preforeclosure question - Posted by Linda (OH)

Posted by Laure on June 16, 2000 at 22:47:10:

Thanks for the easy direction. I am talking to a couple whose home is going to auction on the 22nd. Hubby doesn’t want to deal with them… you’d have to have been there, they are WEIRD ! I just didn’t know the legalities of actually making the offer ! DUH… Now it seems silly to have wondered, it’s so simple ! Gotta get out of my box !

Laure :slight_smile:

preforeclosure question - Posted by Linda (OH)

Posted by Linda (OH) on June 15, 2000 at 18:28:42:

When making an agreement with a homeowner in foreclosure, I understand you would need to payoff the first mortgage (which is the one being foreclosed on) as well as the liens attached–a second as well as an ex spouse. How does the contract read if I plan on attempting to negotiate the liens or have my attorney attempt to with the lenders and spouse? I don’t want to state the combined amounts as my offer because I hope for them to be reduced. (I would still buy it paying off both the first and second but the ex has attached two liens the first being $10,000 and the second $100,000(!).) Would I use a regular purchase agreement or a different type of contract? Do I get her to ‘deed me the house’( how is that done?) and THEN worry about getting the liens reduced? Please guide me. I need to learn more about doing this before I lose the house.

Also… - Posted by Bill K. (AZ)

Posted by Bill K. (AZ) on June 15, 2000 at 22:18:43:


I forgot to mention in my other note that a lender is more likely to discount if you show that the current owner is NOT going to receive any monies from the transaction. The best way to do that is to have your escrow agent create a preliminary HUD-1 showing where the purchase money is going. There should be no line item for the seller, or left over funds for the owner to pocket.

For example, let’s say you’re going to pay $100,000 for this house; however, there are 3 liens with principal balances that total $110,000.

Lienholder 1 (foreclosing): $78,000 current principal balance + $6,400 reinstatement amount (HUD-1 might show $78,000 loan being taken over “subject to” and $6,400 going to reinstate the loan)
Lienholder 2: $7,000 current principal balance (HUD-1 might show a discount to $4,000)
Lienholder 3: $25,000 current principal balance (HUD-1 might show a discount to $11,600)

Since the first lienholder is foreclosing in this example, the second and third lienholder are in precarious positions; especially if this home isn’t worth, say, $125,000. They risk being wiped out. And, if they haven’t started their own foreclosure actions by bringing the first current, chances are they don’t see any value in doing so. Hence, they’re hoping to get something from the sale. They MIGHT get something, but they might get nothing. So, if they can see that your offer puts more money into their pockets than they might get by “rolling the dice”, they just may go along with the discount.

This example is just that; an example. However, I hope I was able to make the point.

Bill K. (AZ)

Here’s One Way - Posted by Bill K. (AZ)

Posted by Bill K. (AZ) on June 15, 2000 at 21:55:51:


First of all, it is not a prerequisite for you to pay off anyone in such a transaction. The foreclosing lender will stop the foreclosure if SOMEONE will just send them certified funds to reinstate the loan and bring it current. On preforeclosure opportunities with only one lender, I usually reinstate the defaulted lender (if the numbers allow), and just take over payments “subject to” the existing lien. Of course, with other liens on the property, reinstating the foreclosing lender and taking over ownership may not be a good deal.

Your first task is to determine what you want to pay for this property. You can then write up an offer, using your standard contract, with that figure as the purchase price CONTINGENT UPON being able to negotiate any necessary discounts with the lienholders. However, if you need to negotiate discounts with lienholders, you may also find you’ll have to pay them off immediately. It’s unlikely that a lender will discount his note AND leave it in place for you.

Bottom Line: Make sure you aren’t going to pay more than you desire for this property. DO NOT buy this property without negotiating any necessary discounts on the liens up front. Get the negotiated agreements in writing, and have them paid off through escrow.

I hope this helps.

Bill K. (AZ)