Here's the blog piece I mentioned I was writing:

http://blog.seattlepi.com/realestate/archives/177171.asp

Anita

If you read the bank addendum that was probably attached to your offer you'll undoubtedly see that the bank required you buyer to waive any liabilty associated with this kind of mess. Obviously, your buyer will not sue the bank. Ask them to hang in there. The bank will cure this deficiency asap and they can still get the home.

Not giving notice to a creditor would be a defect.

Anita:

Thanks for your post....scarey, to say the least. I'm in agreement with my colleagues regarding remedies for the buyers, but I'm curious, what exactly did Title say the bank did wrong in the foreclosure that led to this situation? And why isn't the situation "curable" through revising documents and rerecording? In my mind, there has got to have been a way to see this somewhere--maybe the preliminary report?

I'd like to know as this is certainly something all of us, Realtors, should be aware and should alert clients.

Sincerely,
Grace Morioka, SRES, e-Pro
Area Pro Realty
San Jose, CA

Most banks will probably be fine signing a rescission with the earnest money going back to the buyer - but good luck getting reimbursed for anything else. Banks are trying to standarize real estate law across all 50 states - an impossible task! Many of the provisions in some of the bank addendums are directly contradictory to local contract law, including the ability to accep other, better offers even after mutual acceptance!

In the future, it's good to advise buyers offering on a bank-owned property that, depending on the bank, they may not get reimbursed for expenses incurred before closing. The upside is, in exchange for taking the risk of losing inspection and appraisal fees, they may get a great price on the property.

I'm going to finish a blog piece on this very soon (this week), the the contract probably has a clause that indicates if the seller breaches, the buyer's sole remedy is return of the earnest money. Washington's Supreme Court just upheld just a clause in the context of the buyers being experienced real estate agents. Torgerson v. One Lincoln Tower, 166 Wn.2d 510 (2009). It's unclear whether they would uphold it in the context of ordinary buyers.

The buyers need their own legal counsel.

When I finish my blog piece I'll try to remember to post a link here, although be warned, it won't really hit on the legalities as much as the practicalities.