Good News and Bad... The good news is that you can still buy the house. The bad news is that if it is owned by the bank then the process of buying it will not be as quick and easy as with the owner. If it is in pre-foreclosure meaning that the bank has not taken ownership yet then it is still possible to buy it from the current owner. There are several ways to do this:
1.) Short Sale- this is where the bank agrees to a price less than what it is owed in order to get some money rather then no money. It is a win/ win/ win situation. The bank gets an amount they are comfortable with, the homeowner does not get a foreclosure on their credit, and you get the house you wanted (ideally well below appraised value.
2.) Another way is a Contract for Deed- (called a land contract in many markets) This eliminates the headache of dealing with the bank. You can purchase the house contingent on you getting financing at a future date. Basically you give the owner a little money (as little as possible) and bring the note up to date (pay the owners back payments for them) the owners sign a deed and place it in escrow contingent upon you paying off the note in the next year or two years or whatever time period you both agree on. When the mortgage is paid off then the deed they already signed is recorded and you own the home. This gives them some money to move and it gives you short term owner financing. If it is an investment rather then a primary residence then it gives you additional options as an exit strategy.
3) The third way is to get them to sign the deed over to you. You own the house. Their mortgage has a due on sale clause, and the bank has a right to call the note due whenever they feel like it. However, it does not make business sense to take a note that was preforming and make it not preforming and if you are nice to whoever calls you from the bank and explain what you are doing and that it is done a lot then they will usually let you do it. If not you can get a mortgage in your name to pay off that mortgage.
Please keep in mind that while I am a Realtor in the market I am not an attorney and recommend you seeking legal advice for any of the above processes.
If you would like to find out more or if you are ready to give up on that house and look for something else I am in your market and would love to help with you with whatever you decide to do.
Prudential Professionals Realty