Undisclosed Short Sales

What happens if a home you signed to purchase goes into foreclosure before the closing date?

We were supposed to close on a home four months ago. On the day of closing we get a call from the seller's realtor that the sellers owe 22K and need time to figure out negotiations w/the mortgage company. We go through a series of extensions & hear a variety of excuses from the sellers realtor (sellers haven't turned in paperwork, wrong forms filled out &new ones were overnighted, etc) In June, a Lis Pendens was filed & our realtor checked it out. He talked to the sellers realtor & found out that it had been filed but has been negotiated off &was no longer in effect. On 8/9 our realtor gets a call from the sellers realtor that they have finally been in contact with the mortgage company &there is 1 more paper that needs to be completed & they are "on top of it". After not hearing anything last week, I check with the online courts to see if anything else has occurred to see that a foreclose decree was noted for 8/4. What happens now? Can we purchase the home from the bank?

Somebody has not been "on top of it". Probably at least two somebodies, and they're not exactly fulfilling full disclosure requirements, either.

Yes, an Notice of Default adds thousands of dollars to fees due. But what do you think the lender would rather have: An already negotiated sale that is consummated and they get their money, or go through that whole dismal foreclosure process?

So what is going on here is an undisclosed short sale. What this means is that the lender isn't going to get all of their money, or the transaction would have closed by now.

So what's most likely going on is that the bank is taking their own sweet time about approving it, but your realtor has allowed the selling realtor to feed you a line of BS. Indeed, they've probably actively cooperated. They're probably afraid of losing the commission, but if they keep it open "just a little longer" maybe the lender will approve it.

It's the listing agent's job to talk the lender into approving the sale. Perhaps the bank is imposing some conditions that the seller can meet, but does not want to. Perhaps the bank is demanding some money, or that the realtors reduce their commission, and they don't want to Perhaps the listing agent just clueless, but I doubt your agent has exactly covered themselves in professionalism either.

The person with the power to break the logjam is you. Talk with a lawyer, but if you put in a 48 hour notice to perform, the lender is likely to suffer a sudden attack of rationality, especially in this market. They'll likely net more money through the sale than through the foreclosure process, but if you allow them to go on ad nauseum they will keep the transaction open as long as possible. You see, once the transaction closes they can't get their money back if a better offer comes along. Therefore, they are trying to put you off for as long as possible in the hopes that such a better offer will come along. From their point of view, they have this transaction well in hand, they are just hoping to get more money from someone else, and the longer you allow this to go on, the higher the likelihood they will. If you don't force the issue, the only possible resolution is unfavorable to you. There are possible issues with the deposit, and damages they could owe you and you could owe them, which is why you need to be careful. But putting them on Notice to Perform is the thing that is going to break the logjam one way or another, and your agent should probably have done it months ago. You're stuck with them for now, but if this transaction doesn't close you should probably find a new agent. Good agents know that if they are willing to risk losing a particular deal, they will not only better represent their clients interests, but also that they will end up with more deals overall. Approached correctly, it's a way to have even the client whose entire family has their heart set on a particular property that you are acting on their behalf, not just looking for a commission, and they will send you their friends, and they will come back to you when it's time to sell, or to buy another property.

Caveat Emptor