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Any Way to Avoid a Sale?

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Posted On: 08/24/2011

QUESTION:

My father-in-law left the country bankrupt. He stopped making property tax and mortgage payments on his home several months prior to his departure. He notified the bank to contact my wife and I for future correspondence. We have secured a tenant who has been paying rent; the bank knows this. Including missed payments, there is now approximately $475,000 due on the loan. The house is worth about $425,000. We're trying to avoid a short sale or foreclosure. We'd like to refinance the home in our name. We have provided the bank with information regarding our personal situation, and during phone conversations they claim they want to work with us, but they recently sent us a letter notifying us that they plan to move forward with the foreclosure. Is there anything we can do to avoid this?

ANSWER:

I suspect you are not on the title nor on the mortgage, thus you have no standing. To the lender, the borrower is your father-in-law, and he simply has stopped making payments.

In this situation the lender has no choice, it must foreclose. Why? Because a foreclosure auction, in theory, is supposed to raise the highest possible price for the property. If there is any money from the sale above what is owned to the lender it must be turned over to the property owner. In practice, the lender will make a bid to try and get back its investment. If no one bids higher the property will then be sold to the lender.

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But, weirdly, this may be good news for you. The foreclosure price will likely be substantially below the current market value, so by bidding at the auction you may be able to secure ownership to the property at discount. Don't tell the lender of your interest - that may encourage them to make a higher bid. For specifics and strategy, speak with a local real estate attorney and line up financing to make your offer.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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