Don't Expect Easy Bargains at Foreclosure Sales

Q: We have been reading that a lot of homeowners are in financial trouble and that their homes are going into foreclosure. We would like to buy a home at a foreclosure sale and need guidance as to how to go about this.

ASome people might say you are trying to take advantage of other people's troubles. But the reality is that in many cases, the greedy ones were the lenders who made loans to consumers who either could not afford them or did not understand the terms and conditions.

Buying a home at a foreclosure sale is fraught with risks. You can end up spending a lot of money doing your homework, only to learn that at the last minute the sale was canceled or that the borrower filed for bankruptcy protection minutes before the sale time. And even if the sale proceeds, you may not be the successful bidder. There are a lot of professional buyers who know the players and the process, and they often get these properties.

Hire a lawyer who has experience with foreclosures in the jurisdiction where the property is. There are different laws and requirements throughout the United States, so you cannot rely on books that try to explain the foreclosure process.

Your lawyer will explain the procedure to you and will order a title search on the property. Presumably, the lender who instituted the foreclosure has also obtained a title search, because lenders are required to provide notice of a foreclosure sale to all people (or entities) who have an interest in the property.

But generally, the lender won't share that title report with you. You want to know everything about the title to the property, including:

Who owns the property? In whose name is the title?

How many mortgages exist in the land records?

Are there any lawsuits against the homeowner?

Are there any mechanics liens on record?

Why is all this important? Let's say that the house has both first and second mortgages. It is important to know which lender has instituted the foreclosure.

If it was the first trust holder, then by law the second trust will be wiped out. That does not mean that the homeowner will no longer owe money to the second trust holder. If that trust holder wants to pursue the homeowner, it will have to sue. The holder cannot foreclose on the property.