About 3 weeks ago we placed on offer on a house that is currently in pre-foreclosure. The house was listed for way under value (Perhaps 100K undervalue). When we placed our offer, the seller’s agent told our agent that our offer was the second to come in and that he should hear back from the bank in the next day or two.
Fast forward 3 weeks.
There are now at least 5 offers on the house and the seller’s agent is not being very up front about what is actually causing the delay other than the bank has not responded to the offers yet and that the bank may not have a decision for another month.
Here are my questions:
1) What are some possible reasons for the delay? Does this simply mean that none of the offers are good enough?
2) The real estate market in the area is quite good. I’m curious why the seller would have a short sale and list the property below market value when it would probably sell for market value. Is it just a tactic to get more bids?
3) In this type of competitive (multiple-offer) environment, how important is it to have an offer that the bank can accept outright and not have to counter with? For instance waiving contingencies such as the inspection contingency and/or finance contingency? What about escalator clauses?
If you have ideas on any of the question, I would be happy to hear your opinions as I have very little experience w/ pre-foreclosures.
Thanks!
He could be telling the truth. Banks sometimes will take forever. It may also be the seller is not far enough along in the foreclosure process. Usually they will not do a short sale unless the seller has been issued a notice of default.
Yes, they do this to attract several investors or buyers. It is also a way to sell more houses. If they have 10 people bid on the property and the high bidder wins, they have 9 other interested buyers they can now try to sell houses to.
Banks don’t like contingencies. In fact, sometimes they will accept lower offers that contain no clauses, rather than higher offers with clauses.
Thanks for the reply!
Today, almost 5 weeks after we made our original offer, the story has taken another interesting twist, and I again have a bunch of questions.
Today the listing agent told us that he no longer has the listing because the bank has decided to perform an investigation on the owner instead of going through with the short sale at this time. The agent said he expect to get the listing again after the investigation is resolved, but it may take quite some time.
1) Given the situation, does anyone have any advice on how to increase my chance of purchasing the house? I’m interested in it as a primary residence, so I would be willing to pay up to fair market value. Would it help to contact the owner or bank directly?
2) Another interesting piece of information I have learned is that the current owner borrowed the 20% down payment from one lender and another 80% from another lender. If this property were to go to auction, would the auction typically try to recoup both the 20% and 80% for both lenders?
3) Assuming it does not sell at auction and a bank takes possession, who would get the house> I assume the one that the 80% was borrowed from. If so, what happens to the other lender? Are they just out of luck or does the other 20% still exist as a lien against the house? Would the owning bank then just want to collect the 80% owed to them or what?
First of all, great site and great blog!
Second: I’m looking at a condo. foreclosure in Florida. There are two mortgages: a first for $98K (including arrears and fees) and a second for $120K (including arrears and fees), for a total of $218K. The condo is worth about $220K
Both lien holders are foreclosing on the same day. The second lien holder is scheduled to go to auction first. If no one bids on the second mortgage, and I’m the highest bidder on the first mortgage (which goes to auction second) do I get the condo free and clear for my bid amount on the first mortgage?
Thx!
Typically when the 2nd forecloses, the starting bid will be the amount they are owed plus whatever is owed to the senior lien holders, in this case $218K. However, you have to be careful. In some states, they will just start out at what they are owed (120K) and they don’t tell you about the senior lien holders ($98K). If anyone bids, they are also responsible to payoff the senior lien holder(s). If the 2nd is foreclosing and no one bids, they are responsible to payoff the 1st.
To answer your question, yes, if you are the highest bidder when the 1st forecloses, you would get the property for your bid amount. But, you can bet the 2nd will be there to bid against you because they know the home is worth more than $98K.