What is a Foreclosure Title?
When a homeowner relinquishes title to the bank that holds the mortgage on the house, it is called a “Deed in Lieu of Foreclosure”. Or maybe that foreclosure title decision was made for the owner by the bank, when the bank started foreclosure proceedings. Either way, a title on a foreclosure property requires special handling by
a title company and it takes time.
The lender has to show that it has all the paperwork necessary to prove its right to claim the title and homeowners often battle to get the loan modified to stay in their homes. They may also stop paying any bills on the property—including tax bills, assessments or even old home improvement bills, resulting in a contractor’s lien being slapped on the property.
Whatever happens, it takes time to figure out who owes what to whom and when before all defects in a title can be discovered and corrected, finally arriving at a clear title.
The Title Search
The title agent will conduct a full coverage search about the property in default. Part of this search will be for the address of any lien holders who hold an encumbrance against the defaulting property, including government agencies or banks. These addresses are needed
so copies of the foreclosure notice (and notice of the trustees sale) can be sent to the property’s lien holders.
Some foreclosed properties are sold at public auction, held either by an auction house specializing in foreclosed properties or a sheriff’s department (then the auction is held in a county or municipal court). If the property gets sold at auction, the proceeds get divided among lienholders. Titles of such properties are not guaranteed to be unencumbered and offer no protection for buyers against
addition property liens surfacing.
Things to consider about a Foreclosure Property
What you should know if you are considering buying a foreclosure property is that you should probably order a title search at the time of your very first offer on the property, so there will be no surprises at closing. It is likely the title search may turn up some defects like unpaid taxes or judgments against the property. These are often serious enough to render the transaction nearly impossible,
without a hefty cash outlay and perhaps legal entanglements. You should also be aware that you may need to a real estate attorney to review all the documents regarding the property and high closing fees usually are required, thanks to the complicated paperwork that attends many foreclosure transactions.
Getting a clear title on a foreclosure may make such property seems less like a bargain than it initially appears.
For more information about Foreclosure Title, visit www.alta.org.