{"id":1317,"date":"2021-03-26T11:00:27","date_gmt":"2021-03-26T15:00:27","guid":{"rendered":"https:\/\/www.deeds.com\/articles\/?p=1317"},"modified":"2024-04-25T23:20:02","modified_gmt":"2024-04-26T03:20:02","slug":"solving-title-problems-for-a-home-with-a-previous-foreclosure","status":"publish","type":"post","link":"https:\/\/www.deeds.com\/articles\/solving-title-problems-for-a-home-with-a-previous-foreclosure\/","title":{"rendered":"Solving Title Problems for a Home with a Previous Foreclosure"},"content":{"rendered":"\n
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A foreclosure usually means a previous owner fell into\ndefault on the mortgage. When there\u2019s an unpaid mortgage debt, the lender can\nput a lien on the property, and ultimately claim the property itself. Foreclosures\ncan also happen due to a neglected tax lien, or some other kind of lien. <\/p>\n\n\n\n

But there\u2019s just one question we\u2019re going to explore here. If you decide to purchase a foreclosed home, what problems could arise later?<\/em> Let\u2019s dive right in and look one of the stickiest situations: a legal challenge from the former owner.<\/p>\n\n\n\n\n\n\n\n

Receiving a Summons From a Previous Owner<\/h2>\n\n\n\n

After getting a great deal on a bank-owned home, the new owner\nsettles in, makes repairs, pays the taxes and insurance, and lives happily ever\nafter. Until, some years later, a summons arrives at the door. The former\nhomeowner has a lawyer, and is filing a claim on your title.<\/p>\n\n\n\n

The home\u2019s current owner and mortgage company, and the bank\nthat sold the home, are all named in the summons. The former owner claims to\nstill have an ownership interest in the home, insisting that the foreclosure\nand sale involved an unauthorized agency, or the prior owner never signed off\non a key document. <\/p>\n\n\n\n

Such startling scenarios \u2014 which do happen now and then \u2014 show\nwhy an owner\u2019s title\ninsurance<\/a> policy is a must-have. The current homeowner, as a bona\nfide purchaser, <\/em>should prevail over the former one. Still, problems like\nthis one can be tricky to solve. <\/p>\n\n\n\n

If you own a previously foreclosed property, and find your\ntitle challenged, the title insurer should provide legal representation for you,\nand shield you from responsibility for any monetary damages the claimant could\nwin. Perhaps a lawyer who worked on that prior foreclosure made errors on the title\ndocuments or the recording application, or there was some other lapse of that\nkind. In these situations, the title company might connect with that same lawyer\nto issue a quitclaim\ndeed to clear the title<\/a>. In other cases, current owners endure long\nand tangled processes until new documents can be created. <\/p>\n\n\n\n

The Relationship Between Foreclosure and Good Title<\/h2>\n\n\n\n
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Before a bank markets a foreclosed home, it orders a title search,\nlooking for judgments, liens and encumbrances. Anyone holding claims will be\nnamed in the foreclosure action, so the claims can be discharged. Cleared of\ntitle defects, the house can then be sold. As our hypothetical case shows,\nthough, procedural mistakes can be made in the foreclosure action \u2014 or actual\nclouds on the title can sometimes be missed. <\/p>\n\n\n\n

Unless the bank catches the errors and amends its\nforeclosure documents prior to the sale, the unresolved issues, depending on their\nnature, could survive the foreclosure. If they do, will the interested parties agree\nto release their claims or quitclaim their interests? If not, a court might\nhave to step in to clear the title through a quiet title\naction<\/a> to address the lingering clouds and clear the title for a\npotential transfer to the next owner at some future time. This is a time-intensive project, but necessary if all\nelse fails, as we\u2019ll explain in a little more detail below. When you speak with\na local lawyer, you\u2019ll be able to map out the legal process. <\/p>\n\n\n\n

 \u261b Important note to those\nthinking of buying a foreclosed home:<\/em><\/strong> The buyer of a foreclosed\nhome will often receive a quitclaim or special warranty deed rather than the\nbroader coverage of a general warranty deed. This makes it especially important\nto secure title insurance when you\u2019re looking to buy a foreclosed home. And each\nforeclosed home comes with a unique set of risks. Moreover, states vary in\ntheir approaches to creditors\u2019 rights and foreclosure law and policy. We\nrecommend hiring an attorney admitted to the Bar in your state before you sign\nan offer document.<\/p>\n\n\n\n

Getting Title Insurance for Foreclosed Homes<\/h2>\n\n\n\n

Homes foreclosed for unpaid taxes can be sold at sheriffs\u2019 sales and courthouse auctions. Quitclaim deeds are the norm in these circumstances, so the buyer is getting the title as-is. It will be up to the new owner to grapple with any surviving liens or other clouds on the title. Homes acquired through a real estate agent by bidding on HUD foreclosures<\/a>, though, have cleared titles.<\/p>\n\n\n\n

In the most common kind of case, if you are looking at a foreclosed\nhome on the market, you\u2019ll be buying from a bank after a mortgage foreclosure. These\nhomes are called real estate owned (REO)<\/em> properties. Buying an REO is\nless risky than buying at a courthouse auction, so it\u2019s easier to get a title\npolicy for the property. As the experts at Title Partners of South Florida\npoint out, the title company can get indemnification from the bank on an REO\nproperty if a title challenge occurs later. Your purchase agreement with the\nbank might include assurances that they are delivering clear title to you \u2014\noptimally, with a warranty deed.<\/p>\n\n\n\n

The title experts urge buyers who are interested in a\nforeclosure property to:<\/p>\n\n\n\n