That just means the seller is in breach of the mortgage contract. It doesn’t mean the deed is invalid.
What I don’t get is why when the bank basically has someone willing to make payments on a $140,000 mortgage they would rather foreclose, pay all of those expenses and then sell it for $120,000 and good luck getting the $20,000 for the ex-owner.
And I get that I don’t have the magic 640 + 20% down to buy it outright but considering they’re less than 2 months from foreclosing now, what’s the difference?
You said you can’t qualify for a loan, so what’s in it for them? There’s every chance (from their point of view) that you’re just going to default too - and then they have to begin the foreclosure process all over again.
Would you as a bank want a customer who pays (tries to pay) $140,000 for a house worth $120,000? And… can’t qualify for a $120,000 mortgage? Sorry, it just screams “problem” to me.
As I’ve said before, my rule of thumb is if the bank won’t advance you credit, why should I?
I don’t know about he USA, but in Canada - when you buy a house, the bank pretty much requires mortgage insurance unless you put 20% down (or was it 25%?). They must have the paperwork to show that you meet their loan criteria, you have income to cover the loan payment.
You MUST put down 5% (used to be 10%). The mortgage insurance requires it. This shows you have something invested in the house. $140,000 - you have put in $7,000 of your own money. You have a much stronger incentive to make it work if you stand to lose a hefty savings amount. (In fact, I’ve heard that if the down payment suddenly “appears” in your bank account here, they have to ask where it came from, that you did not simply get a loan from family or another bank.) If you put nothing down, it hurts nothing to walk away. I’m betting this lack of serious financial commitment would be part of the bank’s problem with your offer. Offering to overpay by $20,000 just makes them more worried.
Oddly enough, due to these sorts of rules, plus the lack of mortgage interest deduction, Canada has not had the real estate meltdown the USA went through. (And rather than constantly remortgaging, most Canadians work to pay off their house.)
Signing a quit claim deed would be a violation of the contract, not the law. Therefore the contract is broken. The bank has a lien on the property and can now exercise the lien.
The quit claim would not relieve the former owners of their mortgage obligation, and would in fact trigger the mortgage’s “due on sale” clause. At which point, the bank would go after the former owners - who are clearly unable to pay - and then exercise their prior rights to the property, leaving the OP literally out in the cold with nothing to show for it.
Now, you COULD come to an arrangement with the owners, where you’re issued some kind of legal contract to purchase assuming you continue making the payments. They would have to remain the owners of record - and they might even have to pass the payments through to the bank lest the bank twig and say “you sold it, you sneaky bastids, FORECLOSING NOW”.
Or you might make the payments to the owners, who could FAIL to remit the payments to the bank, which leads to a true foreclosure. It’s a high risk situation any way you look at it.
You would think the bank would be happy to participate in an agreement such as the OP proposes: the loan is brought current, they get their cash flow, they’re spared the hassle of foreclosing and auctioning, the OP has a place to live… win-win-win situation. But the bank doesn’t know the OP’s ability to pay, the OP has a less-than-perfect credit rating and the bank is honestly likely to just say it’s not worth it.
For what it’s worth, there ARE some assumable loans, or so I’ve heard. FHA and VA loans, mostly - and I don’t know how commonly those are assumable. From something I heard 20+ years ago, VA loans at least were restricted in that if you had a VA loan, and let someone assume it, you couldn’t take out another VA loan on a new place. In any case, you could certainly check with the owners to find out if it’s VA or FHA.
An experienced real estate agent probably won’t want to get involved in the deal as presented.
[quote=“Mama_Zappa, post:46, topic:688652”]
For what it’s worth, there ARE some assumable loans, or so I’ve heard. FHA and VA loans, mostly - and I don’t know how commonly those are assumable. QUOTE]
IIRC, about 20 years or more ago, only some VA loans were assumable. All other assumable loans stopped being offered, because of all of the “Nothing Down” deals of the 80s that went bust. Or some other such.
The reason the Canadian Mortgage insurance REQUIRES a down payment is that it shows the new owner has a stake in the house. The deal as presented by the OP - the bank has no way to know if he’s Saint or a Cad - he could just as easily occupy the building and make no payments for months, then skip town. The bank doesn’t know. If the new owner has his own $10,000 or so down payment invested - then he is much less likely to skip on his investment if the going gets tough.