Should you Buy Short Sales or Foreclosures?

With all the mess these days surrounding foreclosures, it’s no wonder buyers are antsy about the ramifications of buying foreclosures.  In this video, the VP of RealtyTrac points out some real issues with buying foreclosures, especially on the courthouse steps.

But there are other issues as well.  In short, sometimes banks don’t really have the right to foreclose on a property, but the foreclosure takes place anyway.  Once the property is sold to the buyer, it becomes the buyer’s problem, and it’s possible that the buyer’s title policy won’t cover the loss.  How is this possible?  Well, according to the article below, there could be a break in chain of mortgage ownership.

http://www.nakedcapitalism.com/2010/09/latest-real-estate-time-bomb-title-of-foreclosed-properties-clouded-wells-fargo-dumping-risk-on-hapless-buyers.html

Remember the term we all learned when the real estate bubble burst – “mortgage-backed securities?”  The mortgage on a property may have changed hands multiples times before the loan ended up in foreclosure, yet none of the transfers were recorded, and you end up with title defects.  Banks will try to pass this risk on to the buyer through an addendum to the purchase agreement.  So the obvious lesson to the buyer is to hire an attorney to review all paperwork BEFORE signing the purchase agreement.  Don’t just wait until closing and assume that the closing attorney or title company will be able to protect you!

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