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A little known real estate investing tactic – thank goodness! Post 137

The Idaho Statesman 09/27/09

Stranger rents out Boise woman’s home without her permission

A Boise house belongs to a nursing-home resident, officials say, but a man profits from renting it out.

Two years ago David Foldesi, a man unknown to the owner of this house on Sunset Avenue, paid the back taxes on the property, claimed he owned it and started renting it out. The original owner had the police remove the tenants, who did not know they were living there illegally. Now, it appears people are once again living in the house without the owner’s permission. Is Foldesi renting it out again?

This month, the city of Boise told Marcella Boylan that if she didn’t pay $241.55 owed for trash collection, her name would be published in a full-page newspaper ad to call attention to scofflaws.

But Boylan never saw the letter. The 92-year-olds nursing home caretakers forwarded it – like all her mail – to her former daughter-in-law, Caroline Werner.

And Boylan certainly didn’t rack up those late fees – she suffers from Alzheimer’s and hasn’t lived in her Sunset Avenue house in years.
In fact, that house should be sitting vacant – no one has legally lived there since Boylan’s grandson died in 2006.

But a man who never met Boylan and – according to county officials – has no legal claim on the home, has been renting it out for almost two years.
“I call the city and discontinue the trash service, and he calls and starts it up again,” said Werner, who has power of attorney for Boylan and what’s left of her estate.

Since the Boise woman’s husband and her three children are deceased, Werner is the only one left to look after the house, but she lives in Colorado.
Though she has contacted the police to remove illegal renters, more unsuspecting tenants move in.

“I feel so helpless,” Werner says. “I’ve just kind of given up.”

IS THERE A ‘TAX DEED’?

On May 16, 2007, David Foldesi walked into the Ada County Courthouse and paid $8,875.62 in delinquent property taxes on Boylan’s house.
Both Boylan and her husband, Dudley, who died in 2005, had faced serious health problems – and the costs added up.

When the taxes weren’t paid on the house, the county started the steps toward putting it up for public auction – a process called a tax deed sale. The on-line auction was scheduled for May 19-21, 2007.

Once the county starts the tax-deed process, the county takes ownership of the property until it is sold or the delinquent taxes are paid, whichever comes first. In Boylan’s case, the delinquent taxes were paid, by Foldesi, just three days before the auction.

Once the delinquent taxes were paid, the county canceled the auction and granted a “redemption deed” to Boylan. Foldesi is named in the redemption deed as the person who paid the delinquent taxes.

But a redemption deed does not convey ownership of, or access to, a property – and neither does paying somebody’s property taxes, county officials say.

When Foldesi paid the taxes, that did “nothing more in this case than cancel the tax deed and all related proceedings,” Ada County Treasurer Cecil Ingram said.

Foldesi thinks differently.

When asked who gave him permission to rent out Boylan’s house, he said: “The owners. Who are the owners? The tax deed holder.”

But neither Foldesi nor anyone else can hold a tax deed to the house, because there is no tax deed for this property, according to the county. Only if the house had gone to auction could someone have bought the tax deed, which would have given that person ownership over the home.
Some states do sell tax deeds or tax liens without an auction giving ownership to the person who pays off the tax bills. That may be part of the confusion.

Foldesi spoke only briefly to the Statesman before hanging up. He has not returned subsequent calls, including requests to see a tax deed for the house or a certificate of sale from the county. Foldesi and his partner, Debbie Smith, own Boobies restaurant on Ustick Road.
TENANTS CAUGHT UNAWARE

Werner first found out about the unexpected house guests when a neighbor of the Sunset home notified her in October 2007 that someone was living in the house.

Werner called the Ada County assessor’s office and verified the property was still in Boylan’s name. She then contacted the police and filed a trespassing complaint.

The tenant did not know she was living there illegally and left willingly.
But Foldesi told the investigating officer that the redemption deed gave him claim to the property and he could do with it as he saw fit, according to the police report.

The police notified the county in February 2008 that Foldesi said he intended to sue the county over the house. So far, he hasn’t.
Werner still does not know how Foldesi gained access to house. She never gave him keys.

Shortly after the police evicted the first tenant, Foldesi rented the house to Melony Velasquez.

Velasquez, who lived there from February to October 2008, said she thought Foldesi owned the house. When she moved out, Foldesi immediately rented it again. That tenant, who asked not to be named, was living in the house until this week.

When he learned from the Statesman what was going on, he called Werner, apologized and told her he would move out immediately, Werner said. She feels bad for the tenants who thought they were legitimately renting a house.
WHERE SHOULD THE MONEY GO?

Werner said she is at wit’s end. She cannot afford to hire an attorney or someone to monitor the house, and Boylan’s estate does not have any money for legal action against Foldesi.

Werner can’t sell the house – a reverse mortgage helps pay for Boylan’s long-term care. Nor can she rent it out, because the income could make Boylan ineligible for Medicaid.

Between Boylan and her husband, the bills have mounted. The Idaho Department of Health and Welfare has a $498,905 lien against Boylan and her house for money the state paid for the couple’s nursing facility care.
When Boylan dies, the state will get the house, which is currently assessed at $172,100.

Werner said she could keep asking the police to remove trespassers or pursue getting Foldesi banned from the property, but she doesn’t think it will do any good.

“How am I going to enforce it?” she said. “I am in Denver. He will just go back in again.”

Werner estimates Foldesi has been renting out the house for almost two years. According to past tenants and the police report, he has charged between $550 and $700 a month. She thinks any income derived from the house should be going to pay for Boylan’s medical costs.

“I hope he knows he is liable to Medicaid for every dime he made off the property,” Werner said. “I hope they go after him.”

I printed the story in its entirety; it is too good not too. http://www.idahostatesman.com/boise/story/915580.html?pageNum=11&&&&&&&&&&mi_pluck_action=page_nav#Comments_Container

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Coach Mitch’s REFLECTIONS

There is always one in the crowd!

The proverbial bad apple shows itself here. Situations like this are how the entire barrel gets a bad name.

Adverse Possession

A strategy called Adverse Possession is similar. This situation occurs when a property is abandoned and a non-owning party takes control of the property, pays its bills, its upkeep, etc., and eventually, through a legal process, gets legal title.

Adverse Possession is rarely done because of the time frame involved, 5 to 15 years, depending on the state, and the risks.

The actual owners or their legal heirs or some other person who has legal standing can appear at any time, reclaim the property, and all monies invested are lost, with no way to pursue any action to reclaim investments.
http://answers.uslegal.com/questions.php?q=309

If attempting Adverse Possession, be sure to learn and understand the laws of the state and be sure to engage an attorney competent in adverse possession law.

This situation

Be aware that this situation, while not common, is known to happen. There are many empty properties being used for nefarious purposes.

The reverse mortgage is commonly used as a way to pay nursing home bills and end of life costs. The bank will be in first mortgage position, but the government tax lien is in first position, period. The only lien that comes before a mortgage is a government tax lien. That is why tax lien investing can be seen as safe.

The bank’s agenda

Why didn’t the bank pay the back taxes? The bank usually gets a report when the taxes are delinquent and the bank normally pays the back taxes to protect their investment, the mortgage.

In this case, the government has liens against the property for much more than the property is worth. Therefore, if the bank did pursue a mortgage foreclosure auction, the bank would not receive any compensation. Any auction proceeds would go to the first lien holder, the state.

If the bank did pursue a mortgage foreclosure, and if Ms. Werner or the nursing home had informed the press, the bad publicity would potentially have besmirched the bank.

The bank is behind a rock and in a hard place. The bank must continue making the monthly payment to the nursing home, even though the bank will never get the property, and even though the bank continues to lose money on this transaction with each monthly payment.

The bank’s best course

In this situation, the best course of action for the bank was – let the county pursue a tax deed auction.

The county is required by statute to take a property to tax sale if the taxes are not paid. Upon a tax deed auction, the mortgage is eliminated and so is any obligation the bank has to make monthly payments to the nursing home.

The best laid plans

Unfortunately, for the bank, an investor came in and paid the taxes. The government does not care if the payer has an interest in the property. The government will take money any way it can get it.
The investor made a calculated bet. He figured that he could make more money than the investment. Of course, the investor knew that he does not have legal title, especially after the first tenant was evicted. However, the investor is nervy. In this case, that nerve may be foolhardy, as a prosecutor may pursue an action.

What could be done?

Ms. Werner could put the home into a trust, as per the Garn / St. Germain Act, changing the ownership while still keeping the mortgage intact, rent out the home, have the net income put into an account and use it to make Mrs. Boylan’s life a bit more comfortable. In this manner, the neighborhood would not have a blighted home bringing down property values.

Government does not follow-up

Even if there is some slight technical Medicare law illegality, the government still has to connect the dots. Medicare does not have any oversight, as evidenced by the amount of fraud in the system. Medicare would never find out that the property is throwing off income. Even if Medicare did, the government is getting the property and Mrs. Boylan would be put on welfare, still subject to Medicare.

Take care,

Mitchell Goldstein – Coach Mitch
518-439-6100 until midnight EST

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