Re: Foreclosures/Owner Equity - Posted by John L
Posted by John L on November 16, 1998 at 22:55:47:
The reason for my asking such a plain question was to see if anyone else has ever heard what I heard yesterday. I do have an Indiana brokers license, and in keeping with Indiana statutes I was sitting in a class for continuing education when the subject of foreclosures came up. Ironically I am now in the process of buying my first foreclosure (a small property that was listed for sale through the MLS). Normally I buy properties that are one city council meeting away from being condemned (rough, no salvage shape…but dirt cheap), then I rebuild the place from top to bottom (it may sound like a lot of work, but when I’m done I have a house brought up to the 90s and I saved the money for the framing and foundation and ususally a lot more).
On the foreclosure issue though, the only thing that I could come across to buy for the time being was a property snatched away from someone by a bank. Very, very, very rough shape…virtually no salvage. The work doesn’t bother me, what bothers me is the thought that someone lost this house because for one reason or the other they couldn’t make the payments.
Now back to the foreclosure issue and what I heard. During the conversations on foreclosures the issue of equity came up. In a nutshell, we were told about a ‘27% rule’ that basically says that if the owner of the foreclosed property had more than 27% equity in the property, the bank or foreclosing party HAD to pay the owner for their equity. We were given a story of an actual couple who had lived in a house for years and years when they were foreclosed upon. It was shown that they had 95% equity in the property (what was owed vs market value). The bank sold the property and was going to gingerly keep the money when an attorney came to the rescue of the folks and showed them the rule that says if the foreclosed upon owner had more than 27% equity in the property, there was no question as to whether they had money coming…they did and there was nothing anybody could do about it.
Now I know that over and above costs the owner has something coming from the sale of a property. What I’m wondering is if someone has ever heard of this ‘27% rule’ for the owners equity? Any thoughts?