My deal fell through...... not sure why.

Foreclosures, Short Sales, Tax Foreclosures
1

Need Help understanding next steps in a TX foreclosure sale

Brief history… (sorry if I’m long winded but want to be clear)

Found an unusual round house on the tail end of a drainage creek on a NE Texas lake that had been listed for $39,900. Tax roles placed the tax value at $60k. Neighboring homes on channel water started around $130k and up as they got closer to open water. This home could be 'waterfront" home if the creek behind the house was dredged and seawalled to accommodate a boat slip. The original listing was provided by a realtor who knew I was looking for an eventual investment property (but mostly for myself to rehab and live in for a time and selling my place in Dallas).

The property dropped from the market. Later I found there had been a deal on the books for $32,500 plus closing costs but the title search showed a $5k credit lien which apparently killed that deal.

Later still I inquired through a different agent and found the property could still be for sale at $40,400 (that a short sale??), and that the property was going to go into foreclosure. We did some countering back and forth with the the owners eventually learning later the bank was wanting $39,517. We couldn’t figure out why the bank was being a stickler on the price and then learned they had an appraisal indicating the house was worth $40k. Given the condition of the house it was hard to understand how an appraiser came up with that dollar amount particularly without having truly investigated the interior and structural problems like we had,

In any case I was willing to accept latest counter offer pending the results of an inspection. I knew the house needed roof work and probably a full gutting (trailer paneling, no side wall insulation, leak stained ceilings in all rooms and likely mold presence in the minimal ceiling insulation). I generally estimated the house would need $30+k work if I did most of it myself and figured, if done right, the house could eventually fetch at least 100k+ in a couple of years. So $39k was likely going to be too much. The plan was to get an inspection done and get that to be part of the permanent record thereby giving us some leverage on the negotiations.

When the inspection done we found the locks had been changed and were told the house had been turned over to the bank. We were able to gain access anyway for the inspection but the water and power were turned off contrary to what the contract stipulated. I went ahead with the inspection anyway with the inspector indicating the major issues and noting no power or water. The results were submitted to the sellers agent who submitted to the bank. They called him back immediately advising the deal was dead and the home was going into foreclosure. Seems to me that process was well underway all through the negotiations so not sure why they didn’t say so rather than go back and forth for a month or so.

The property appeared within days on a foreclosure tracking site indicating it was going into full foreclosure and was to be auctioned in a trustee sale on the courthouse steps next month with an opening bid of $49k. To educate myself on the process I went out to the county courthouse yesterday to watch this months auction process and to better understand how things are done.

Questions…
1)Why would the owners/bank entertain my lower offers and counter with a $39,517 only to kill the deal later?

  1. What happens to the property if no one bids on it leaving only the trustee place the banks bid of $49k? I know at some point it will be relisted with a realtor down the line. Won’t they have to spend money to bring it up to marketable standards?

  2. I’ll walk away if necessary but I like the house’s unusual design and think it has potential….[b]Am I better off waiting it out til it is relisted via normal MLS methods and then resubmit the results of my inspection[/b] (assuming no work has been done on the house)?

Any insight into the post trustee sale process and how I might come out obtaining the property would be most appreciated!

Thanks.

-Bill
Dallas, TX

PS…this was to be a CASH sale.

2

Hi,

 I have been investing for a long, long time, now in my 32nd year. When I buy a property as a short sale, wholesale or most REO's I make my agreement with no inspections, no contingencies and nothing that would make the bank feel I am not serious about there property.

I make what ever visual inspection through the windows and doors and determine what I would be willing to pay, if your correct about a little dredging, a sea wall and a full remodel you would have a $100k to $130k property.

If I intend to use one of my hard money guys to finance part of my purchase price I either have a conversation in advance of the offer and let my HML determine what he will loan, or I determine that I will pay cash to close and place hard money in at some point in the future if I need to.

There is very little room to negotiate with a lender who tells what they need to make the deal!

The lender walked when you insisted on a inspection and did not immediately except there $39,517 offer!

This property will be sold as is, and there is a possibility the bank (Lender) could make a deal with any bidder at the court house steps as lenders have been agreeing to sell at less than is owed right at the courthouse steps if the highest bidder is within exceptable loss limits.

If it is re-listed “AS IS” and is not in an exceptable condition for a conventional or FHA loan it could be sold to any end buyer “Owner Occupied” on a 203k loan or sold to an investor. There again if I want the property I would go in with no inspection and no contingencies with a quick close!

It makes my offer look a lot better to the lender over a conventional loan and normal closing.

Good luck,

             GR
3

Gold River, Thanks for your insight!

If I’m understanding the process, the courthouse auction is the only way the bank to legally transfer ownership of the property from the borrower back to themselves. I get that part. In this case for the upcoming auction they have placed an opening bid of $49k. It sounds like you are suggesting I can still bid lower than the opening bid. Is that the case?

From what I witnessed at the last auction, the folks doing the “auctioneering” were substitutes likely not authorized to make any decisions other than the opening bid amount. Should I be contacting the lender now before it hits the courthouse steps?? If so, is there a best practice way of determining how much lower I might go without insulting the lender?

My purpose of doing the inspection was more so I would know what I was getting into even though I had a pretty good idea on my own. At that point we were still dealing iwth the homeowner and not the bank though later I learned the homeowner didn’t really have the authority to make any final decisions.

Thanks again for you insights.