey ownership. Did your attorney tell you that keys = possession?

My attorney has told me that, another attorney friend has told me that, and I've been in many landlord/tenant cases in which it has been ruled that keys = possession.

It appears that whoever has possession has responsibility. I'm a running test case with that now in my area with some property that I have given back to my lender.

After receiving a letter from the Code Department of violations, I notified them that the lender now had complete and total possession.

Haven't heard another word about it.

[justbroke]

Possession does not equal Title/Deed. Otherwise, everytime I rented a home and handed keys to my tenant, they would have title to the home. I think it's a totally different matter when it comes to a landlord/tenancy and municipal matters than when it comes to ownership. As a former landlord, handing keys to a tenant (under a lease agreement) constitutes some form of rights, but never ownership.

This is why I wrote that keys does not equal ownership. Ownership is never conveyed through keys. Case in point... I just found a key to my old home that I sold in 2005. I wonder if I still own the place???

(By the way Frogger, you're about to become a Guru.)

[frogger]

This Thread is specifically to focus on the idea of countering Lenders who go through the entire foreclosure procedure, then simply "do nothing" and leave the home titled to the Debtor, so that the lender can take their sweet time to find a buy while shovelling off the responsibilities and liabilities of the property onto the debtor.

Here's my point.....

Once a foreclosure goes through, you can still remain in a home until/unless you are evicted. It is a matter of possession. (Keys = Possession)

I'm not arguing the fact of who has title. I'm pointing out the way to get around and out of the responsibility for the property.

I've leased many properties and have never given title, but possession is a powerful thing. If the lender forecloses on you, but does not perfect the deal and get a clear title, you are still responsible and liable.

Therefore my point is not about title, it is about giving them back possession. Whoever has possession has responsibilities.

And, as to the "guru" status, it's clear that the monkeys will be running the circus when I get that one.

[justbroke]

Therefore my point is not about title, it is about giving them back possession. Whoever has possession has responsibilities.

If it were that simple, an individual could just mail the keys to the bank and be done. Possession (as well as Ownership) is not implied by merely mailing someone the keys. That's why even a QC requires the Grantee to actually "accept" the QC. To further illustrate, if you sent the keys to the bank and someone drowned in the pool before the property was legally titled to the bank... guess who gets sued?

In the landlord/tenant arena, the tenant "accepts" the keys to constructively take possession of the property. No such constructive possession is taking place in this scenario.

The only reason why a lender, who is foreclosing, will go "secure" a property is to protect them from further deterioration of value... not to "protect" themselves from any liability or other "responsibilities".

I do agree though, that telling most public utility companies, and even the municipality itself, that you surrendered the home in bankruptcy/foreclosure will make them go away. However, the fact of the matter is that you still own the property. I did in fact do this with my property in North Carolina. The County sent me a nastygram about trash. I called the guy directly and informed him I surrendered it in Bankruptcy. he said, then don't worry about it, we won't bother you anymore. That was in July 2008. The home was just sold via the Power of Sale, October, 2009. I believe that the County's lack of pursuit on the issue, is just one of complacency... not legaility.

And, as to the "guru" status, it's clear that the monkeys will be running the circus when I get that one.

Well... guess who's running it now?

[frogger]

If we could actually get lenders to "Eat Wood"... that would be fine with me.

That would be a great thing too. It is going to be very difficult however, to get them to eat it.

We have had a good discussion about ownership vs. possession, and I agree that they are two very different things. Each of these have their own potential problems and pitfalls, so whatever we can help do to help others avoid them is a good thing.

As always justbroke, your wisdom is shining through and I thank you.

[JustFileSuit]

Post #3: Executing the Gambit

In Post #1 of this Series, we examined the concept of the gambit, a startling and bold move to unsettle your adversary and turn the table on him. We examined how this flowed from the use in the game of chess.

In Post #2 we examined the quality and mind-set of your opponents, the bankers and their foreclosure lawyers, and noted that they were dullards, unimaginative blokes who just filed foreclosure lawsuits because that is what they have always done in the past.

But times have changed, and homeowners are facing illiquid realty markets, and their properties are way underwater. So the bankers are in no hurry to actually take title to the property and go sell it. What this means for the homeowner is that he is "still" exposed to the costs of the property, for the new charges and for the new liabilities that emanate afterthe discharge of the previous debts by the BK Court. Although the overhang from the underwater part is wiped out, since the property never ended up transferred within the BK Court, the debtor after discharge newly becomes liable for new and on-going charges! How to get out from underneath this nightmare?

I suggest that the Debtor use the "Gambit." In this maneuver, the Debtor takes full note that he was sued in rem against the property, by suit in foreclosure (remember, the dull lawyers were doing their usual thing, with their mechanical lawsuit forms). In the "old days," the bankers would take their Judgment, go sell the property at an auction, maybe on the steps of City Hall, maybe on the front door of the property, and a group of spirited bidders would be falling all over themselves to shovel fresh money at the banker's sales agent to grab off the property title - since the previous owner had "equity" that was now up for the scooping.

But these aren't the "old days," and the property is so hopelessly underwater that the moment the bankers sell the place at an auction, if there is even any bidder that actually shows up, all that gets bid is some paltry fraction of the Note balance. So then the banker, if he accepts the bid, has to record an immediate loss on his books - plus the fees for the attorneys and the fees for the sale, and the recording fees (perhaps 1% of the sale price), plus the fees due to the condo association if there is one, and the outstanding back taxes, and so forth.

So if it goes to the Sale, then the banker ends up bidding the Note, and ends up with the sales trustee recording the sale to the Bank on the Land Title records, and the Bank "owns it." And our debtor is "off the hook."

But wait a minute: now the bankers are on the hook, for costs, fees, and especially liability. So they have to buy insurance, and a lot of it, both on the home, and for liability for little kids that go in and get badly hurt, and they have to start paying someone to be caretaker of the place, and they have to contend with all the ugly calls from the Town or the County over ordinance violations, and so forth. And if there is a swimming pool and it is in Florida, then the bankers have to pay for the alligator man to go fish the alligators out of the pool, the ones that have simply taken up residence out there. You get the picture.

So the bankers figured out: hey, no need to rush things. Just leave the Land Title in the name of the foreclosed borrower, and HE gets to deal with the hassles and, equally, WE don't end up with liability exposure, especially if some little kid gets chomped on by that alligator. So the nightmare continues for the foreclosed debtor.

At this point the Debtor sits down and thinks about it: hey, these guys sued me demanding that the Court issue a Judgment and an Order that the property be turned over to them. So why not just give it to the bankers? After all, that is what they demanded of the Court.

So the Debtor goes down to the Land Title Record office at Town Hall with a Quit-Claim Deed, and that QC recites that, in exchange for release from further liability to the bankers, the property is quit-claimed over to the lenders, pursuant to the Judgment specifically sought by the lender and Ordered by the Court.

The Records Office mails the recorded QC deed off to the lender at their address, and now, on the Title records, the lender finally "owns it."

So now THEY get to pay for the costs, until they in turn finally sell it off to some new buyer - who is not on the horizon, and in some communities, may not be for years to come.

And that is the Quit-Claim Gambit. The lender's foreclosing attorneys were swaggering around like 800-lb gorillas, the B.S.D.'s of the "Bonfire of the Vanities," the Masters of the Universe growling that they would grind up that pro-se debtor in Chapter 7 into little pieces, and do the foreclosure - so you just hand it to them! Here you go, fellows. Have a nice day.

Which is why a smart lawyer always says to his client: watch out what you ask the Court for. You just might end up with it. And then what?

In the next Post, I will analyze the legal foundations and the probable responses to the Gambit.

[JustFileSuit]

Post #4: Responses to the Gambit

In the previous sequence of Posts, we have seen the development of the events that lead to a nightmare for the Debtor homeowner, who is underwater in a property, goes into bankruptcy do discharge his debts, is sued in foreclosure, ends up with a Judgment against him - and then the lender just sits there, leaving the debtor still on the hook for accumulating charges and especially property liability problems. Meanwhile our poor debtor has moved out of State, he cannot care for the place, and the charges, fines, and fees just keep piling up. And we have seen that one possible solution, so far not explored out there, is to go ahead and do the "bushido," use the aggression of the dull foreclosure lawyers against them, by simply deeding the property over.

Note particularly that, in Court, including within bankruptcy court, there is no ability for a borrower to oblige the lender to take the security in exchange for release from the money debt. Indeed, there is no ability for the Court to oblige the lender to do anything with the security, if the lender chooses not to. And even worse, even when the lender obtains a relief from automatic stay under 11 USC 362(d), and goes into State Court to foreclose and obtain a Judgment, that does not release the Proof of Claim nor does it discharge the debtor from future liabilities for the property! An astounding situation.

So the QC Gambit is emphatically NOT something you do within a Court Proceeding, as you cannot force the issue there. And if you try anyway, the lender can, if they choose (and they will, in today's market), file an Objection - and the lender will prevail. You signed a Note, borrowing money; you have to pay the money. The security, the property, is just some icing on the lender's cake.

But you have, with the Gambit, now put the lender adroitly into an impossible position. Let us take a look at the possible outcomes:

Outcome #1: the Lender makes no response in Court, and takes over the property (finally!). OK, you didn't want the property either, you were hopelessly underwater, and you wanted to move out of State and you certainly couldn't sell it to discharge the note. So if they do nothing, you are off the hook. Hurray!

Outcome #2: the Lender starts screaming like a stuck pig, and goes running back into the State Court demanding "recission" of the Quit-Claim Deed, on the grounds that there was no "consideration," or on the grounds that they did not assent, or whatever other grounds those dull lawyers might dream up (remember, the bankers still have the foreclosure lawyers on deck to deal with the property, and they are not very bright ).

And you will see, by examining other threads in this Forum section, that posters (such as JustBroke) will claim that the lender will prevail, because there is absolutely no foundation for the Gambit, at least not in the case-law. [Note: the cites produced are all for cases within the BK Court or outside the Court but before Judgment of Foreclosure, where the debtor is trying to force the lender to take the property in lieu of cash - and the Courts all hold that the Court has no ability to do any such thing).

OK, so they come back into Court with their bleats of pain. Fine; you just point out to the Court that the Demand for the Property in Judgment of Foreclosure what precisely what the lender, as plaintiff, was before the Court in docket No.xx-xxxxx. You are just handing to them what they demanded.

So now the Court is in a quandary - what to do? Well, the Court just might well rule that you have no authority to QC the property to the lender, and order the Recission, and you are back on deck as the "owner," albeit still with a Judgment of Foreclosure against the property recorded against you! Amazing. [Again, if the Judge rules that the QC is proper, then you are off the hook, and you have achieved your objective - you have unloaded the title.]

So, now what happens when you are back on deck as the newly restored "owner."? Sure, you have new exposure to all the problems of ownership, including liability.

But at this point, after all the above maneuvers, you file a Fresh Lawsuit against the lender (and, if you like, against their law firm) alleging Unfair trade Practices in suing you for the property, when they never really wanted the property! And you ask for huge damages: 2 million, 4 million, 20 million, 50 million, whateever your fancy. Hey, why not? These guys just put you and your family through the litigation wringer, forced you into bankruptcy, wiped you out, harassed you and your family, busted your marriage, wrecked your sexual life, caused you to be held up in scorn in the community - the roof caved in on your life. And for what -now they don't even want the property? OK, so now you can pay me the big bucks for the misery you caused, with your malicious and vexatious litigation (and it was malicious and vexatious, precisely because they sued you for something that they did not want. And that is an abuse of the Court system.

Now what? Well, at this point You are the Plaintiff, and they start feeling threatened. So now the bankers finally go hire some serious lawyers, not those stumblebums that got them into this big mess, and the serious lawyers (and the insurers, if there are any) recognize what a mess they are in. So it becomes "settlement time," because nobody wants to be sitting in front of a jury with these sets of facts laid out. It is a hopeless mess.

And what is the settlement? They tear up the Note and Mortgage, and hand you some money, and you get to sell the property (or go live in it for free). Or they go to the Jury, and they get hashed, and you can go retire from the fruits of that Judgment.

See, it is not the foreclosure lawsuit that reaps you the benefits: it is the Next one down the Line where you come out on top, because in their haste to grind you up, they over-reached. Watch out what you wish for, Lender!

[justbroke]

(This was probably better suited as a blog, not a discussion.)