Foreclosed for less than what was owed

[Rob K.]

I have a question about foreclosures. I know that in most states, when a property is foreclosed and goes to the courthouse auction and you are the high bidder, you own the house that day. In Michigan, if someone doesn't pay his or her mortgage, after a few months the house will be at the courthouse auction. After the auction day, the people can live in the house for free for another six months. We have one of the longest redemption periods in the country.

For this reason, most of the houses are sold back to the bank at auction as a private investor will not want to tie up their money for six months or longer. Also, if the foreclosed person is able to come up with the money owed during that six months, they can redeem the house and the investor would just get their money back along with the same interest rate that the people were paying to the bank. The people are also able to sell the property and pay the bank or investor the amount owed out of the proceeds.

What I have noticed is that a lot of banks are buying the houses back at auction for less than what is owed. They can then go after the people for the deficiency. I also understand that the people can then redeem or sell the property at the lower amount. What I'm wondering as an investor is if I can go directly to the foreclosed person during the redemption period and buy the house for less than what they owed before the tax sale. If anyone can answer the two scenarios below, please do so.

Scenario #1. Someone has a first mortgage fore $100,000 and gets foreclosed on. The bank bids $60,000 on the house and plans to go after the borrowers for the other $40,000. Could I offer to pay off the borrowers debt ($60,000 plus interest and fees) and pay them another $2,000, thus purchasing the house for under $65,000? I realize that they would still owe the bank the $40,000 deficiency, but that's not my concern.

Scenario #2. Someone has a first mortgage for $100,000 and a second mortgage of $40,000. The bank for the first mortgage bids $60,000 at the auction and goes after the borrower for the remaining $40,000 on that first mortgage. The second mortgage is now void. Could I buy the house for $65,000 as in scenario #1?

If anyone has any insight on this, I would really appreciate it. Thanks in advance.