Bad house buying experience

[dullard]

My GF is trying to buy a house. She found a great house at a wonderful price in her desired location. She made a lowball offer and it was accepted. The closing date was supposed to be June 9th as agreed to in the contract to buy the house. The sellers have been delaying the closing and my GF finally found out all the details last night.

They have two mortgages on the house - totaling $5000 more than the tax assessed value of the house, $10000 more than the appraised value of the house, and $20000 more than the agreed contract price for my GF to buy the house. The sellers' bank won't allow the deal to go through. Basically the sellers' are breaking the signed purchase contract. And they say if the deal doesn't go through, they'd let the bank foreclose on the house.

My GF is nearly $1000 in so far for inspection costs, testing costs, and bank costs.

What is the next step? Is she out that money? Can she sue the sellers for those expenses? Will a bank accept that they made a horrible mistake in loaning out more than the house is worth and take a hit to avoid the foreclosure? Any advice or experience from people who've had similar problems?

Nebraska laws apply.

 

[GasX]

Contact the bank regarding buying the house immediately upon foreclosure.

 

[spherrod]

can't really give you any advice as it's totally different in the UK but that sucks

 

[Axoliien]

If you have a signed contract that states they accept your offer than they are liable for breaking that contract and you can demand restitution for lost fees in inspections, etc. Ask your realtor (you did get a realtor, right? Since it costs you nothing to have one if you are buying...) and let them handle the issue of getting the fees back if they can work something out with the partner realtor.

 

[EagleKeeper]

Originally posted by: Mwilding
Contact the bank regarding buying the house immediately upon foreclosure.

As long as the current owners are making payments, foreclosure is not an option.

Breach of contract for expenses may be the best she can get with a small claims court.

Now if they are willing to let the bank foreclose; as stated above; have your GF contact the bank (now, not when the foreclosure starts) and alert them of her desires.

Depending on the value of the house (percentage wise to the loan) the bank by be willing to work with her. Foreclosures usualy cost the lenders close to 15-20% of the market value in terms of reselling the place.

 

[spacelord]

It sucks to be out $1000, but I bet its money lost.

As stated, I would try and see about picking up the foreclosure.

 

[dullard]

Originally posted by: Mwilding
Contact the bank regarding buying the house immediately upon foreclosure.

Originally posted by: Axoliien
Ask your realtor and let them handle the issue of getting the fees back if they can work something out with the partner realtor.

Yes, she had a realtor. Her real estate agent is in the hospital giving birth, so my GF has the owner of the real estate company looking for who to contact at the bank. It is just wait and see at the moment.

 

[SampSon]

In this case it's federal lending laws that are coming into play, state laws won't really come into play with fannie mae rules.

Most likely your gf is out of the money she is already in for the inspection and applications fees. The sellers bank isn't going to take a $20K hit on the sale of the house. In my experience of doing foreclosure work for banks and fannie mae, I've never seen that happen. They will let it go through foreclosure and collect the full amount of insured mortgage money through fannie mae and then allow fannie mae to possess the house and then sell it. That is the loophole magic of the federal mortgage system.

The sellers bank loaned more money than the house is worth (and more than the appraised/sales value) because they most likely put together a creative loan package to loan more than 100% of the value or they extended their line of credit with a HELOC or other simliar loan package. It is common for home owners to owe more money than the worth of their house.

Your GF CAN sue for the money she is out, but you have to take into account that the sellers are going to let their house be foreclosed on, do you really thing that they are going to go to court and pony up the money your GF put in AND court costs? Fat chance.

 

[dullard]

Originally posted by: EagleKeeper
As long as the current owners are making payments, foreclosure is not an option.

Breach of contract for expenses may be the best she can get with a small claims court.

Now if they are willing to let the bank foreclose; as stated above; have your GF contact the bank (now, not when the foreclosure starts) and alert them of her desires.

Depending on the value of the house (percentage wise to the loan) the bank by be willing to work with her. Foreclosures usualy cost the lenders close to 15-20% of the market value in terms of reselling the place.

The bolded part is exactly the type of info I was looking for. Thanks, EagleKeeper. If the bank is going to lose money anyways, they might be willing to lose less and let the deal go through.

It looks like the sellers have major financial trouble and that forclosure is a definite possibility. I hate to be the "there should be a law..." person, but there should be a law forcing the sellers to disclose to the buyer that there may be a problem IF the price doesn't pay the mortgages. That'll prevent all of these problems and yet not impede anything in almost all house deals.

 

[dullard]

Originally posted by: SampSon
In this case it's federal lending laws that are coming into play, state laws won't really come into play with fannie mae rules.

I didn't know that. Thanks for the info.

Most likely your gf is out of the money she is already in for the inspection and applications fees. The sellers bank isn't going to take a $20K hit on the sale of the house. In my experience of doing foreclosure work for banks and fannie mae, I've never seen that happen. They will let it go through foreclosure and collect the full amount of insured mortgage money through fannie mae and then allow fannie mae to possess the house and then sell it. That is the loophole magic of the federal mortgage system.

🙁 I think their current idea is to see if my GF will pay a bit more (but she herself can't pay more than the appraised value because no bank would loan that amount), have the sellers put in whatever they can, have the realtors take less than their normal cut, and maybe have the bank kick in the rest. But that just might not be possible.

Your GF CAN sue for the money she is out, but you have to take into account that the sellers are going to let their house be foreclosed on, do you really thing that they are going to go to court and pony up the money your GF put in AND court costs? Fat chance.

We talked about that last night. Is it worth it to even sue people who clearly don't have money? Probably not.

 

[SampSon]

Originally posted by: dullard

Originally posted by: EagleKeeper
As long as the current owners are making payments, foreclosure is not an option.

Breach of contract for expenses may be the best she can get with a small claims court.

Now if they are willing to let the bank foreclose; as stated above; have your GF contact the bank (now, not when the foreclosure starts) and alert them of her desires.

Depending on the value of the house (percentage wise to the loan) the bank by be willing to work with her. Foreclosures usualy cost the lenders close to 15-20% of the market value in terms of reselling the place.

The bolded part is exactly the type of info I was looking for. Thanks, EagleKeeper. If the bank is going to lose money anyways, they might be willing to lose less and let the deal go through.

It looks like the sellers have major financial trouble and that forclosure is a definite possibility. I hate to be the "there should be a law..." person, but there should be a law forcing the sellers to disclose to the buyer that there may be a problem IF the price doesn't pay the mortgages. That'll prevent all of these problems and yet not impede anything in almost all house deals.

Even though foreclosures costs the lenders upwards of 20% of the value of the property, most banks would rather foreclose because of the protections Fannie Mae provides.
In foreclosure the lender has many more advantages and legal rights than if they just accepted a buy-out deal that is $20K under the money they are owed.

We talked about that last night. Is it worth it to even sue people who clearly don't have money? Probably not.

Realisitcally and honestly, it's not worth it for her to bring them to court. It will cost both her and you time and money for such a small amount of capital loss. Even if you spend a couple hundred and get a verdict in your favor, good luck collecting that money from the sellers.

I didn't know that. Thanks for the info.

Yes, in this case you're dealing with federal lending laws/practices. Yes there are some laws and regulations that come along with a state lending license, but federal fannie mae lending regulations will always override them.

I think their current idea is to see if my GF will pay a bit more (but she herself can't pay more than the assessed value because no bank would loan that amount), have the sellers put in whatever they can, have the realtors take less than their normal cut, and maybe have the bank kick in the rest. But that just might not be possible.

Assessed value has very little to do with bank lending. Just about every single house I appraise and sell will go for much more than it's assessed value. Banks arn't concerned with assessed value, they are concerned with apprised value of true market value.
Assessed value and Appraised value (true market value) are commonly mixed up.

 

[dullard]

Originally posted by: SampSon
Assessed value has very little to do with bank lending. Just about every single house I appraise and sell will go for much more than it's assessed value. Banks arn't concerned with assessed value, they are concerned with apprised value of true market value.
Assessed value and Appraised value (true market value) are commonly mixed up.

Oops, typed that wrong, I meant appraised value. She can't pay more than the appraised value (which is still $10000 less than the sellers owe). I got the language correct in the first post, but goofed in the later post.

And by the way, I'm not in it for anything. We aren't that serious in our relationship yet (only been dating 10 months). And I've got a wonderful house of my own. I just thought this would make an interesting thread where I could learn a lot.

 

[SampSon]

Originally posted by: dullard

Originally posted by: SampSon
Assessed value has very little to do with bank lending. Just about every single house I appraise and sell will go for much more than it's assessed value. Banks arn't concerned with assessed value, they are concerned with apprised value of true market value.
Assessed value and Appraised value (true market value) are commonly mixed up.

Oops, typed that wrong, I meant appraised value. She can't pay for for the appraised value (which is still $10000 less than the sellers owe).

Yea, that is a more accurate statement. Though if she can get an appraiser to appraise it for the amount that she needs to make a loan work, then she could probably make the deal work. Though then you're basically inflating the value of the property artificially in order to make a sale work on a home that is most likely technically not worth what she needs it to be. Appraising IS a subjective profession, but there is only so much leway.

 

[dullard]

Originally posted by: SampSon
Yea, that is a more accurate statement. Though if she can get an appraiser to appraise it for the amount that she needs to make a loan work, then she could probably make the deal work. Though then you're basically inflating the value of the property artificially in order to make a sale work on a home that is most likely technically not worth what she needs it to be. Appraising IS a subjective profession, but there is only so much leway.

And then, if you do all that, she is now paying well over 10% more than she originally planned. She'd then be better off getting another house as this one would no longer be the best deal.

 

[SampSon]

Originally posted by: dullard

Originally posted by: SampSon
Yea, that is a more accurate statement. Though if she can get an appraiser to appraise it for the amount that she needs to make a loan work, then she could probably make the deal work. Though then you're basically inflating the value of the property artificially in order to make a sale work on a home that is most likely technically not worth what she needs it to be. Appraising IS a subjective profession, but there is only so much leway.

And then, if you do all that, she is now paying well over 10% more than she originally planned. She'd then be better off getting another house as this one would no longer be the best deal.

Yes, she is already taking a theoretical 10% hit in value right off the bat. Though the appraised value is a range of low to high values, she would already be at the top end of market value for the current moment.

In my experience as a real estate professional, I would suggest she walk, no, RUN away from that deal as quickly as possible and eat the money she put into it already.