Can children bid on property previously owned by their parents that went into foreclosure?

Asked by Dawnydonut, Washington County, MN Fri Mar 11, 2011

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Philip Roy, Agent, Las Vegas, NV
Sun Mar 13, 2011
Hello,

If the property is going to auction, anyone can bid on auction property.
Web Reference:  http://www.buyvegasnow.com
0 votes
Karen Parsons…, Agent, Laguna Beach, CA
Sun Mar 13, 2011
Hi Dawny Donut,

Probably not....but I would have your agent contact the listing agent and ask.

Karen
0 votes
Cameron Piper, Agent, Forest Lake, MN
Sun Mar 13, 2011
Dawnydonut,

In a short sale, the answer is it depends on the bank. There is no rule or law that says the bank has to require an arms length transaction, even in a short sale. Sometimes they ask for it and other times they don't. The banks in the last four short sales that I have closed did not require an "arms length" document to be signed. In theory, since they didn't require the document for closing a person who wasn't arms length could have bought the house. One way to get around the requirement at this point would be to propose a settlement which will circumvent most of the traditional short sale overhead - the process it tricky though so make sure you get someone to help you.

If you are talking about bidding at the foreclosure auction, commonly known as the sheriff's sale, the bidding is open to the public and anyone including the current owner can bid on the property. The down side is to win at the sheriff's sale you usually have to have the cash on hand - no mortgages here.

After the bank owns the house, having taken it back by foreclosure, they are free to sell it to whomever they please. I cannot concieve of a reason why the bank would require an arms length type transaction once they own it, and certainly have never seen that, but again it is up to each individual bank.

Whatever you do, make sure that you get a good agent involved in the process who has experience dealing with banks and distressed property situations.

Post back some additional comments or questions about your situation and I know that there are many of us here that would be more than happy to continue to guide you along the way.

Good Luck!!

Cameron Piper
Coldwell Banker Burnet - White Bear Lake/Forest Lake
Web Reference:  http://www.campiper.com
0 votes
Jim Paulson, Agent, Boise, ID
Sun Mar 13, 2011
I am not an attorney nor am I licensed in your state; however, the key word in your question appears to be "previously".

In my humble opinion, once it has gone from the parents name to the bank via foreclosure, the rules change. After it has gone to the bank, anyone can buy it unless they work for the bank or have any direct involvement with the bank.

For example, I had a property I was selling for a bank here in Idaho. The person that bought it was actually a partner in the property that lost it to foreclosure. Because it was resold at public auction to the highest bidder, it was still considered an arms length transaction.

Keep in mind that laws are different in every jurisdiction, so check with local restrictions/laws.

Best of luck!
Jim
0 votes
Bill Eckler, Agent, Venice, FL
Sat Mar 12, 2011
Lenders will require an "arm's length" between the previous owner and the buyer to eliminate "funny business" and will likely require the buyers to certify in writhing that they are not associated with the previous owner in any way as a friend, relative, or business associate.

Bill
0 votes
Michael Emery, , Minneapolis, MN
Fri Mar 11, 2011
The bank is going to bid the value of the mortgage which probably exceeds the value of the property. If your parents want to, they can redeem the property for up to six months past the sheriffs sale. And they could also short sale the property with permission of the lender. But if they redeem after the sheriffs sale, they might be liable for any legal costs incurred by their bank.

The only time I've seen someone redeem a property in the redemption period is when they have sufficient equity. But of course if they had equity, it's unlikely they would've let the property fall into foreclosure.
0 votes
Christine Ro…, Agent, Mora, MN
Fri Mar 11, 2011
Dawnydonut,
Your answer depends on three things 1) on the stage of foreclosure 2) on the bank requirement for Arms Length Transaction and 3) the age of the child purchasing.

Typically your answer is no, this is not possible. However, if it is a smaller bank, your answer could be different. Check with your Real Estate Professional to assist in determine the true requirements for the property in question.

Chris Rocheford
KW Realty Integrity NW
Licensed in MN
0 votes
Lenny Frolov, Agent, Brooklyn Park, MN
Fri Mar 11, 2011
If you are talking about bidding at the Sheriff's Sale there should be no issues with the children bidding on your home.
Web Reference:  http://www.lennyfrolov.com
0 votes
Susan Hoffla…, Agent, Shoreview, MN
Fri Mar 11, 2011
Yes, frequently an arms length transaction is what's required when you're buying with a mortgage, etc. But, in an auction, even the current owner can bid on the property as long as they have cash to buy the place. That's the sticking point is that you can't bring a mortgage to an auction, so you need to have funds sufficient to buy the place at the auction. Is that the case? Do you have cash or ready funds that will be available to you at the auction to close the deal?

And, you are aware that there is a 6 month redemption period beyond the sheriff's sale in MN. So, your parents would have the possibility of redeeming the property if they can pay off the amount owed.

Good luck!
Web Reference:  http://www.homestosellmn.com
0 votes
Tee Williams, Agent, Portsmouth, VA
Fri Mar 11, 2011
Most foreclosing entities require that the transaction be an 'Arms Length Transaction' meaning that the new buyer not have a familial relationship with the previous owner.
0 votes
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