questions about possibility of purchasing home from auction after forclosure and BK 7

[newme]

Hi all. I've read some threads about people purchasing their homes back during the auction after it's been foreclosed on.

Because our small business had to close down, and the bank we borrowed money from to start up our business has a lien on the house, we were forced into a chpt 7 BK, and to give up the house. We have a first and second mortgage on our home, AND a lien with the other bank, which is similar to a third mortgage. So, I have some questions...

1. The city appraisal of our home is around $270,000. On the first mortgage, we owe about $168,000, and about $70,000 on the second mortgage. When banks buy back the property so that they can sell it, is it usually the bank with the first mortgage that does this? And if so, how high will they usually bid? If someone was bidding against the bank, and offers more than what's owed to them, will they continue to bid, or will they usually let the person bidding more win the home, since they will be getting the full amount back anyways? What say does the second mortgage holder have in the auction? will they not allow the home to be sold for less than what's owed to them?

2. Let's say we go and bid and win the house back. What happens to the lien on the home from the third bank (who lended us the business money). Does the foreclosure strip that lien away, or will we still have that lien against our house, since the house will still be under our name? And, what happens to the second mortgage? If the lien will remain even after going through the foreclosure process, then it would not be worth it for us to try and buy back our home.

I'd like to know your thoughts on this. Thank you all!

[HHM]

1. Typically the bank that holds the first mortgage forecloses; reason being, foreclosure is the only way the bank can extinguish the lien of the 2nd mortgage holder. All subordinate liens are extinguished at the foreclosure. As for bidding, usually the opening bid is 75% of the amount owed on the property. Now, whether that will be 75% of the 1st mortgage or 75% of all purchase money liens, depends on your state.

2. If you are planning on buying back your house, realize that it could be difficult for you to get financing and you usually need to have 10% cash on the spot and close within 2 weeks or less.

[newme]

Thanks for that info! So the forclosure process itself will distinguish the 2nd mortgage and all other liens, even if the title comes back to us? That would be great. Do you think the bank will keep on bidding if someone already bid over the amount owed on the first mortgage, even if the house was appraised for much higher?

[spell]

As was said, the biggest problem is that you have neither the cash nor credit to buy at the auction.

At the auction, the first mortgage will likely bid the payoff balance.
In this case, because the second mortage is in a decent position, they may send someone to bid up to it's payoff balance.
A third possibility is that a buyer or investor will show up and bid up the price to what they view as a fair market value. Many view homes at 70% of value to be good buys. Some may show up to this sale.

[newme]

Thank you for the info, Spell. We have connections to owners of a small bank who may be able to overlook the bankruptcy issue. However, if the second mortgage sends a rep to bid up, we may back down.

[deafbroke]

I would check with an attny also. Seems like buying back your house at foreclosure might border on fraud. But check with attny to be sure.

DB

[JourneyGirl]

Purchasing your home after the foreclosure is considered fraud. Most banks will not allow you to purchase your own home at a price lower than what you owe them. Even though they lose so much money thru the foreclosure process (cost is appx 50k), the home will usually go on the market and sell at a price you would love to have paid for it! Your mortgages are recorded in an order that your first mortgage is paid off first (usually less than what you owe) and the second and third mortgage holders, most of the time, end up with nothing. Filing bankruptcy clears you of any financial duties on any of these loans, if you are discharged thru the courts for them. At the action the bank will only give up the house to a bidder that is at price owed (which can be much higher than your mortgage) or higher. They usually take back ownership. The foreclosure papers filed with the court will usually have a clause in it that prevents a family member from purchasing the home (in the event they are buying it for you at a lesser price) this is considered fraud. Your bankruptcy should have discharged you from all debt. 1st, 2nd, 3rd or even 4th mortgage loans are mute at this point. the bank will sell the home with a clear title and no leins.

Hi all. I've read some threads about people purchasing their homes back during the auction after it's been foreclosed on.

Because our small business had to close down, and the bank we borrowed money from to start up our business has a lien on the house, we were forced into a chpt 7 BK, and to give up the house. We have a first and second mortgage on our home, AND a lien with the other bank, which is similar to a third mortgage. So, I have some questions...

1. The city appraisal of our home is around $270,000. On the first mortgage, we owe about $168,000, and about $70,000 on the second mortgage. When banks buy back the property so that they can sell it, is it usually the bank with the first mortgage that does this? And if so, how high will they usually bid? If someone was bidding against the bank, and offers more than what's owed to them, will they continue to bid, or will they usually let the person bidding more win the home, since they will be getting the full amount back anyways? What say does the second mortgage holder have in the auction? will they not allow the home to be sold for less than what's owed to them?

2. Let's say we go and bid and win the house back. What happens to the lien on the home from the third bank (who lended us the business money). Does the foreclosure strip that lien away, or will we still have that lien against our house, since the house will still be under our name? And, what happens to the second mortgage? If the lien will remain even after going through the foreclosure process, then it would not be worth it for us to try and buy back our home.

I'd like to know your thoughts on this. Thank you all!