Buying a pre-foreclosure, legal advice please

5 Replies

I am a home buyer and I found a house that was going into foreclosure. We have a signed contract with the seller but the issue is that the house is apparently set to sell at auction on the 16th of this month. Being that closing takes 30 days there is not enough time to get closing done before the 16th. The home is in Missouri and this will be my first house. There is a reinstatement fee of 17k but I only have 13k on hand and the seller is completely broke. I have offered 145k where as the remaining note on the house is for 135k with the reinstatement fee figured in. I have spoken with his bank about the situation by providing the contract as well as the proof of funds from my lender. What is there that I can do to make this happen? I have worked very hard negotiating with both the bank and the seller to come to the terms I am at and view this as a deal that wont happen very often in the real estate game. 

You simply need to convince the bank that you will actually Close....they’d rather have a full payoff than foreclose. 

Otherwise, if it is a Judicial foreclosure process you can likely go into court before the judge, convince him, get the sale date postponed. We did that regularly here for short sales. 

@Isaac Black

You either pay off the loan or you'll have to walk away. If the owner has to sell short for less than he/she owes, the bank will want it put on the market with a listing agent to maximize the sales price.

The first question is if there is any equity in the property. How did you come up with the offer price?

@Christopher Phillips Will his bank not care if we have a signed contract for purchase of his home? Given that it is set to sell this week at auction. I've been calling them almost every day trying to work out the details but no one there seems to know what to do given the situation.

@Isaac Black

Most banks have internal policies that sales going short for less than what's owed have to be listed on the market with an agent. They don't have a one-off policy that says it's close enough.

If the mortgage is more than the value of the home, your deal is subject to third party approval, which means it doesn't have any value.

Two things:

one, when you're sending in a blind offer off-market, they have no real idea about the condition of the property or the value of the property. At a minimum, they'll want a Broker Price Opinion (BPO) or a full appraisal to understand the value of the house. Banks have zero idea of the value of the property without a BPO or appraisal. That's not something that gets tracked during the life of a property unless someone recently had a valuation done for a refinance.

Two, with a one-off deal, they don't know if they are getting the best deal because it wasn't exposed to everyone in the market.

So, if the property has equity, the owner will use the proceeds of the sale to pay off the mortgage. If there is no equity and it's a shortsale, by policy, it will have to listed on the market. If the auction is right around the corner, the only thing that will stop it is a full payoff of the mortgage or being listed with an agent "and" convincing the bank to stop the auction.