Set to Close - Then Home Went to Foreclosure

12 Replies

Hi All, 

My husband and I were under contract on a Virginia home -inspection, appraisal, financing all ready to purchase- then found out that the seller's mortgages + judgments came to more than our purchase price of $76k. Seller owes $33k + $37k between bank and mortgage service company, and $16k (2017) + $1.5k (2011) + $9k (2007) in other judgments. Total debts come to about $97k, the appraisal came in at $120k, but comparable sales in this area are $85k at best. There is the potential of a judgment being released but the title processor says it'd take a miracle.

My realtor is not familiar with the foreclosure process and neither am I - should we try for short sale and how do you go about it? I am anxious to do all that I can because this home would be great for us to live in long-term, with the ability to rent out the basement. There was also a fire in the home less than 3 years ago, so all the major ticket items have been replaced already. Trustee sale date is a week out from now and I'm not sure if there is anything else we can do to avoid it going to foreclosure. 

If we are too late for short sale, what would be the best course of action at auction? I'm assuming there is a reserve min bid, any idea what that likely would be? And would an accepted bid price include these judgments or are we bidding on a purchase price for the home and acquiring all that debt afterwards?? We have the 10% necessary for a deposit, and our lender/title company has already said they could close for us in the 15 day window. 

What else can we do to win this home??

Originally posted by @Brittany Oberlin :

Hi All, 

My husband and I were under contract on a Virginia home -inspection, appraisal, financing all ready to purchase- then found out that the seller's mortgages + judgments came to more than our purchase price of $76k. Seller owes $33k + $37k between bank and mortgage service company, and $16k (2017) + $1.5k (2011) + $9k (2007) in other judgments. Total debts come to about $97k, the appraisal came in at $120k, but comparable sales in this area are $85k at best. There is the potential of a judgment being released but the title processor says it'd take a miracle.

My realtor is not familiar with the foreclosure process and neither am I - should we try for short sale and how do you go about it? I am anxious to do all that I can because this home would be great for us to live in long-term, with the ability to rent out the basement. There was also a fire in the home less than 3 years ago, so all the major ticket items have been replaced already. Trustee sale date is a week out from now and I'm not sure if there is anything else we can do to avoid it going to foreclosure. 

If we are too late for short sale, what would be the best course of action at auction? I'm assuming there is a reserve min bid, any idea what that likely would be? And would an accepted bid price include these judgments or are we bidding on a purchase price for the home and acquiring all that debt afterwards?? We have the 10% necessary for a deposit, and our lender/title company has already said they could close for us in the 15 day window. 

What else can we do to win this home??

 Have the home owner contact the bank and ask how much to reinstate and if they will postpone the sale so you can close. Normally, if you pay the amount in arrears, that will reinstate the loan and you can close. I'm not sure if you would want to take that route though. If the value of the property is worth more than owed to the bank, it is unlikely the bank will do a short sale. It is probable that the liens & judgments will have to be paid. If the house goes to foreclosure you might be able to buy it from the winning bidder. Usually, the foreclosure wipes out the liens & judgements. 

The seller *may* be able to file bankruptcy, stop the foreclosure, clean out a lot of debt and still sell the house to you. Talk to a bankruptcy attorney on how this could be done. It would delay your closing for several months. There are a bunch of *if's* going this route, but it usually works.

If the sellers file BK those judgment liens are not affected.

And if the bank is owed $70k on the lien being foreclosed then that is essentially the number. I wouldn't bother with any other strategies as they'll actually cost more. 

One thing I would be sure of before bidding is making sure my realtor doesn't claim a commission will be due. 

Account Closed the appraisal came in at $120k, but the highest selling houses in the area are below $90k. So you are saying that we could expect the liens and judgments to be off the house when it goes to auction next week? We definitely don't want to inherit any of those. I'll contact an attorney today!

@Tom Gimer I'm sorry, what do you mean by "that is essentially the number"? That is what we should expect for a starting bid at auction? There are two mortgages on the home, the smaller from Wells Fargo and the larger from a mortgage servicing company. 

Would one of these be senior to the other, or would the sale price at auction likely have to cover both? From all I've been reading, it sounds like the smaller judgments would be nullified at the sale, but I don't want to assume that!

And yes, my realtor has been super communicative about her part in the auction - no plans to receive any commission. Thank you!

You sure there are 2 mortgages? Which one is foreclosing? If it's the first that is foreclosing expect the second to protect itself given the apparent equity position. So I would still be looking at roughly $70k as the hammer price.

All junior liens except those that have super-priority will be extinguished in the foreclosure.

@Tom Gimer  Yeah that's what the title processor said - 2 mortgages and 3 judgments. The mortgages are with Wells Fargo and Statebridge (?). I'm not sure which is foreclosing... The title company would I'm assuming? I can check. 

What would qualify a lien as having "super-priority"? Thank you so much!

@Brittany Oberlin Check the advertisement regarding the auction sale and you'll find out which lien is foreclosing. Super-priority liens are created by statute... so things like X months of HOA dues, taxes, water, etc. can be given priority pursuant to local law.

@Brittany Oberlin If you are planning to buy this at the FC sale, then it's imperative that you know exactly what you're bidding on. If there are two loans, there is a HUGE difference to you and can result in a loss, if you are bidding on the wrong loan. Whichever loan was recorded 1st, is the first mortgage. Whatever was recorded next is in second position.

If the first mortgage is foreclosing, the sale will extinguish the 2nd. If the 2nd is foreclosing, the first mortgage does not get wiped out and the lien and the debt will remain in place. Lenders in 2nd position don't always bid to protect their position. Sometimes they will take the loss or whatever excess proceeds there are beyond the 1st.

In this example, if the 1st is owed $33k and the 2nd is owed $37k and the property sells for $60k at auction, then the 1st will be made whole at $33k plus foreclosing costs and then the 2nd gets whatever's left.

@Andy Mirza I've been trying to find that out! The title company explained that we needed to find out who foreclosed, but I called the city clerk and there is no NOD on record?? I did find a Notice of Sale from the newspaper though.. But looked online at the trustee listings today and the house is no longer even on the list for Monday's auction!

An investor friend said he couldn't find much info on the sale, that they may reschedule to give more time to advertise the property? Or that it might not come back up at all?... What would that mean, if it didn't come back up, and is there any way to buy this home? I just want to call up the bank and buy the thing lol, so frustrated!

@Brittany Oberlin Did your escrow fall through? Has your agreement to buy been canceled? If not, your realtor should be the one finding out the answers to all these questions.

I'm not sure what the main source of info is for foreclosure sales in Virginia but I'd suggest that you find out what the trustee sale buyers are using so you have a better idea of what's going on.

There are a myriad of reasons why the lender might postpone a sale. Have your realtor contact the listing agent to find out what's going on. The seller/borrower can contact the lender to find out exactly what's going on. If the sale was indeed postponed and the lender will do a shortsale, you might still have a shot at this. You need more info.

How can appraisal be way higher than sold comps?  It is more like you want to make an offer on a regular sale w/o hassle using $76 to get a $85K home.  If you are not using cash and quick closing, lenders often do not want to bother with it. You need a CDPE agent. About 35% short sales were successful. Often bank will sell to another bank and sit on it to wait for appreciation.