Buying BEFORE Auction?

Question

I'm talking to a woman who wants to sell. This is my first time NOT using the MLS to find deals so can I purchase the home from her before its really auctioned this next time??

She’s been served Lis Pendens 4 times in 3 years and is in the foreclosure process. Her home was scheduled for auction 3 months ago and it never happened. Her credit’s been shot since 10 years ago, a divorce, credit cards, and medical issues.

New auction scheduled end of April. She still retains the deed to the house and has not signed it over to the lender. House is now vacant. Can I move ahead and make an offer to her lender to pay off the balance and take ownership of the house? She is willing to sell. Any advice on how to/if I can move forward with this? Thank you in advance!

Jim L. · Answer

This response is way after the fact, but I hope to clear up a few things in the thread.  Until the foreclosure auction completes, the owner still owns the home and is the one who can accept any offer just as in a normal sale.  If the offer is equal to or more than a payoff amount (owner should get this from her lender, and is the principal owed + outstanding interest, fees, etc.), it is not a short sale.   You'll need to involve the lender in the offer/acceptance only to the extent that you may need to have them suspend/cancel the auction sale.  Once you've closed, the lender gets its payoff and you own the property.

Sarah Preston · Answer

@Tiyona Marshall I had a title search done with Frontier Title and the property owner had a lot of other outstanding liens. I didn't want to wade into a quagmire. The ROI in terms of time and money figuring things out just wasn't there.

Maurice D. · Answer

how about subject to?  she should have the ability the cure the default (at closing) and you help her restore her credit by keeping a positive tradeline on the books.  win-win

Steve Morris · Answer

Can I move ahead and make an offer to her lender to pay off the balance and take ownership of the house? She is willing to sell.

Sure, call up the loan servicer (with seller's permission) and figure that number.  It'll be big (like amt due, interest, fees and lawyer time), so be prepared to see if it still makes sense since someone will have to pay it before auction.

Steve Morris · Answer

"Can I move ahead and make an offer to her lender to pay off the balance and take ownership of the house? She is willing to sell. Any advice on how to/if I can move forward with this?"

Well, sure you can offer the seller something, but someone is gonna have to pay off the bank if you want a deed to the property, so you should find out what that'll cost before anything.

If you let it proceed to a foreclosure sale, you may want to buy the owners redemption rights just in case the sale price is less than debt owed which happens sometimes.

Bruce Lynn · Answer

If she owns the house and is making the lender whole, you don't really have to work with the lender or contact them.  The owner (or maybe title company) should contact them and get the payoff amount for X closing date.   If you're paying off the full amount, then it's not a short sale and the lender doesn't have to approve.   My guess is the issue you will run into is penalties.  If she hasn't paid in 4 years, there will be much more than just the basic loan balance.  There will be fees and penalties and often that makes these kinds of deals not make sense.

In my experience if it is set for foreclosure, you'll never be able to have enough time to make a short sale work before foreclosures.  I'm sure there are exceptions to this, but often two different departments at the lender, they don't talk, and they have different priorities.  Also there are things they never tell you that work for them, but don't make sense on the surface, like they may have PMI that even the seller doesn't know about and will make more by foreclosing, than taking a short sale....or could have some kind of government loan guarantee....or they may have back end deals with hedge funds looking for discounted property.  That's why the short sale we propose that makes sense to us, doesn't work for the lender.

Good luck....

Tiyona Marshall · Answer

@Sarah Preston Were you successful in purchasing the land before auction? I'm in Texas and looking to do the same thing.

Sarah Preston · Answer

Hey @Maurice D. - I am in this exact situation. It's land but the auction keeps getting cancelled due to Covid. I have already talked to the owner and they've agreed to work with me prior to the auction. I would like to use this as an opportunity to help them restore their credit as well. I'm about to contact the owner to give me authority to contact the credit agency on their behalf (per the credit agency) so I'm not quite into the process yet. Do you have a link to a good resource about how to go about this? I just learned this was possible a few days ago. Any info you can provide would be immensely helpful, Google is failing me thus far since my situation is so specific. (I'm also in Texas, so assuming similar laws to yours.)

Shannon K. · Answer

Thank you both for the responses. @Mike Hanneman, I will definitely check on title issues before completing any kind of purchase this way going forward, yes.

@Charlie Fitzgerald, that's what I was thinking of having her do was for us to sign a purchase contract showing I'd like to purchase for the full amount she owes (is this still a short sale though I'm paying the full balance owed?) and then having her email that to her lender showing our signed contract and seeing if they'll approve (thereby negating the auction). I assume she still technically owns and can sell the house since she has not signed over the deed yet nor has the auction been completed? Feel free to correct me if I'm wrong :) Thank you.

Charlie Fitzgerald · Answer

It's tough to go direct to the lender at this point and make an offer to them.  Normally, they want to foreclose, and then list it with their chosen RE Agency and hope for a better deal than you will give them now.  I am not saying it can't be done Shannon, but it's an upriver swim for sure.  See if you can find out who the REO Manager is for the lender and give them a call (or go see them if you can!).  You could also have the owner contact the lender and advise them that she has sourced a buyer for a short sale and see if they will give you a price they will take that way.  I've done that successfully myself a few times.

Good luck!

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