Buyers Cautioned To Address Title Issues When Buying Foreclosed Homes

In a Q & A article in The Memphis Daily News, Tennessee real estate attorney Ryan E. Byrne cautions investors about buying foreclosed properties without understanding all the risks and legal ramifications. One potential problem arises when a lender, in its effort to unload a foreclosed home, requires the use of a title insurance agent selected by them to insure the title to the home.

• [T]he perception is that a foreclosure wipes away any clouds on a title that were there before. A foreclosure wipes away a lot, but it doesn’t clean the slate completely clean. If there’s anything that was in existence prior to the deed of trust that was foreclosed upon, that remains an issue, and often times, these foreclosing banks require you to close with their chosen title officer. They don’t give you the option of closing with your own attorney, and sometimes these old title issues – not only are they not dealt with properly by the foreclosing banks – they usually aren’t disclosed to the purchaser. Sometimes, several years later, these things pop up when the client is going to sell the property.(1)

For the story, see Byrne Warns of Legal Pitfalls With Foreclosure Buys.

(1) Reading between the lines, the story may be cautioning purchasers of foreclosed homes to be alert to attempts by the lender/seller to unload a property that may have title problems, and that the requirement that the buyer use the lender's title agent may be an attempt by the lender to "control" the closing in a way that will make it easier for it to "slip something past" the unwitting buyer.

One source of title problems involving foreclosures may arise from the fact that a lender may have lacked the legal standing to initiate the foreclosure process in the first place. In such a case, an argument can be advanced that the court (or the trustee, in non-judicial foreclosure states) lacked jurisdiction/authority to authorize the foreclosure sale, potentially making such a sale, and any subsequent conveyances of the property, void.

Go here for case law that supports the proposition that a lender that lacks standing to initiate the foreclosure process leaves the court without subject matter jurisdiction to entertain the matter.

See also, Thousands Of Foreclosures Are Void, Says Massachusetts Class Action Demanding Lenders & Their Lawyers Prove Note Ownership. title insurance legal issues