Move My Realty - Real Estate News

Do rules favor pre-foreclosure buyers?

September 27th, 2008 1:07 PM by Ron Mastrodonato

Do rules favor pre-foreclosure buyers?
Reader looks for leverage based on home's condition

September 26, 2008

By Ilyce Glink
Co-written by Samuel J. Tamkin
Inman News

Q: I have a legal question concerning buying a property that is about to be foreclosed.

A major concern when bidding on a foreclosed home is that you can't examine the inside of the property and determine what needs to be fixed. When trying to buy a property during the pre-foreclosure process can you contact the owner directly? If the owner agrees to let you examine the inside of the property, is it legal to offer the owner the amount they owe to the creditors in addition to an amount of extra cash that they will directly receive?

Then after the owner lets you in, if you are not satisfied with the home's condition, can you wait for the auction to get the property for an amount that will be lower than the debts to create a solid investment?

A: In this market, you can try anything to see if you can buy a property that is being foreclosed. If the owner of the home is available to talk to and wants to entertain a discussion with you, the owner is free to do so. However, many foreclosed homes are vacant. The owners have abandoned the homes and the homes have been boarded up and are not accessible.

For homes that are bank-owned and marketed through real estate agents, you can see those homes by calling the listing broker. Sometimes you can call the bank's REO (real estate-owned) department directly to request a showing.

While your question seems somewhat harmless, if you are using the pretext of trying to buy the home from the current owner and occupant of the home for the sole purpose of getting in but you have no real interest in making a deal with that person, I would advise against it.

If the current owner does not have the home for sale, does not have the home listed with a real estate broker and is not advertising the home, it seems improbable that they are going to see you as a white knight that will save them from the foreclosure process.

It's more likely that they will ignore your calls. They probably are so far down the foreclosure process that they won't deal with you at all. If your motives are genuine and you might buy the home directly from the owner and take over the responsibility of dealing with the lenders, go for it. Otherwise, in dealing with foreclosure properties, you will need to deal with them as all other buyers are doing in the market.

Q: My parents bought a home through a "contract for deed." My sister's name was put on the deed, but the seller is carrying the loan through a mortgage company. My parents have been paying the loan to the mortgage company with their checks for the last 10 years.

My dad died, and my mother wants to sell the house. Who will get any profit from the sale: my sister or the person who is carrying the loan through the mortgage company?

A: When you buy a home using a contract for deed -- also called an installment contract -- the buyer becomes the "owner" of the property. This buyer -- in your case, your parents and your sister -- receives all the benefits of ownership of the home. When they satisfy the terms of the contract for deed with the seller, your parents and sister become the owners of the property free and clear of any interest of the seller.

I'm sorry for your loss. If your mom and dad signed the contract for the purchase of the home, it's probable that your mom became the sole owner of the contract for deed and thereby holds the rights to the property. If your sister was named on the deed, then she and your parents probably each owned a third of the property, and now she and your mom each own half or your mom has two-thirds ownership of the property.

If your dad had a will and gave his share of the property in the will to your mom, the terms of the will would make it even clearer who owns the home. But let's assume that your sister is a co-owner of some share of the property.

When your mom and sister sell the home, they should be entitled to the profits, which is the increase in the difference between the original sales price of the home and the price you ultimately get for the home.

Certainly, if your mom and sister satisfy the terms of the contract for deed, the seller would not be entitled to any money other than what is required to pay off the seller under the original contract. If for some reason the original contract has a provision that requires your mom and sister to share in any gain from the sale, the prior owner would get what he or she is entitled to under the contract. Absent that profit sharing term in the contract, sellers usually never get the profit from the sale of the home as you describe it.

For more information, you should sit down with a real estate attorney.

To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.

Posted in:General
Posted by Ron Mastrodonato on September 27th, 2008 1:07 PM


Sites That Link to This Blog:

English French German Portuguese Spanish