Complex Closing on Foreclosure

8 Replies

I recently won an auction on a popular foreclosure auction website.  The house that I won sits on two lots.  The majority of the house is on the primary lot but the attached garage and part of the basement extend into the additional lot.  The original owner of the house and two lots is deceased.

During the closing process it was discovered that the bank only foreclosed on one of the two lots so the other lot is still in the name of the deceased owner.  The bank asked me if I would be willing to close on the one lot and try to work something out with the owner of the other lot.  I told them that I would close on the property with a price reduction and that the closing would have to be contingent on me being able to purchase the other lot from the owner.  

They have come back to me and said that they will accept the price reduction but can't make the sale contingent on me purchasing the other lot.  The bank said that they would accept a further price reduction in order for me to purchase the house with only one of the lots.  The other option that I have is to cancel the contract and the bank will refund my earnest money deposit and they will go through the foreclosure process again to include both of the lots.  

With the price reduction, this will be a very profitable deal but I am highly concerned about the possibility of the owner of the other lot not being willing to work with me on the purchase of the lot.  Has anyone ever encountered a situation like this?  Would you close on the one lot and try to work something out with the owner of the other lot or just cancel the contract?

The most important issue is whether the other lot was included in the original mtg, and just mistakenly left off the foreclosure OR was the other lot mistakenly not included in the original mtg.  Your question implied it was the former, which is good. Personally I would take the property, at the discount, With the bank assigning you Their mtg and right to foreclose, or amend the original foreclosure which would be quicker if you are in a judicial foreclosure state.  Then, file or amend the foreclosure to get the other lot.  Should be a slam dunk. 

Unless someone has opened probate, there is no one to "buy" the property from, but you can still foreclose.  If it was probated, you could try to get a QCD from the heirs, to avoid foreclosure.

Originally posted by @Wayne Brooks :

The most important issue is whether the other lot was included in the original mtg, and just mistakenly left off the foreclosure OR was the other lot mistakenly not included in the original mtg.  Your question implied it was the former, which is good. Personally I would take the property, at the discount, With the bank assigning you Their mtg and right to foreclose, or amend the original foreclosure which would be quicker if you are in a judicial foreclosure state.  Then, file or amend the foreclosure to get the other lot.  Should be a slam dunk. 

Unless someone has opened probate, there is no one to "buy" the property from, but you can still foreclose.  If it was probated, you could try to get a QCD from the heirs, to avoid foreclosure.

Virginia is non-judicial.

I am still confused about the comments from the bank. 

Updated 8 months ago

My apologies... Virginia is both judicial and non-judicial, depending on the instrument. But non-judicial is considerably cheaper so more common...

I assume the lot is included in the mortgage because the bank said that if I don't purchase the property and work something out with the owner then the bank will start the foreclosure process again and put it back up for auction once the foreclosure it complete.  Thanks for your input.  I will reach out to the bank and the title company tomorrow to try to figure out exactly what is going on and try to reach a solution.

Very strange. 

If both lots were offered as security for the same loan, the legal description in the mortgage/DoT would contain the description of both lots... so when the DoT was being foreclosed, both lots would necessarily be included in the sale.

But since you're hearing something different I assume there is another loan for Lot2 which is also in default (or at least another DoT)... and since there is now a known title issue they may need to convey both lots to the same buyer.

Keep us posted.

I just heard back from the bank this morning.  They said the 2nd lot was inadvertently excluded from their mortgage so it still belongs to the former owner (who is deceased).  The bank has filed a title claim but that process could take a long time.  They are wanting to see if I would be willing to close on the house and one lot for a price reduction and purchase the 2nd lot from the current owner.  That is the reason they are offering a price reduction.  So my options are to wait for the title claim decision and purchase both of the lots after the issue has been resolved, cancel the sale and wait for the property to go back to auction, or purchase the one lot and hope that I can work something out with the current owner to purchase the remaining lot.  Any recommendations would be greatly appreciated.

I'd personally move on to the next deal. While this is not common, its not unheard of. I've done it before sadly! if you are on well/septic, and decide to proceed, I'd make sure there are no shared well/septic agreements and make sure nothing on your lot goes over on to their lot or vice versa. I assume the other lot is just vacant land. Can they build? Will they? Are they problematic (The heirs)? a lot of unknowns.

I'm inclined to agree with @Ron S.

There's no guarantee the bank will succeed with its claim... after all, the title commitment and policy are usually generated from the same legal description attached to the mortgage, plus the bank's best witness is dead.

So if you close now you'd be buying a property that has an attached garage and part of the basement encroaching on the neighbor's lot. 

Ewww.

I agree.  Right now I am talking with the heir to see if I can work something out with them.  I am going to try to get the additional lot under contract in the next day or so before I let the bank know whether I will continue with the purchase or not.  The heir seems to be willing to work with me.

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