Foreclosure Wipes Out Quit Claim Deed

  Question: We have lived in our Arcadia home in east Phoenix for more than 25 years.  We have always watered and trimmed the oleanders between our home and our neighbors’ home to the east of us.  In 2005 we entered into an agreement with our neighbors to continue to water and trim these oleanders in exchange for a quit claim deed from our neighbors to the land underneath these oleanders.  We paid for the cost of a survey and for the cost of recording the quit claim deed.  Two years ago our neighbors lost their home to foreclosure.  The new owner says that, because of the foreclosure, this quit claim deed meant nothing.  He now wants to tear down those oleanders on his side of the original property line.  Does the foreclosure two years ago of our neighbors’ home mean that the quit claim deed from our neighbors to the land under these oleanders is worthless?

  Answer: Probably.  Although you received a quit claim deed from your neighbors, you apparently did not get a quit claim deed from your neighbors’ mortgage lender that had a security interest in all of your neighbors’ property, including the land under the oleanders.  Therefore, after the foreclosure sale the new owner is not bound by the quit claim deed from your neighbors to you.  The reason is that your neighbors’ mortgage over the entire property was recorded prior to the quit claim deed for the land under the oleanders.  Note: if your neighbors had sold their home, rather than losing their home to foreclosure, there should not have been a problem for you, even without the consent of your neighbors’ mortgage lender to the quit claim deed for the land under the oleanders.  First, your neighbors could not sell the land under the oleanders as they no longer owned it.  Second, in exchange for a release from your neighbors’ mortgage lender of any interest in your neighbors’ home, at the close of escrow the new buyer’s mortgage lender would pay off completely the loan of your neighbors’ mortgage lender. The new buyer’s mortgage lender then would have a security interest in the home, but not a security interest in the land under the oleanders that your neighbors no longer owned.