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Buying Real Estate in the United States, Part III: Purchase of Foreclosed Properties

by | Jul 30, 2017 | Firm News, International Real Estate |

Part III: Purchase of foreclosed properties

As foreclosure actions increase, many people are purchasing properties at foreclosure sales. Basically, a foreclosure is a legal sale of real property sold at a public sale to satisfy a judgment. Most people assume that if property is sold as part of a foreclosure that the property is free and clear of all liens. The truth is that if you purchase property at a foreclosure sale you may still be subject to outstanding mortgages and other liens.

Recently, people have purchased property at a foreclosure sale to find out that within a year, they are the subject of a foreclosure action themselves because the property is subject to an unpaid outstanding mortgage. What many people fail to understand is that there is a priority among lien holders. While a first lien holder can foreclose junior lien holder rights, a junior lien holder cannot foreclose senior lien holder rights.

A common example is when a person purchases a property at a foreclosure sale where a homeowner association is the plaintiff/lien holder. Rarely is a homeowner association the first or senior lien holder. The person who purchases the property at a foreclosure sale will most likely purchase the property subject to existing mortgages, which could add very substantial Dollar amounts to the price the buyer pays at the foreclosure sale.

To protect yourself, before purchasing any property at a foreclosure sale, make sure you thoroughly research the property. Ideally, you should retain an experienced lawyer to guide you through the process.

Verify what liens are on the property and if the plaintiff in the foreclosure action is the first or senior lien holder or a junior lien holder. Also, research the tax records to make sure there are no delinquent taxes to be paid. Furthermore, confirm that there are no federal liens that could attach to the property. A simple foreclosure title search should reveal all the encumbrances on the property so that the buyer knows what they are purchasing at the foreclosure sale.

There are many good properties that a knowledgeable investor can purchase at a foreclosure sale. If you are interested in purchasing property at a foreclosure sale, please investigate the property and research to verify exactly what liens will be foreclosed and what liens will remain on the property and for which the buyer will assume liability upon purchase of the property.

Suzanne Paulus and Carl-Christian Thier

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