Buying a foreclosed house

6 Replies

hello i have a question about buying a foreclosed home. So my finances sisters house is getting foreclosed and they don't care to much (weird I know) but it's on a nice piece of property on a quiet residential block and beautiful neighborhood. If I wanted to buy the house how can I go about getting it? 

Would I call the bank that is forclosing the property and see how much the mortgage is and how much is owed, and see if I can possibly satisfy it and transfer the house to my name. Is that how it works I never did this before.

Now another thing is from what I hear they  owe $275,000 to the mortgage company but the house has an appraised market value of $435,000. Would I be able to pay pay the mortgage company the $275,000 they are owned and pretty much be left with a house that has $160,000 "built in equity" or would I have to buy the house from the bank based off the market value

PLEASE HELP because I love the house and if it is possible to buy the house for the $275,000 that is owed to the market instead of the market value of $435,000 that it would make for an awesome investment in my eyes.

If I'm not mistaken you should be able to buy it subject to or through a short sale situation.

Originally posted by @Greg Behan :

If I'm not mistaken you should be able to buy it subject to or through a short sale situation.

 So let's say the numbers were true and the mortgage was $275,000 and the house was appraised for $435,000. I would be able to buy it for $275,000 and put it on the market for $420,000 if wanted

@Anthony Caleca  

Until the property is foreclosed upon, it's a short sale situation.  That said, it's not as simple as simply paying the bank what is owed on the house.  Not to mention, "short sale" by definition means owing more to the lender than what the house is worth.  Based upon what you've said, that is not the case here.  You could certainly pay off the mortgage, before the foreclosure, and have your fiancé's sister sign the property over to you, but once it reaches the bank's hands, things become far more complicated.  They have to follow the state foreclosure laws, and part of that process (in most states) is an auction, so the property could certainly sell to anyone at the auction. 

Before the auction, and assuming there is equity, it is just an ordinary sale.  The bank will provide a pay off to the title company, including accrued interest, fees, advanced funds, etc.  it makes no sense they would give up $100k equity, but if that's the case, you simply buy it before the auction.  Get a current mortgage statement from the owner and verify there are no other mortgages, judgments, liens, etc.

As is quite often the case, @Wayne Brooks  has given a spot on answer. The only thing I would add to his answer is that the payoff statement from the lender will have a specific date on it by which closing must happen, otherwise a per diem amount will be needed to go beyond that date (or even a fresh payoff statement might be needed). 

If the balance owed (plus liens and judgments and any seller closing costs) is less than the amount you are willing to pay, there will be no need to discuss a short sale (AKA discounted payoff) - the proceeds of your purchase will cover everything that is owed to others. 

Until the sheriff sale (or whatever its called in your area) happens, it still belongs to your future sister in law.  They are the ONLY ones who can sell it to you.  The lender won't even talk to you unless you have an "authorization to release information" signed by the borrower (and sometimes notarized.)  

This story doesn't add up. If its truly worth $435K and the $275K loan is the only encumberance you SIL would be a complete idiot to do anything other than sell at the best price she can get. If they sell at $435K on the MLS, the will net something like $400K after costs. That puts $125K in their pocket after paying off the loan. So, I suspect there's more to the story than you know. Maybe their are other liens, maybe there is damage to the house. Something. You need to find out.

If you really want to start the ball rolling, write a purchase contract with them for $285K.  That gives enough room to pay the closing costs and pay off the loan.  Take it to a title company and have them start the process.  They will do a title search and you can find out more about the situation.  Meanwhile, start a serious evaluation of the work needed and the real value.  A house that's being lived in will always need some amount of work to get it ready to sell.

If its truly worth $435K as-is, and you SIL sells it to you for $285K, then yes, you could turn around and sell it at a higher price. Realize the highest price for a move-in ready house is achieved by listing it with a seller's agent on the MLS. You will have significant closing costs, but you will get a higher price.

If you do this and make a significant profit, you should plan on the story of how you screwed your SIL out of her house to come up at every family event.  Even if she agrees to the deal now.  Any profit you make is truly coming straight out of your SIL's pocket.

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