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Buying Foreclosed Properties: Know the Risks

Do you want to find your absolute best deal in San Diego foreclosure real estate? San Diego foreclosures and REO's are the best way to go. But, before you start looking, know that when buying  foreclosures you are buying something much different than if you purchased the same property from a typical seller. As your San Diego foreclosure real estate agents, we take pride in helping you invest in San Diego foreclosures and REO's while answering all of your questions about foreclosures and REO's.

When purchasing a property from a typical seller, even if the property is sold "as is", you usually have some protection. The seller has owned or occupied the property for some time and they know some of its history. Even if no Seller's Property Disclosure is offered,  state laws usually dictates that should the seller be aware of a significant problem that they disclose the problem to the buyer.

With the sale of foreclosures from lenders, the same laws usually apply. The difference is that the lender usually knows absolutely nothing about the property other than what is contained within the appraisal report from when they first made the loan. They have never occupied the property and may even never have actually seen the property, and they are not required to reveal what they don't know (or should have known).

Assume a typical seller does not provide a disclosure form and immediately after purchasing the property you find that the septic tank was backing up. If you check with the neighbors and confirm that this was a problem which existed prior to the sale you may have recourse against the seller, since the seller knew or should have known about the problem and did not disclose it to you. With a foreclosure, you will usually have no such recourse against the lender.

The same condition exists with almost every aspect of the home including the mechanical (heating/air) system, electrical system, plumbing system, and any other physical aspect of the property.

The risk of purchasing a foreclosure extends far beyond the physical aspects of the property.

In Georgia, lender's often transfer property utilizing a Limited Warranty Deed and sometimes a Quit Claim Deed, instead of the typical Warranty Deed. What is the difference?

In layman terms: a Warranty Deed is just that. It is a deed where the title is warranted. If a title problem crops up from 50 years ago, the seller is warranting the title. You probably have some recourse against the seller.

A Limited Warranty Deed usually warrants the title for only that period of time which the property was owned by the seller. If a title problem crops up based on something that happened when the seller owned the property, the seller may have some responsibility. But if the event which caused the title problem occurred at any other time the seller probably has no responsibility.

A Quit Claim Deed typically states that the seller is transferring any and all rights, title and interest they have in the property to you. However, the deed offers no warranty that the seller actually has any rights, title or interest in the property nor does it offer a warranty against title problems.

A person does not have to own a property to give a Quit Claim Deed. It just releases the property from any claims that person might have against the property. Quit Claim Deeds are most often used to correct title defects and to transfer properties between related parties, not to transfer properties under arms-length transactions.

When buying a property in Georgia, a Warranty Deed is best, a Limited Warranty Deed is common, and a Quit Claim Deed is the least desirable.

Also consider this: leases run with the land. Is any or all of the property leased?

Just because the property is vacant does not mean it is not leased. A lease may not require that the lessee (tenant) actually occupy the property. Instead, it may just give the lessee the right to occupy or use the property.

Depending on the language in the note, deed to secure debt, and/or lease, leases may or may not be wiped out when a lender forecloses on a property. If a lease should later crop up, it may or may not be ruled invalid by the courts and you will probably have to spend a good bit of money in legal fees to present your case. Is this problem common with foreclosures? We don't think so. Has it actually happened? We feel certain it has.

These are just a couple of the many legal issues which must be considered when buying a foreclosure.

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