Can I buy a home directly from an owner facing foreclosure?

Real Estate Agent · Emerald Coast, FL · Member since 2016 · 820 posts · 486 votes

Can I buy a home directly from an owner facing foreclosure in advance of the foreclosure auction? For example, I see a home up for auction, and the amount owed is about $38,000. Assuming this is the only debt (and I understand the importance of a title search), could I make a deal with the owner to buy the house for $38,000 (paying it directly to the bank where it is owed)--effectively saving them from having a foreclosure on their record and getting a house worth way more for only $38,000? This seems possible but too simple. Looking forward to your sage advice!

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John Thedford

Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes

You can purchase it BEFORE the auction. You must reach a deal with the owner and it must be at least enough to extinguish the mortgage. If it is worth far more than the amount owed there may be another reason such as a superior lien, etc. You would need to get a contract with the owner, and use a title company. They would get payoff figures, etc and you would need to close before the sale. I purchased one last year and we closed three days before the auction. Although it still showed up on the county auction website and was "bid on", we closed prior to the sale. Time is going to be of the essence in these types of transactions. Generally, it may be tough to get fast quick answers due to attorneys and banks being involved. In my deal, I had a contract for several weeks before the auction. The owner found out about the sale roughly a week in advance, and I didn't get payoff figures till four days prior to sale. We waited and waited weeks before they finally were able to provide that info, and it quite possibly might never have occurred being so close to sale date. Last but not least: DON'T sign contracts with owners unless you have funds. They are already in a bind and the last thing they need is their hopes raised and then get let down.

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Sean Cassidy
Investor · Brownville, ME · Member since 2017 · 83 posts · 35 votes
9y
If it's up for auction I do believe it's already been foreclosed on.
1 Reply
January Johnson
OP
Real Estate Agent · Emerald Coast, FL · Member since 2016 · 820 posts · 486 votes
9y
So is there any way I could purchase the house for the amount owing before the auction takes place?
0 Reply
Brett Goldsmith
Investor · Los Angeles, CA · Member since 2012 · 1k+ posts · 500 votes
9y
If it's in foreclosure and not a short sale yes. Be careful of equity stripping.
2 Reply
January Johnson
OP
Real Estate Agent · Emerald Coast, FL · Member since 2016 · 820 posts · 486 votes
9y
Thank you @Brett Goldsmith. I'm not familiar with that term, so I'll look it up.
0 Reply
Account Closed
Property Manager · Baton Rouge, LA · Member since 2014 · 2k+ posts · 195 votes
9y
Foreclosure sale process differ from State to State. I.e., in Louisiana here the Bank most filed Suite against the mortgage holder and the property goes to a Sheriff Sale. At this "Auction" the public, as well as the Bank can Bid on the property.
However, pre -foreclosure sale of the property can be arranged with the mortgage holder. You would have the mortgage holder get a pay off on the property or authorize you to do so.. The Bank just wants the money, they don't care who pays it. You simply, buy the house for the back payments, wants they owe on it, and at this stage their attorney fees, if the mortgage holder agrees in writing the house is yours.
7 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Brett Goldsmith Equity stripping laws are very tough on the west coast CA WA OR... that's for sure.
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1 Reply
January Johnson
OP
Real Estate Agent · Emerald Coast, FL · Member since 2016 · 820 posts · 486 votes
9y
I'm in Florida as well. I've consulted a real estate attorney to find out how I might go about this if it's possible. (Well, I've emailed her on a Saturday and am waiting to hear back anyway.) I'm not sure if I would buy it and resell it or buy and hold and rent. In any case, I don't think I would rent to the current owner. Can someone give me more information on what "equity stripping laws" really means? @Account Closed

I really appreciate you all answering this newbie's questions!
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Eric James
Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
9y
The question that comes to my mind is, if the owner only owes $38k on a typical home (say value over $100k) why haven't they sold it already rather than go through foreclosure? There probably is some reason.
1 Reply
John Thedford
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
9y
You can purchase it BEFORE the auction. You must reach a deal with the owner and it must be at least enough to extinguish the mortgage. If it is worth far more than the amount owed there may be another reason such as a superior lien, etc. You would need to get a contract with the owner, and use a title company. They would get payoff figures, etc and you would need to close before the sale. I purchased one last year and we closed three days before the auction. Although it still showed up on the county auction website and was "bid on", we closed prior to the sale. Time is going to be of the essence in these types of transactions. Generally, it may be tough to get fast quick answers due to attorneys and banks being involved. In my deal, I had a contract for several weeks before the auction. The owner found out about the sale roughly a week in advance, and I didn't get payoff figures till four days prior to sale. We waited and waited weeks before they finally were able to provide that info, and it quite possibly might never have occurred being so close to sale date. Last but not least: DON'T sign contracts with owners unless you have funds. They are already in a bind and the last thing they need is their hopes raised and then get let down.
15 Reply
January Johnson
OP
Real Estate Agent · Emerald Coast, FL · Member since 2016 · 820 posts · 486 votes
9y
@John Thedford, thank you for your awesome answer! I'm a Realtor, but a relatively new one. Do you recommend I contact the owner myself or have an attorney do that? I will definitely do a title search to see if it's worth pursuing and how much is owed in total before I get too deeply in. I do have funds available for the amount that is owed, so that box is ticked, at least, but you're so right about that. I'd be upset if I were the owner and my hopes got raised and then dashed.

@Eric James, I wonder that as well, but I missed an opportunity last August to pick up a house that I know was worth about $125K when all that was owed was $19K (I watched the online auction with a heavy heart--it sold for $100K, and I didn't have that kind of money, though I did have the $19K, just not the fearlessness or the knowledge to get the deal before the auction!). I am hoping to rectify my prior timidity and ignorance on that deal with this one, possibly. The owner of that home--actually someone I know though he didn't know I was interested in his home--just had his head in the sand and was waiting it out, probably didn't actually think anyone would take his house - but they did! Maybe this guy does, too. Who knows?
1 Reply
John Thedford
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
9y
@January Johnson
If this 38K is a superior lien odds are the 2nd is going to bid enough to cover their exposure. You need to have a title company do a prelim report for you. Many new investors have been the high bidder believing they got a bargain at pennies on the dollar only to find out they were purchasing the second. In those cases,the new owner is obligated to pay those as well. Your title company can also check for other liens such as IRS tax liens, etc. It is NOT that difficult but you must cover your bases. I know lots of investors that routinely buy at the foreclosure auctions, most successfully. I also have a friend that got a steal for around 50K and then found out they bought the second and owed another 250K which put them in at roughly FMV. Be careful!
5 Reply
Eric James
Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
9y
If someone really thinks they can't lose their $125k house, I'm doubtful they'd sell it for anywhere $19k. But, I guess you could always give it a shot.
2 Reply
January Johnson
OP
Real Estate Agent · Emerald Coast, FL · Member since 2016 · 820 posts · 486 votes
9y
@Eric James, Long story on "the one that got away", but the house I was speaking about was 5 months from being paid off when it was put up for auction. Guy stopped paying on it about 18 months prior to that - had inherited it from his mom who had paid on it for 28 years before she died and left it to him with just 2 years left to go. He paid it for 5 months and then stopped. If I had had the knowledge and the balls last fall when it was auctioned, I would have offered him $20K (or even $25K) plus moving expenses. But I didn't, so we'll never know how it COULD have turned out. It's at least worth trying on this one if the title search comes back with good news. But nothing is known for sure yet! : )
2 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@January Johnson Equity stripping would be you buying that house for 19k..
when in fact it sold for 100k at auction that is equity stripping.
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1 Reply
Sekelle O.
Real Estate Investor · Irmo, SC · Member since 2012 · 106 posts · 90 votes
9y
The way the term "equity stripping" is being used confuses me. I thought it was a type of foreclosure rescue scheme. If the investor buys the property for $38k and it is worth $100k or more, is it still equity stripping if the seller understands that he is giving up all rights to the property and that the transaction is in no way meant to help him save his home or allow him to continue to live there?
0 Reply
Account Closed
Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
9y
@January Johnson @Eric James Back when we used stone tablets for writing letters, (a long time ago) all I did was foreclosures. I went to the house of one guy in a very, very nice neighborhood and asked if he was aware his house was set for sale in two weeks. He was on a ladder installing a very expensive chandelier in the entry of a very expensive house, and said "it's all taken care of". It went to sale two weeks later. He was emotionally "traveling in Egypt" on de-nial. (The Nile) Bad joke. Anyway, the point is, some people are "deer in the headlights" when things turn sour. Never underestimate poor decisions. He lost about $200,000 in equity by my calculations, that he could have saved most of if he had listened to me. He had no interest. I was an intruder as far as he was concerned.
1 Reply
Bob Okenwa
Real Estate Agent/Investor · Peoria, AZ · Member since 2016 · 2k+ posts · 2k+ votes
9y
Jumping in a little late here but was kind of wondering some of the same things as @January Johnson was. So you would just have to reach out to the foreclosure attorney to get things started and then get a title report to ensure no senior liens and you'd have a chance to buy the property before the auction?
1 Reply
January Johnson
OP
Real Estate Agent · Emerald Coast, FL · Member since 2016 · 820 posts · 486 votes
9y
@Jay Hinrichs, so what about houses that go to auction and actually sell for far below their market value--like just above the amount owed that would have been the bank's max bid. Is that also "equity stripping"? I can't see how one would be and one would not be, but again - I'm new to all of this. Thanks for your reply!

And yes, @Sekelle O., I did a quick Google search and came up with your same definition, but I'm not experienced in the technicalities, so I'm interested to learn here, as well. : )
0 Reply
Ethan Atkinson
Investor · Athens, GA · Member since 2011 · 306 posts · 156 votes
9y
Yes. And and you also have to act very quickly. There is also likely some additional money owed. Also check with tax Assessor's office to see how much is owed. Every once in awhile these deals come up where they've been paying for many years and it's actually a deal instead of being upside down.
1 Reply
Vince Mayer
Wholesaler · Arnold, MO · Member since 2013 · 348 posts · 183 votes
9y
@January Johnson I don't think you have to worry about it being equity stripping from the way you frame this. Here is a definition:
Equity stripping, also known as equity skimming, is a type of foreclosure rescue scheme. Often considered a form of predatory lending, equity stripping became increasingly widespread in the early 2000s. In an equity stripping scheme an investor buys the property from a homeowner facing foreclosure and agrees to lease the home to the homeowner who may remain in the home as a tenant. Often, these transactions take advantage of uninformed, low-income homeowners; because of the complexity of the transaction, victims are often unaware that they are giving away their property and equity.[citation needed] Several states have taken steps to confront the more unscrupulous practices of equity stripping. Although "foreclosure re-conveyance" schemes can be beneficial and ethically conducted in some circumstances, many times the practice relies on fraud and egregious or unmeetable terms.[1]
I guess the individual's credit is poor and he does not have a lot of money coming in or else he'd refinance or sell outright. Right?
4 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@January Johnson court house steps is public auction with set bid..
dealing direct with owner in distress is not.. most of the foreclosure rescue scams that got shut down a few years back were located in FLA... these were bad actors.
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2 Reply
Jeff Johnson
Real Estate Investor · La Plata, MD · Member since 2017 · 128 posts · 18 votes
9y
In MD, we can't talk to owners in foreclosure and buy their house. The laws here are so strict when it comes to this subject.
1 Reply
January Johnson
OP
Real Estate Agent · Emerald Coast, FL · Member since 2016 · 820 posts · 486 votes
9y
@Vince Mayer, I can see that he took out 2 loans (can't see what is still owed), and I can also see that he has been in danger of foreclosure (multiple notices of lis pendens filed over time) since 2010. I may very well be dreaming of a good deal, and this may turn out NOT to be that. I also wonder why he doesn't just sell outright - or why he didn't sooner just to get out from under it.
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Ethan Atkinson
Investor · Athens, GA · Member since 2011 · 306 posts · 156 votes
9y
One more note - if you are seeing this on Auction.com or similar site then they are just marketing a number that will get the most viewers and bidders on their website. Did you already answer in this thread where you saw it? In Georgia with a much Different foreclosure law - we can buy in the four weeks prior but it's usually difficult to get the bank to respond that quickly. In florida correct me if I'm wrong but isn't the proceeds much longer? And now you would be seeing the advertisements of homes already foreclosed?
1 Reply
Brandon McLean
Investor · Knightdale, NC · Member since 2014 · 122 posts · 74 votes
9y
If you want to learn about properties and their owners you could try Abstrax, and order an Owners and Encumberances Report (E&O). Prob like $100-300 depending on the county. Abstraxllc.com. We used it while buying notes. I was also under the impression the "equity stripping" relates to deals where the seller stays in the home, AKA "leaseback"...but I could be wrong, hoping an attorney or other expert on the topic chimes in.
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