Seller and Agent Must Disclose Mortgage Default Sale to Prospective Buyers

A man was in a car accident last summer, and has been unable to work since the accident and as a result, could not make the payments on his Flagstaff home and has defaulted on the mortgage. A foreclosure sale has now been scheduled in three months. A real estate agent has listed the home, is afraid that if they disclose to potential buyers that the home is subject to a foreclosure sale in three months, that they will only get buyers that are “bottom feeders” because the seller is desperate, and that buyers will want to “grind” on the purchase price. Do the seller and agent have to disclose the foreclosure sale of the home to buyers? And if so, when does the agent have to disclose this information?

Both the seller and the listing broker are required to disclose to a buyer any information that would affect the ability of the seller to close the transaction. If a buyer signs a purchase contract for the home in the next three months, the transaction may not close before the foreclosure sale, even if the buyer does qualify for financing that would pay off you’re the sellers mortgage loan. As a practical matter, the title commitment issued to the buyer should show the foreclosure sale, and the buyer during escrow should be able to cancel the transaction within five days after receiving the title commitment. At that time, however, the buyer may have incurred costs such as the home inspection and loan application fees. The buyer would probably have a claim against the seller and agent for these costs because of non-disclosure of the foreclosure sale. Furthermore, the buyer could file a complaint with the Arizona Department of Real Estate against the real estate licensee for failing to disclose the Arizona foreclosure sale. Therefore, it is recommended that the foreclosure sale is disclosed to prospective buyers as soon as possible, including a disclosure in the “Remarks” section of your local Multiple Listing Service.

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