Here’s the question…then the answer.

“We, the buyers, signed a purchase agreement with a Realtor/seller two days before the seller’s bank bought home at a foreclosure auction. Are we still bound to the original purchase price agreement we signed with the Realtor/seller? We are still interested in the property, can we make another lower offer to the bank or is the first offer still binding? (Even though seller no longer owns the house)”

You are right. The Realtor/seller no longer owns the home by title…the winning bidder at the foreclosure auction does via a Sheriff Deed.

However that’s not the end of the story. Foreclosed homeowners have an “equitable interest” in the property even after the auction and maintain an equitable interest in the property until the statutory redemption period ends.

An “equitable interest” is defined as a beneficial interest; not a common law legal interest but an interest in property enforced by equity….in this case the equitable interest comes in the form of “redemption rights“.

Every State in the country outlines a redemption right and period in their statues for home owners and lien holders to use.

Previous owners and lien holders have an opportunity to get back on title with what are called “redemption rights”. The previous owner, the Realtor/seller in this case, has the right to buy back - or redeem - the house for all the monies paid at auction plus a statutory rate of interest to the winning bidder (in most case, this the foreclosing bank).

Therefore, I don’t believe the auction legally kills the real estate contract since these redemption rights exist and the seller could fulfill his obligation to you of transferring the ownership without encumbrances once redeemed. Of course he is using your money to redeem his property, but as long as the title company handles everything appropriately at closing…making sure the chain of title remains intact through all the transfers…it would be relatively simple.

I’d get a lawyer in on this one! The Realtor/seller may sue you if you pull out because he was depending on your purchase money to redeem his foreclosure. It sounds like you want the home, so there no harm in playing it out.

That is the best I can do…thanks for the question.

Good Luck!

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