Buying Home Pre-Forclosure, Real Estate Attorneys Welcome

9 Replies

I have an extremely interesting situation in front of me. I found a home that is pre-forclosure and set to sell at auction in 10 days. I have contacted the home owner and found that he is 6 months behind on his mortgage owing 16k in unpaid monthly mortgage costs. He has claimed that he spoke with his loan attorney and if I wanted to pay off his last 6 months that he would transfer the title of the house and mortgage to my name. He still owes around 127k on the house. Supposedly I can take over the mortgage and refinance it however I like. Is there any validity in this? This house has an ARV value of roughly 290-320k hence my great interest.

The payment would be a wired transaction where we sit down with his attorney and title company to sign rights to the home over. Given that the bank still would have an unpaid note I do not understand how this can be something that they would go for. Should I instead discuss paying him the 127k remaining + 16k in owed mortgage to total 143k? What can I possibly do?

Originally posted by @Isaac Black :

I have an extremely interesting situation in front of me. I found a home that is pre-forclosure and set to sell at auction in 10 days. I have contacted the home owner and found that he is 6 months behind on his mortgage owing 16k in unpaid monthly mortgage costs. He has claimed that he spoke with his loan attorney and if I wanted to pay off his last 6 months that he would transfer the title of the house and mortgage to my name. He still owes around 127k on the house. Supposedly I can take over the mortgage and refinance it however I like. Is there any validity in this? This house has an ARV value of roughly 290-320k hence my great interest.

The payment would be a wired transaction where we sit down with his attorney and title company to sign rights to the home over. Given that the bank still would have an unpaid note I do not understand how this can be something that they would go for. Should I instead discuss paying him the 127k remaining + 16k in owed mortgage to total 143k? What can I possibly do?

 Do you have a written reinstatement letter from the bank? It needs to show on their letterhead how much money they want in order to stop the sale by a certain date. Anything else is just guessing.

Since we don't know from your post which state the property is in, it is difficult to guess which laws apply. In some states presenting a check to the bank (trustee) the day before the sale stops the sale. In other states it is various days before the sale. There is a lot going on behind the scenes with a preforeclosure. You could present the check to reinstate, then transfer title and technically they could call the loan because of the due on sale clause (because you transferred title).  It doesn't mean they will, it's just that they could. You can take over the loan if it is done properly, keeping in mind that you have to do so properly to minimize the risk of the due on sale.

Also, you want to avoid equity stripping and to follow the S.A.F.E. Act and any applicable laws regarding foreclosures in the state the property is in.

It seems you have a few options @Isaac Black . First of all, in what state are you and the property? Do you have a real estate attorney representing YOU in this transaction?

If you pay off the 127k + 16k outstanding you would own the house outright and I think that would be the cleanest way to do it. You'll have no bank and then can refinance it if you so desire. Just make sure if you do this that there is nothing else owed to satisfy the lender.

If you pay just what is owed and he transfers property to you for the current mortgage (subject to his mortgage), the lender would have to approve you as the new borrower. If they don't there is a risk (small, but still a risk) that they can call the loan due since a transfer of ownership occurred, violating the terms of the mortgage.

If you have the money available, I would pay the $127k + $16k and keep it cleaner for you that way.

I hope that helps!  

If you can pay off the full loan, that is better.  He is talking about a “subject to”.....title should be transferred to you but the loan can’t be “transferred” to you.....you make payments on His loan.  Yes you could refi later, but you have due on sale possibilities to deal with in the mean time..

@Isaac Black Could be a good deal indeed assuming actual owner is current on tax , insurance, hoa and you can pay off the entire note. I would also get legal advice with my own attorney for piece of mind.