What Is the Foreclosure Process on Contracted Homes?

A home can be under contract and still be foreclosed on.

Homes in danger of foreclosure that go under contract can still be in jeopardy. The validity of a contract placed on a distressed property is largely dependent on the lender's knowledge and acceptance of the contract.

Retail Transactions

Some sellers opt to participate in a retail transaction sale of a property when it is in danger of foreclosure as they may have enough equity in the property to walk away with a profit. In these types of transactions, the property is placed on the open market for sale either by the owner or a real estate broker. However, if the property is under contract with a buyer and is foreclosed upon, the contract is canceled automatically with no recourse for the buyer.

Short Sale

A short sale is a transaction that occurs with lender approval, allowing a seller to settle her mortgage debt for less than the balance. In these scenarios the foreclosure is delayed for approximately six months to allow for sale. If, during a short sale a property goes under contract, it will most likely not be foreclosed on as long as the contract is valid.

Cancellation of Contract

In order to successfully execute a contract on a property that is undergoing foreclosure proceedings, it is crucial to have open communication between all parties, but most importantly communication with the lender. Without communication and lender approval, the lender has the power to strip all contracted parties of rights upon foreclosure.

References

• Watch Foreclosure: The Foreclosure Process
• Avvo: Foreclosure and Contract on a Home
• The Wall Street Journal: A Short Sale May Not Mean You're Home Free