New York Real Estate Lawyers Blog
Prior blog posts have discussed foreclosure proceedings, from the commencement of a foreclosure case to the entry of a Judgment of Sale and the public auction of the property. Many clients then ask, what happens next? Is it possible for the owner who has been foreclosed already to recover the property after it has been sold at a foreclosure sale? The answer to this question is a definite yes.
A public auction of foreclosed property will generally have two outcomes. In the first, the bank or other lending institution which brought the foreclosure case will acquire title to the property. This usually happens when either no one bids for the property, or when no bid exceeds the amount owned to the lender under the judgment of foreclosure. The other outcome is when a third party bids over the amount of the judgment, then obtains title, while paying the lender the full amount of its judgment (or a smaller amount negotiated with the lender).
In such cases, the original owner of the property may retain legal possession of the property. Although he may no longer be the legal owner, he maintains a right of possession, until an eviction action is brought against him. Sometimes, the owner’s financial circumstances may have improved and he may be in a position to repurchase the property from the successful bidder. The successful bidder may consider this a positive outcome as he would not have to bring an eviction case to obtain legal possession, and the occupant will pay him more than he paid to acquire the property, ensuring a profit.
When the lender is the successful bidder (or assumes ownership because no one else bids), they are often reluctant to re-sell the property directly back to the original owner. This is because they are essentially forgiving the amount owed by the debtor by selling the property back to her at a discount. Instead, the lender will instead sell the property to another third party, such as a company specializing in purchasing distressed properties. At this juncture, the original owner (or her attorneys) can contact the third party and offer to repurchase the property, giving the third party a fast return on his investment.
Let’s go through an example. A house is foreclosed with the owner owing $500,000.00 to his lender. No one bids at the sale, so the bank obtains title. The Bank then sells to a property investor for $400,000.00. The original owner, who has never moved out of the premises, may then contact the property investor and offer $450,000.00 for the house. The Bank is satisified, as they have recovered $400,000.00 of the $500,000.00 owned to them. The investor makes a quick profit of $50,000.00 on his $400,000.00 investment. And the original property owner, if she has the funds, can now own the property again and remain in possession.
Our firm has experience in handling such transactions. One important aspect to check is whether the deed from the lender to the third party has any restrictions. For example, it may state that the third party cannot sell the premises for a period of time, such as six months. This is to prevent “quick flips.” In such situations, the parties can enter into a contract and the closing date can be set for a date after the restrictive period expires. An experienced attorney will order and review title before closing to make sure that clear title is delivered to the purchaser.
It also may occur that a third party (not the lender) is the successful bidder at a foreclosure sale. In such cases, it is a matter of public record how much this third party paid for the property. The original owner can then use this figure to offer the successful bidder a quick return on their investment. For example, a purchaser bids $400,000.00 at a foreclosure sale to buy a property. The property owner can then approach the purchaser after they have obtained title, and offer them a figure greater than $400,000.00 to re-buy the premises. Again, the successful bidder makes a quick profit, and the owner keeps their home.
Our firm has represented many clients who are the subject of foreclosure proceedings, as well as successful bidders on foreclosed properties, and welcomes all inquiries.