Tenants are often some of the last people to find out the house they are renting is going into foreclosure. The landlord often withholds this information, fearing that, if the renters knew of the pending legal action against the property, they would stop paying rent, and the landlord would not have this money to rely on if he is attempting to save the home or just use the money to move on with his family's life after the process has ended. In all honesty, the tenants are still bound to the terms of the lease as long as the landlord still owns the home, and a pending foreclosure would not alter that fact. If the homeowners are unable to find a solution, though, it may be in the tenants' best interest to attempt purchasing the house, either before or after the process has gone through. This may allow them to make the jump from renter to owner, and avoid having to move out of a house that will soon be evicted by the county sheriff.
The first question that homeowners usually have is whom should they buy the property from. They can make an offer to the landlord now, but the owners may want the full market value of the property, in order to pay off the loan in full and use as much of the proceeds as possible to begin recovering from the foreclosure. Of course, they may be willing to give a good deal to the tenants, who are helping them out of the difficult situation, and this humanitarian motive to purchase the home before the sheriff sale should be considered by the renters. However, if the landlord demands full market value, and is unwilling to work with the tenants, assuming an "all or nothing" attitude, another approach may result in a better deal for the potential home buyers.
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In this case, where the landlord is unwilling to sell the home for less than full price, thereby giving the tenants a good deal for helping stop the foreclosure process, it may be wiser to wait until after the county-conducted auction when the landlord is no longer the legal owner of the property. He will no longer be able to negotiate a sale on a property he no longer has any interest in. It may be better for the potential buyers to work with the bank after the sheriff sale to get a better price. There are good and bad points about this approach, though, both of which must be taken into account before moving forward with this option.
First, the bad. The tenants absolutely must contact the bank before the sheriff sale or very, very soon after in order to tell the lender they are interested in purchasing the home and that they are currently living there as tenants of the previous owner. During the entire foreclosure process, they should try and save up for a down payment and get qualified for a loan as soon as possible, so they can prove to the bank that they are serious about buying the house, working towards that goal, and not just trying to avoid getting evicted. The bank will have to inspect the house and have it appraised before they accept any offer, of course, so the tenants can expect the mortgage company to send out a Realtor or appraiser to get an accurate value.
This is assuming the bank buys the property back at the foreclosure auction, of course. This happens almost all of the time, but there is a chance a third party interested in the home will purchase the house and want to move in or hold it as an investment. They may be understanding of the renter's situation and willing to sell the property they just purchased for market value, but then the renter's potential great deal will turn into buying a house for full price. This is an outside chance, but worth mentioning, as it can put the renters back in the same bargaining position they were in with the landlord demanding full price to sell the property to stop the process.
Now for the good aspects of purchasing a home after the sheriff sale The first is the fact that the mortgage company will be willing to sell quick and for a small gain on what they purchase it for at the auction. The tenants need to find out what the selling price was at the sale and what the true market value of the property is currently estimated to be. This will help them determine how much to offer the bank, although a wise bet would be to offer an amount somewhere in the middle of the auction price and the market value and back up the offer with a contract and qualification letter. If the offer is not made with a valid contract and some proof of being qualified for a loan, the bank will not take the entire offer seriously, as there is no documentation to persuade them to hold off on the eviction process.
As long as the bank knows that the potential buyers are working on getting the home and can document the mortgage process as it goes along, they will be willing to hold off on the eviction process for a reasonable length of time. They will not want to pay to evict someone through the court system if the current tenants are trying to buy the house. However, they will not wait forever for the loan to go through, and a closing date should be sought after as quickly as possible. Every minor delay or setback can cause the bank to change its mind, decide not to extend the contract, and pursue the process of forcefully removing the occupants and list the property on the open market. Time is of the essence in this situation.
Finding out that one is renting a home in the middle of the foreclosure process is often quite worrying to tenants. Although they are not legally released from the obligation to pay rent to the landlord for as long as he is the owner of the property, foreclosing banks will be quite sympathetic to renters in this situation. As long as the tenants become aware of the situation with some time to spare, they may be able to get the funds together to quality to purchase the home and avoid being evicted. They may also have the opportunity to help out the landlord by assisting in the effort to avoid foreclosure and purchase the property before the sheriff sale. If this is not possible, even greater deals may await after the county auction has taken place. Although being a tenant in this type of situation can seem like one of the most distressing situation to find oneself in, the tenants themselves can turn it into a win-win situation.
The House You're Renting is in Foreclosure - What do You do Now?
The ForeclosureFish.com website provides homeowners with information and resources designed to help them avoid foreclosure on their own. Hundreds of pages of articles, blog entries, and reference materials educate foreclosure victims on ways they can save their homes, including forbearance agreements, short sales, and bankruptcy, among many others. Visit the website today to begin researching how the foreclosure process works and how it can be prevented: http://www.foreclosurefish.com/
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