Can you buy your own home at foreclosure?

[justbroke]

Buying your own home back at auction is a gamble and some States don't allow the person who is being foreclosed upon to pay less than the balance due (accelerated balance).

That was all that I was saying. Besides, the Bank will be at the auction and will usually bid the mortgage balance to prevent this from happening. The 2nd lien may also be there, for the same reasons.

[pcn]

Buying your own home back at auction is a gamble and some States don't allow the person who is being foreclosed upon to pay less than the balance due (accelerated balance).

That was all that I was saying. Besides, the Bank will be at the auction and will usually bid the mortgage balance to prevent this from happening. The 2nd lien may also be there, for the same reasons.

I am still confused by what you say here. For the moment, assume in AL I can bid on my own home. If the purpose of the sale is to sell the home and cut their loses, why would the bank themselves bid more than the house is worth (our case)? If the bank did that, then no one else would bid. Now if the amount due was less than the value (equity) I can see this making sense. But in that case, the homeowner would have incentive to stay current.

[pcn]

Good information. I have a question. Most people here that object are referring to the owner grabbing it at sheriff sale.

But what if you wait out redemption and the bank now owns the note? After redemption, you've vacated and they list it. Would all that 'arms length' language be in a purchase agreement once the note is owned by the bank?

Even if it is, the post-redemption homeowner is neither seller nor seller's agent, correct?


-t

I had the same question earlier but I think it got lost in the legality discussion. From what Ive found so far, in AL, the amount you must pay to exercise redemption is the amount defaulted, or the total amount of the mortgage, plus any legal fees associated with the foreclosure. So it would cost me more to rely on redemption than to just keep paying.

[daytona]

Buying a "short sale" and buying at Sheriffs sale are (2) different animals. Typically a "strawbuyer" happens when the person being foreclosed upon has wealthy friends or family.....the type that just write checks for homes vs get mortgages. I know someone who did it for their son-in-law and daughter. Then they work out a "private mortgage" and gift back a % of the home annually...

[HHM]

What is the end game scenario...I am not sure I understand what you are trying to accomplish and whether you would emerge better off.

In no state can the foreclosed owner actually bid the property...the owner would need a straw buyer and that person would be placed on the title. The problem with doing it this way is that may not emerge financially better off. The minimum bid on a foreclosure is usually the entire balance of the first mortgage. So, some estimation of the current market value of the home would be helpful to determine if this is worth while. Plus, the financial resources need to be available, usually some sort of cash deposit is required at the foreclosure (usually 10%) and financing must close within 30 days (states may vary on these requirements). But, theoretically, assuming no other bidders, this option could get rid of the second mortgage without having to pay it.

Short Sale: you cannot short sale to yourself. As was already pointed out, there are various documents that get signed that could create some risk. But, to some degree, this is a negotiated sale. Second mortgages often times kill short sales. But, they will usually accept a small sum to allow the sale to go forward.

Redemption: assuming the state has a right of redemption, the redemption requires payment of the entire mortgage plus all fees and costs. This is probably the most expensive of the options. Of the options, redemption is the only option that allows the owner to actually become title owner of the property at closing.

However, the number 1 question is, do you, or someone you know, actually have the money or resources to do this. Conventional banks aren't really set up to offer mortgages to buy foreclosed properties, so even if you had the well off relative who could qualify for a loan, they may not get it through conventional means.

[pcn]

HHM, thanks for the analysis. My original question was related to the sheriff's sale, but if there are other possibilities I want to explore those as well. Our situation is this: Home is in small town, rural AL, discharged & closed ch7, neither mortgage reaffirmed. 1st is current, 2nd is 6 mo past due. Home is worth 70k, 1st mortgage is 80k, 2nd is 40k. I had an appraisal done 6 months ago. It accounted for the significant repairs that a drive-by would not see (pool damage 10k, water/foundation damage 10k+, 1 bedroom gutted-subfloor only. FWIW, I am capable of the vast majority of the repairs, and am willing to do so to save the home.). This week I've received a Notice of Intent to Accelerate. Up to this point BOA (2nd) has been unwilling to negotiate on the 2nd. I am trying to prepare for worst case, if we are foreclosed, and what recourse I have up until the bitter end. Preferred result is that 2nd negotiates and we settle the 2nd, and continue to pay 1st. From my limited searching I have found much conflicting information on who can bid at a foreclosure sale. Below I have copied links to several sites that claim the owner may bid on their own home. I will talk to an attorney this week to verify our state laws. One point I don't understand is that JB mentioned that the amount at which the bank will start bidding is the payoff amount. Even without the damage, the home would not come close to 120k. Maybe 90k if we even had a real estate market. So the 2nd would have to get the first to sell to them for less than the balance owed in order for the 2nd to come out with any hope of profit. Given the small town aspect, if it comes down to a sale, everyone who doesnt know now, will know about the damage, and I would expect that to affect any possible bids. I've typed more than I intended so will shut up and ask for comments please.

http://themortgageinsider.net/foreclosure-answers/can-i-bid-at-my-own-foreclosure-auction-purchasing-my-house-back-cheaper.html

http://www.avvo.com/legal-guides/ugc/can-i-bid-at-my-own-foreclosure-auction

http://www.stopping-banks-foreclosures.com/foreclosure-faq.html#12

http://www.loansafe.org/forum/foreclosure-laws/25244-can-borrower-bid-their-own-home-trustees-sale.html

http://www.debtworkout.com/forefaq.html

http://www.foreclosureradar.com/forum/buyers-and-investors/buying-reos/can-i-buy-my-foreclosed-home-back-bank

[mnfisherman]

What some banks are doing at the sherriffs auction is bidding market value.
So lets say your house is worth 150000 on todays market. the bank knows if they get 150000 with out haveing to rehad and pay to resell they are way ahead. You may have a 220000 first and a 70000 2nd. but Someone could bid on and get that house for 150001 at the auction. Unless that someone who bids knows you. that is a huge risk they are taking because they would have to evict you after redemption period and possible get a trashed house.

[pcn]

that is a huge risk they are taking because they would have to evict you after redemption period and possible get a trashed house.

Are you saying that people live in their house after a foreclosure for the redemption period? I thought that was just a period where the original owner could exercise their option to buy it back. Not that they could actually live there rent free during that time.

[HHM]

Are you saying that people live in their house after a foreclosure for the redemption period? I thought that was just a period where the original owner could exercise their option to buy it back. Not that they could actually live there rent free during that time.

That issue is very much state dependent. Those states that allow redemption, some will allow the owner to stay in possession, and some don't.

[pcn]

Hmmm. In one of those states, (how would I find out if AL is one of those?; my searches on Redemption aren't so fruitful) why would someone even buy a foreclosure? From what little I have found, in AL at least, one can buy it back up to a year later, for the value at foreclosure. If that happened, the new owner would make no profit, would they?

[justbroke]

HHM has summed up exactly what I was saying earlier. I don't see any bank that is attending the auction, let the property go, at auction, for less than the balance.

[mnfisherman]

I have seen it a couple times now where banks are bidding market value.In states with 6 month redemtion the bank is way off bidding market value.
Plus the long shot the home owner can get someone to borrow the home owner enough to redeem it the bank is way better off.

[pcn]

HHM has summed up exactly what I was saying earlier. I don't see any bank that is attending the auction, let the property go, at auction, for less than the balance.

Sorry for being so dense. So you are saying that if the market value of a house was 100k, but the 1st was 150k and the second was 50k, that the bank with the 1st would start the bidding at 150k?

On the long shot that the 2nd was the one foreclosing, they would start at 200k (since they would need to pay the 1st)?

[mnfisherman]

i am saying that the 1st in that case bids 100,000 and takes there hit at the auction if someone buys it. they get there money right away and dont have to sit on a house in a declinning market.

[justbroke]

Sorry for being so dense. So you are saying that if the market value of a house was 100k, but the 1st was 150k and the second was 50k, that the bank with the 1st would start the bidding at 150k?

No, they start bidding at whatever the bidding starts at. They can bid with their "funny money" up to the amount of their lien, so they could go to $150K.

On the long shot that the 2nd was the one foreclosing, they would start at 200k (since they would need to pay the 1st)?

They'd start low. Even if the opening bid was $10K, they'd bid $10K. However, the first will be there to theoretically prevent the second from getting some ridiculously low amount. I don't know the Bank's exact strategy and how much a first lien lender will allow the place to be underbid. I'm sure they tell their bidder what the bottom and top are. The first would prefer not to bid over market, but to protect their interest, they may bid up to the value of their lien without taking a penny out of their pocket.

As stated above, if the first can get market value, they may cut their loss right there. It's all about what they want to do. They have the true power in the bidding because they have their "play" money.