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Two Basic Things You Must Know Before You Purchase an Investment Property in a Foreclosure Sale

By July 19, 2022September 12th, 2022No Comments

It sounds like a great idea: Let’s buy a property in foreclosure and then remodel it and resell it? Or perhaps, rent it out to obtain “passive” income? –not so fast.

Here are two things you must check before purchasing a property in a foreclosure sale.

First: Who foreclosed?

This is huge. It matters who is foreclosing. If the bank holding the first mortgage is foreclosing is one thing. It is another completely different scenario when, for instance, a junior lien to bank is foreclosing.

The typical scenario involves a condo association foreclosing a lien for unpaid assessments against its unit owner. When the association forecloses on a lien that is inferior to that of the bank that lent the money for the purchase of the asset, it may not have named the bank as a party to the foreclosure action, and therefore, at the end of the case—and after the sale—the bank lien will remain intact. So you as an investor may think that you’ve gotten an amazing deal, when in reality you obtained title to a property that is still subject to another mortgage for an amount you don’t know.

Second: are there still remaining clouds in the title?

Even in the case of foreclosure that names all parties that have an interest in the real estate (First, Second, Third liens, etc…), the property may still be subject to other types of liens that are never erased. Liens based on unpaid taxes, municipal violations, or things owed to the government are generally not erased at foreclosure. So when you hear that you are obtaining “clean title” at a foreclosure, make sure you hire an experienced real estate attorney to tell you in detail the status of the title in the investment property you are buying.

For more information about real estate matters related to title contact an experienced real estate attorney at Ayala at 305-570-2208.

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