Foreclosure bank cancelling contract saying they must now re-foreclose?

Question

I've been in contract for a foreclosure home on a lot for appx 18mo now. Closing has kept getting pushed back due to the bank foreclosing on the incorrect parcel. The foreclosed owner had 2 parcels. A vacant lot of appx 2 acres and an adjacent lot with a home and 2 acres. The bank mistakenly foreclosed on the vacant lot but likely because the parcel ID says "And or Except" which could have been misread.

The Listing agent advertised the 2 acres with the home. I won the bid but also felt confident the foreclosed owner had likely refi'd or combined both lots for property tax savings based on the property history i researched.

I've followed the foreclosure court docs and see where the bank filed an adjustment to the parcels in the foreclosure case. The adjustment request is to include "both parcels" (which i figured the bank intended to foreclose on both parcels).

I was just notified by my agent that the seller/agent is requesting to cancel the contract claiming they must re-foreclose. In fact, the Termination document they request I sign says that: "The Buyer hereby notifies the Seller that they wish to cancel due to seller title issues" thought I would post here first before reaching out to an attorney and see what the thoughts were.

Peter Walther · Answer

If I understand the situation correctly, you're under contract to purchase two parcels of land from a lender, one parcel has a house; the other adjacent parcel is a vacant 2-acre parcel. The lender/seller just realized the foreclosure only included the 2-acre parcel, apparently because of an error in the legal description and needs to bring an action to foreclose on the house parcel.

If that's correct and you want to wait, you could ask the seller if they'll agree to extend the closing through the completion of the foreclosure. I suspect your contract may have a provision that the sale can be canceled by either party if the seller cannot deliver good title so they may not be willing to do so.

Without reviewing the documents, I can't form an informed opinion, but I suspect the lender will need to bring an action to reform the legal description as part of the foreclosure. I believe it's possible that if the legal description on the mortgage/DOT is ambiguous, the borrowers could raise a defense that they didn't intend on encumbering the house parcel and the burden will be on the lender to prove to the satisfaction of the court that the borrowers did intend to do so. I've seen some pretty tenacious borrowers put up a good fight for years and at times win.

Chris Seveney · Answer

My guess is there is a title issue and they cannot convey clean title, if you want to take that risk you could but if you are getting a lender they will not sign off and provide title insurance = no loan. Also sounds like could be issues on who owns what lot and if they cannot sell you both lots as one maybe owned by someone else that could come into play as well.

Lots of unknowns.

Ken M. · Answer

I'm not clear what is happening here "I was just notified by my agent that the seller/agent is requesting to cancel the contract claiming they must re-foreclose."The seller can sell and close until the time of the sale, even while a foreclosure is pending, being redone or being disputed. If you are in contract to buy the property for your use, and he wants to cancel because they have to go through the foreclosure process again, of course "No". He just has realized he can live there free for many more months and continue to work the system. So what. He chose to put it on the MLS, was satisfied with your offer, said "Yes", now he needs to honor that. When you buy his property, the lender gets paid off, which it is entitled to, and it cures the foreclosure.

Foreclosure bank cancelling contract saying they must now re-foreclose?

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