How to buy a forclosed house?

[Zkribbler]

Originally posted by East Street Trader
Mortgagees in possession are under a duty to the owner to sell at a proper market price.

There is no inbuilt discount.

Theoretically, that's true. But whenever you're in a situation where you have to sell something quickly, you're going to take a financial bath.

[East Street Trader]

It would be in the mortgagors' interest to co-operate in the sale. They have the greatest interest in a good price being achieved.

But I agree that folk who get into trouble with a mortgage and face losing their home are quite likely to be (mis)guided by their emotions.

It sounds as though the main difference between the system you describe and the English approach to mortgage re-possession lies in the absence of a duty on the trustee acting in the sale to secure a proper price. Unless perhaps the deed or the common law imposes some such duty.

If the mortgagors sensibly co-operate in the sale it would simply depend upon how effective the notice in the newspaper is in advertising the sale as to whether the property sold at a bargain price or not.

A person astute at sniffing out bargains in land could no doubt employ their skill to find bargains at a courthouse steps sale just as they could employ the skill in finding bargains on offer otherwise. But DanS sister's experience illustrates that a forced sale can perfectly well turn out to be a sale at full market price.

[Zkribbler]

Originally posted by East Street Trader
It would be in the mortgagors' interest to co-operate in the sale. They have the greatest interest in a good price being achieved.

Only up to the amount of the debt being foreclosed up. If the sale brings in more money, it goes to the owner.

Also, a lot of these foreclosures arises out of re-fi's. While people who get mortgages to buy home are usually protected by anti-deficiency statutes, these statutes don't apply to refinancing. So the bank can come after the owner if the sale of the house doesn't cover the debt.

[C0ckney]

in this country pretty much every mortgage deed will contain covenants which require the borrower to pay back any shortfall between the amount owed and the sale price. lenders can go after any or all of the borrowers for this money.

i've been looking at a couple of repossession properties in my area (i know the lady who does our repo work - which is handy). they tend to be a fair bit cheaper than the market price, but of course come with their own risks, such as often being in a poor state of repair.

[PLATO]

Originally posted by Zkribbler


Only up to the amount of the debt being foreclosed up. If the sale brings in more money, it goes to the owner.

This is correct. However, at the foreclosure sale the mortgagor (assuming they are the highest bidder) aquires title. If they subsequently sell it for more than was owed on it then they do not have to pay the original mortgagee anything. This would be an extremely rare circumstance however. In general, a mortgage company will get about 78 to 80 cents on the dollar owed. Foreclosing on a property is a money losing proposition for the mortgage company...this is why so many of them will bend over backwards to try and work with borrowers that demonstrate any ability to repay at all.

The debt and the mortgage are two different things. The mortgage secures the debt and the proceeds from foreclosing on the collateral go towards the debt, but this does not change the nature of the debt instrument (unless modified by State Law with regard to deficiency). This means that the mortgage holder can still obtain a money judgment on you for any deficiency under the terms of the note even if the mortgage no longer exists. They would then be entitled to any relief available to them under the laws of that State.

[DanS]

I saw a commenter on a WSJ blog mention that the courthouse steps auctions aren't very good places to buy a home now, because of all of the 100% mortgages that went on. The lender always bids what he's owed, which is well higher than the real value.

In this scenario, you would have to wait until the sales prices settle in your area to get a good deal rather than going to the courthouse steps.