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Buying A Property In Foreclosure

Ask the Real Estate Lawyer: Real Estate Law Q&A

REM # LAW 681

By Ilyce R. Glink and Samuel J. Tamkin

Summary: A reader is determined to purchase a specific home that is in probate and foreclosure. Sam and Ilyce explain why this will be a long and difficult process. They suggest that perhaps the lender will work with the homeowner to allow for a short sale and release the balance of the debt that is owed.

Q: I have been trying to purchase a house for over 2 years.
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The property is in both probate and foreclosure. The original probate attorney refused to present my purchase offers to the court or the lenders, and has not paid the last year’s real estate taxes. He was uncooperative and allowed the foreclosures to proceed.

The present sticking point has to do with what is the proper short sale paperwork for a person who died intestate, destitute and owing far in excess of the value of the property.

Instead of cooperating with us, the bank just keeps threatening to foreclose, although we believe that they understand that sheriff's auction would probably bring next to nothing because of condition. They are demanding hardship letters, bank and expense reports, tax forms, pay stubs, etc. The mother owned the house when the equity loan was made, at a later date she quitclaimed the house to her son, but never removed herself from the loan.

The mother is not "mentally" competent to handle her own finances and is threatened with foreclosure on her own home because the attorneys have been unable to resolve either the probate or the foreclosure.

The present attorney says she will not have to repay the loan, because it is now part of the estate, but he says some sort of paperwork must be completed to process the short sale. We do not know what that is and getting the loss mitigation department of the bank to provide it has dragged out for months. What should we do?

A: With all the real estate that is out in the market, why would you want to focus on this one piece of land? While you don’t say so, you must be related one way or another to the family or the owner of the home who must have died two or more years ago.

If your attachment to the home is emotional but you have no direct attachment to it, you may want to stand back and look for a different home.

First of all, the mother owned the home and then transferred the home to her son. She did not get paid and did not force her son to get his own loan when she conveyed title to him. Unfortunately, she is still on the hook for the original loan.

In the cold reality of our world, the lender does not care how it gets paid as long as the lender gets paid in full. If the loan payments have not been made in the last two years, the amount owed to the lender has been increasing to a level that the loan is now worth more that the house. When the home sells the proceeds will not be enough to pay off the lender – this is called a short sale.

Just because the home sells for less than the loan amount doesn’t mean that the person that took out the loan doesn’t owe the balance of what is owed. In your situation, if the son’s estate doesn’t pay or can’t pay, the lender can go after the mother. If the mother has assets, the lender can use these assets to pay of the debt owed on the son’s home.

Many lenders will work with homeowners in certain circumstances to allow for a short sale and release the balance of the debt that is owed. These lenders generally require the paperwork you describe to make sure the owner hasn’t hidden assets that could be used to pay the lender.

If you have the ability to get financing and want to buy the home, you may still be able to do it. But as you have come to see, it isn’t and won’t be easy.

Once you have a commitment for financing, you can approach the probate attorney with an offer to purchase the home. If your offer for the home would be enough cash to pay off all of the debts of the home, you might be able to get the probate attorney’s and lender’s attention.

The probate’s attorney may not be considering offers because there isn’t any money in the deal to take care of the myriad of issues involved. Your offer only solves one issue in his case – the buyer for the home. But it doesn’t fix the fact that the property’s debts outweigh the value of the assets in the estate. If the bank forecloses on the property and takes it over, the problem with the home becomes the lender’s problem not the probate attorney’s. The probate attorney can close the case once the home is sold and all the assets are gone.

You can wait for the lender to foreclose on the home and buy the home when they have title to it. While it may take a while, the price may be better for you at that time.

Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce R. Glink’s latest book is 50 Simple Steps You Can Take To Sell Your Home Faster and For More Money In Any Market. If you have questions for them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact them through Ilyce’s website www.thinkglink.com