Legal Question in Real Estate Law in Michigan

I put an offer on a short sale 3 months ago, and things looked good for closing this October. The sellers were a couple in the midst of a messy divorce. Then, as soon as the divorce was finalized, the now ex-husband filed for bankruptcy, disqualifying the house from the short sale. According to the collection agency that had been handling the sale, the current owners have until December 1 for redemption, and can do whatever they like with the house (including trying to sell it) in the meantime. The listing agent said my original offer is $50,000USD less than the remaining mortgage. From the sellers' point of view, it would be good to unload the house and avoid the additional credit hit of a foreclosure, and from the bank's point of view (Freddie Mac, according to the collection agency), they would avoid foreclosure paperwork and city taxes/maintenance fees piling up, but what options (besides raising my bid $50K) could I present to the owners/bank in bridging the gap?


Asked on 8/24/10, 9:01 am

1 Answer from Attorneys
Shelly Schellenberg MI & FL private practice

Other than money, what would the other parties use to bridge the gap? Even if the house is foreclosed, the owner has the right of redemption. You can offer the owner money to buy his right of redemption, but the owner may not redeem the property for less than the balance on the mortgage, and you will only be purchasing whatever rights he has. If the husband has declared bankruptcy, he has nothing left to lose. You can wait until the property goes back on the market, following the foreclosure and after the redemption period has lapsed. By that time, the condition of the house will have deteriorated and it will no doubt be worth much less. After paying lawyers, city taxes and maintenance fees, the bank may be willing to accept less than the amount of the mortgage, but don't count on banks (including Freddie Mac) to get real smart real fast. Our nation's mortgage industry would not be in the mess it is in if the lenders got smart fast.

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Answered on 8/29/10, 9:29 am


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