A Real Foreclosure Negotiation With the Bank

Mastering Foreclosure Negotiations

Foreclosure/For Sale Sign in front of large white house

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This step-by-step, real-life negotiation process details the experience of a buyer dealing with a bank for the purchase of a foreclosure property. The bank bought the loan in a package separate from the original lender—or at least the one who had been holding it when the default occurred.

The negotiations took a little over a week and a half, and the bank seemed to intentionally disregard the problems of the home they were trying to unload. But, in the end, the buyer triumphed because they didn't quit and took all factors into consideration.

The Foreclosure Facts

The value of the home was between $225,000 and $300,000 in better times. The original list price by the bank was $179,000. The buyer's offer was made six months or so later when the home was listed at $119,900.

The home needed a new septic system on a lot that was too small for a leach field in an area with very strict environmental laws. The process to receive the variance for holding tanks was expected to take from 30 to 45 days, with an outcome that wasn't guaranteed.

The bank was very clear that it would make no representations as to the condition, and it would not pay for any repairs.

The Buyer's Offer

The buyer received some initial ballpark estimates for the septic work before they made the first offer. There were no other offers on the table at the time, although the home was being shown a bit. It appeared to be in surprisingly good condition, requiring the addition of a heater for immediate occupancy if the septic was right.

The buyer offered $108,000 with 20% down, contingent upon the granting of the septic variance and the seller paying $10,000 for septic installation before closing. The buyer's lender required that.

The home was a steal at the full asking price, even if the septic had to be replaced after closing at the buyer's expense. But the buyer didn't have sufficient cash to do that, so it had to be done by the seller or it at least had to be financed into the price. 

Items of Contention

The bank would only use counteroffer forms, reiterating each negotiation item in each. The forms seemed to be computer-generated.

The bank wanted a closing date too soon to guarantee that the variance could be approved in time and the septic installed before closing. It wanted $100 a day from the buyer if he went past that date "at no fault of the seller."

The bank's first counteroffer stated that it wouldn't pay for a survey, but it would credit the buyer $1,500 toward their closing costs. It didn't offer to pay anything toward the septic installation. The counter was at the full list price of $119,900.

The Negotiations

Negotiations centered around the sale price, the septic cost, the survey/closing costs, and the $100-a-day damages clause with the short period until closing. Every counter from the buyer asked for more and to remove any payment of damages if the buyer couldn't get these items completed in time due to delays at the county.

The Outcome

In the end, it took some creativity to get the deal done, but it got done. The buyer made a final counteroffer and the bank came back with an OK on it.

The sale price would be $120,500, although the buyer had gotten the bank all the way down to $112,000 during the process. The seller would pay an upfront fee of $1,500 to get the septic variance process done, as well as $10,000 for a new septic system and $500 toward buyer closing costs. And the closing date was extended.

How Did That Happen?

The buyer got the bank to take the deal and shell out $12,000 by sending the final counter with the sale price increased from $112,000 with almost no other concessions.

That's a net selling price of $108,500, but the buyer wouldn't need any cash other than the 20% for the down payment and other closing costs. It was a great deal for the buyer, who would close on a home that was move-in ready $50,000-plus in immediate equity.

Never Quit

The point is to never quit with a bank. As long as they keep coming back with counter-offers, you do the same. At some point, you'll make a deal, and it might be better than you ever expected.