When a property has been foreclosed on, it means that the property owner was not able to pay the monthly mortgage installments. Thus, the lender was legally permitted to evict the owner from the property to recoup those missing payments. Accordingly, when a person purchases a foreclosed property, it means that they are buying property on which the previous owner did not pay the mortgage or property taxes.

Depending on the type of foreclosure action and which stage of that foreclosure process the property is in, purchasing a foreclosed property can either be a fairly simple or quite complex transaction. For instance, the buyer may need to pay an increased purchase price, resolve several legal issues with multiple parties before officially acquiring it, and/or have to comply with a number of confusing state foreclosure laws.

Therefore, if you are interested in buying a foreclosed property, you should speak to a local real estate lawyer about the foreclosure process in your jurisdiction. An attorney can provide further information regarding specific foreclosure laws, can offer advice on how to go about searching for the right foreclosure property, and can apprise you of the consequences of purchasing a foreclosed property.

Will I Work with the Lender or Property Owner When Buying the Property?

As discussed above, the process for buying a foreclosed property will largely depend on the type of foreclosure sale, what stage of the foreclosure process the property is in, and the foreclosure laws of the jurisdiction in which the property is located. Thus, the answer to whether a buyer will work with the lender or property owner when purchasing the property will vary accordingly.

For example, if a creditor or the county is currently responsible for selling the property through a foreclosure sale, then the buyer should not expect to reach a deal right away or even anticipate that the parties will immediately contact them about the purchase. In general, however, the majority of property foreclosure sales are typically supervised by asset management departments, which can sometimes be difficult to get a hold of as a buyer.

Additionally, it should be noted that it is often easier to purchase a property when it is in the pre-foreclosure stage. At this particular point in the process, the buyer will usually work directly with the property owner to purchase the property. This will allow the buyer more opportunity to contact and negotiate with the actual property owner, as opposed to their mortgage lender, bank, or the county sheriff.

Can I Negotiate for the Lender or Property Owner to Make Improvements?

In the majority of foreclosed property sales, the property itself is normally sold “as is.” In other words, what the buyer sees, is what the buyer will typically get in exchange for their money.

This means that the buyer will likely be acquiring property in a wide range of conditions, including brand new to good and all the way down to in need of serious repairs like leaky roofs or broken staircases. To make up for this possibility, many states have enacted “buyer beware” laws.

Buyer beware laws, also known as “caveat emptor” laws, generally provide that the buyer will have the burden of exercising the necessary proper care when conducting research and the responsibility to perform due diligence on the property before they officially make a purchase.

In contrast, these laws protect the seller from legal risk if the buyer has future remorse over purchasing the foreclosed property and failed to put the necessary effort into properly inspecting all of the property first before buying it. In other words, buyer beware laws will serve to protect the seller against lawsuits filed by a buyer who was careless and neglected their duties in purchasing a foreclosed property.

In addition, it is also important to keep in mind that the offer that a buyer places on a foreclosed property should be contingent on the condition of the property. For example, if the property is in serious need of major repairs, then the buyer should adjust their bid to factor in post-purchase expenses like hiring a contractor or paying for building repair materials.

On the other hand, the buyer is also not permitted to make any misrepresentations or deceitful remarks about the foreclosed property during the sales negotiation process. If they lie about the types of repairs that need to be done on the property in order to lower its price, then this may result in a contract violation that could lead to invalidating the contract and filing a lawsuit against the buyer. Thus, the buyer must be very careful in submitting their bids.

What Happens If I Purchased Property with Tenants Living in It?

Before the law was amended in 2009, tenants living on a foreclosed parcel of property lost their leases and were forced to either pay the new price or to find a new place to live. Now, thanks to the Helping Families Save Their Homes Act of 2009, the lease term of a current tenant will continue both during and after the foreclosure sale occurs. However, this will be subject to each individual’s lease term conditions as well as the laws of their state.

For example, tenants residing in a foreclosed property that have a month-to-month lease arrangement will be required to leave the property after receiving a 90-day notice (or whatever their applicable state law necessitates). The same is true of a week-to-week tenancy, year-to-year tenancy, and so forth.

What Does Statutory Redemption Mean?

Statutory redemption is a law that permits the original owner of a foreclosed property to regain ownership of that property after it has been foreclosed upon. Such laws provide homeowners an opportunity to redeem their property if they are able to pay the amount that the property was sold for at the foreclosure sale and can do so before the time limit expires (usually up to one year).

However, statutory redemption laws are only recognized in a handful of states. The majority of states usually follow the equitable right to redemption guidelines, which allows it before the foreclosure sale occurs. Thus, both the original owner of a foreclosed property as well as a prospective buyer should review these laws before moving forward with any legal processes and may also want to retain legal counsel to ensure that they understand the consequences.

Do I Need to Talk to a Lawyer about Buying a Foreclosure?

As previously mentioned, foreclosed properties are typically sold “as is.” This means that a buyer of a foreclosed property will typically have little to no legal means of recourse if they discover that the property will need more work than they originally imagined. In which case, it is not entirely necessary for a buyer to obtain a lawyer before purchasing a foreclosed property.

However, if the purchase occurred during the pre-foreclosure stage and the seller made material misrepresentations about the property, then there is a possibility that the buyer will have a chance to recover any losses they might have suffered due to the seller’s misrepresentations. For instance, if the seller did not have a right to sell the property and engaged in serious efforts to prevent the buyer from discovering that fact.

Thus, if you should find yourself in such a situation, then it may be in your best interest to consider hiring a local foreclosure lawyer for further assistance. In such a scenario, an experienced foreclosure lawyer will be able to help you build a case against the seller as well as inform you of the types of remedies you may be able to recover.