Is there a way for me to buy before house is in foreclosure?

Question

In casual conversation with my dentist the other day I mentioned that I was looking for someone who needed to sell their house so that I could flip it. My dentist told me he is that person. He is going through a nasty divorce. He and his soon-to-be ex own a late 1960s ranch in a nice family neighborhood in Barre, VT. His ex has run up around $50,000 in contractors' liens on the house, in addition to having maxed out their $50,000 home equity loan. He told me he would need to do some research to find the total owed on the house. Today he told me there is $190,000 owed on the mortgage, in addition to the amounts owed on the home equity line and the liens. The mortgage was originally with Chase, but has been sold to Caliber Home Loans. He says the bank will finalize taking the house on July 28th (he is unclear what this means or what the process is called. I have no experience with this sort of thing, either, but I assume this means the loan will go into foreclosure at that time. Does that sound right?).

The house appraised at $215,000. It needs updating. It's on a hillside in one of the good neighborhoods in a small Vermont city which has had a lot of hard times lately. There are some very nice new houses going in further up the street that seem to be selling well in the $250,000 range. This house would have to play up its mid-century-modern card pretty well to compete. It has an in-ground pool in the backyard which may or may not be an asset in this area. It has three bedrooms and 1 3/4 baths on the main floor. It has a fully finished basement with a full bath and sauna. I haven't been in the house yet. The bank told my dentist that if he takes anyone into the house he is then responsible for all the maintenance and anything else that happens to the house. He is fine with that as long as he knows I am serious (and is that really something the bank would have said? Did he misunderstand? What does this mean about the current legal status of the house?)

My question is, is there a way to negotiate buying the house for less than is owed on it? My dentist had thought the bank might forgive the liens on the house, or the home equity line, but now he isn't getting the sense from the bank that they want to negotiate at all. Is there a way to for me to approach the bank? What would I offer? Does my dentist have any options other than listing it with a realtor and hoping it sells before July 28th (pretty unlikely in this area) or letting it go up for auction as a foreclosure? I feel like there may be a way I actually could help him while making some money on the deal, but I don't have the experience to see it. So far, my real estate purchases have been through realtors off the MLS.

Jay Hinrichs · Answer

chances are bank will need to do the full foreclosure to clear the mechanics liens from title then it will be just another OREO that will go back up for sale. Unless you want to really wade into this thing.. IE negotiate with bank and contractors.. I would just wait for the bank to do its thing and get title cleared then go for it..

Wayne Brooks · Answer

@Wendy Forbes Yes, almost all banks will require the property to be listed, usually for 5 days or so, now....this is where you run into the "property not yet available for viewing", "waiting for keys from seller", etc. when an agent is putting off others, for a buyer already lined up. Also check the filing of the mechanics lien, most states have a time limit after a lien is filed (here it's one year) in which a contractor must actually file suit, or lose their lien.

Josh Dillingham · Answer

My house had already been listed on the market for about 6 months at a much higher price which would not have been a short sale but after not selling for so long and running out of cash for the rehab she had planned the seller slashed the price by 50k because her deadline with the bank was closing in. which is what caught my eye on the property. So I'm not sure if agents are required. It makes sense for the bank to consider some sort of short sale, especially with the contract liens, the bank isn't going to want to be responsible for those as well as all the other holding costs and selling costs they will incur if they take position of the property. I don't think there is any certain amount of discount that would make a house a short sale. From my understanding any house that is sold for less than what the bank(s) is owed would be considered a short sale.

Wendy Forbes · Answer

@Josh Dillingham Thanks for the suggestions. I'll ask my dentist to talk to the bank and also get the list of contractors and amounts owed from him. Once the bank agreed to consider a short sale, did the seller have to list the property with an agent? Did the agent then have to list it on the open market? Was there a requirement as to how discounted the listing price needed to be to qualify as a short sale?

Josh Dillingham · Answer

I just bought a short sale 4 months ago in southern Vermont. In my case the sellers bank agreed to extend the foreclosure date and told the seller they would consider a short sale. Might be worth having the dentist ask his bank if they would consider a short sale, if they say yes that could buy you both some time. The contractor liens sound like a more stick situation. I wouldn't buy the place with those hanging over my head. Maybe you could talk to the contractors before hand and see what could be worked out. Maybe if they cut the bills in half the dentist could afford them and you could walk away with the short sale.

Wendy Forbes · Answer

Yes, he was thinking the bank had been open to forgiving the home equity line, not the contractors' liens! I guess this is a short sale situation that has not yet been positioned that way. Do I understand, @Wayne Brooks, that only an agent can negotiate a short sale with the bank? That seems to be what other BP posts have said...

Wayne Brooks · Answer

It's a short sale and would have to go thru an agent....find an experienced one. While, maybe, he doesn't really know what "finalize the foreclosure" means, it sounds a sale date. You should be able to look up records without too much effort to verify if this is the case.