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Bought home on Contract, Bank Forclosing on Owners

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We have a unique situation. In 2009 we bought a house on contract from a couple. At closing we discovered that they still had a mortgage on the home for about 9K more than what we bought the home for. Our Realtor at the time, ensured us that we'd be fine, as we deposited our mortgage payments into a savings account at the bank that held the couple's mortgage and the payments would be taken from that account. We also learned that the couple's payment was about $150 more each month than what our payments were.

 

About 1 year later, the husband died. We spoke multiple times with the wife over the next couple of months, who mentioned casually that she was having financial difficulties after loosing her husband. The home was in a borderline "bad" neighborhood and we ended up having a couple of break-ins. Last fall, we decided to move out into a rental and put the house up for sale. We had some projects in the house we still had to finishing up and was days from listing it with our Realtor when we discovered the locks had been changed by the bank. We contacted the bank, who informed us that the payments had not been made (they wouldn't tell us for how long) and that when we moved out, they considered the home abandoned and was expediting the foreclosure process. We had no notification of the mortgage not being paid or of the letters sent to the wife about catching up the payments to avoid foreclosure. The bank rep told us that their contract was with the couple and they had no obligation to notify us.

 

We had almost 20K invested into the home, but was prepared to loose it and move on. Today, we were served with Foreclosure papers that lists us as defendants along with the couple. I am terrified that we will have a foreclosure added to our credit reports and possibly a judgement for the loss after the sale at auction. We were just in the process of paying off previous education debts that would allow us to finally qualify for a traditional mortgage of our own within the next 4 months.

 

Any advice?

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Was there a deed filed in your name?

 

I was under the impression that our names would be added to the deed. But am still digging through our paperwork. Can a foreclosure be added to a person's public record and credit report if they are not on the mortgage nor were they properly notified of this foreclosure?

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I don't know, but I would think you might have a case. If there was a deed recorded, you should have been notified, if not, then it is not your foreclosure. I can move this to where the legal types hang out.

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I don't know, but I would think you might have a case. If there was a deed recorded, you should have been notified, if not, then it is not your foreclosure. I can move this to where the legal types hang out.

 

Thank you. I am hoping this is just a formality that is required to get us to "sign off". My main concern is obviously worried about it affecting our credit, especially now that we are so close to being about to get a mortgage on our own. I did make an appointment tomorrow with an attorney, but I really would like to avoid a bunch of legal fees if possible.

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Also was there a real estate agent or real estate attorney involved in the transaction?

 

We live in Iowa. Both sides each had a real estate agent and the closing was handled by a real estate attorney (who happens to work with the same firm that is representing the bank in the foreclosure). Basically in a contract purchase, you write up a contract with the agreed upon terms of our "mortgage" with the owners of the home. We had a 7.0% interest rate with a 15 year amortization and a 5 year balloon. The original owners are still responsible for paying the real estate taxes (however they are wrapped into our mortgage). These types of transactions are fairly common in our state, however, new to us. We never signed any type of agreement with the bank and according to the bank rep we spoke to when they locked us out of the house, the bank was not aware of the contract purchase until after the closing.

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I think they had what we call a land contract here in VA. Sounds like it, anyway. A deed should have been recorded if it was a real closing - not implying that the OP isn't saying what actually happened, but these contracts are often used like some "rent to own" type deals, and there is no recording of the transaction. No idea if this is what happened, but a search for the deed should tell.

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I think they had what we call a land contract here in VA. Sounds like it, anyway. A deed should have been recorded if it was a real closing - not implying that the OP isn't saying what actually happened, but these contracts are often used like some "rent to own" type deals, and there is no recording of the transaction. No idea if this is what happened, but a search for the deed should tell.

 

I did some research. We are listed to the deed. The deed was last recorded on Oct 23, 2009 when we closed. It has the original owners as the primary names on the deed with us listed under "Contract to:". Date of last sale is also our closing date and purchase amount so this is a true recorded sale.

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I wouild think they were suing to "foreclose" any rights they have based on an obligation of the seller to her. Sort of like when you have a judgement against you and the bank foreclosing has to sue any nody who shows up on a judgement search to gain clear title to the persons real property.

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