A foreclosed home can be a real bargain, or a property with problems you inherit the day you close. The trick is knowing which one you are looking at before you commit. Foreclosure sales in Virginia come with title risks a normal purchase does not, so here is how they work and how to protect yourself.
Written by Adam L. Engel, Esq., Principal and real estate attorney at Prime Title & Escrow
Two ways to buy a foreclosure
There are two very different points at which you can buy. The first is at the trustee’s sale. Virginia foreclosures usually happen without a court, through a trustee’s sale under the deed of trust, often on the courthouse steps. You bid, you put down a deposit, and you generally buy the property as-is, with little chance to inspect and often no title insurance commitment in hand beforehand. The second is bank-owned. If no one buys at the sale, the lender takes the property back and resells it as bank-owned, or REO. This looks much more like a normal purchase. You can usually get a title search and an owner’s policy, though the home is still sold as-is with no seller disclosures.
The title risks that come with foreclosures
A foreclosure can carry baggage from the prior owner. A properly conducted foreclosure generally clears junior liens, but senior liens, unpaid property taxes, and certain claims can survive and become yours. There can also be defects in the foreclosure process itself, or occupants who still have to be removed. None of that shows on the surface, which is why a title search matters more here, not less.
With a normal sale, the seller stands behind the title. With a foreclosure, no one does. The only way to know what liens or defects ride along with the property is to search the title before you buy, and the only way to protect yourself afterward is an owner’s title insurance policy. An unresolved cloud on the title is how a bargain turns into a lawsuit.
What about a right to redeem?
A question I hear a lot is whether the former owner can take the property back after the sale. In Virginia, a borrower generally does not have a statutory right to redeem the home after a non-judicial foreclosure sale, so their chance to cure usually ends at the sale. One exception worth noting is a federal tax lien, which can carry a limited federal redemption period. I confirm any redemption issue as part of the title work rather than leaving it to chance.
Foreclosures and bank-owned homes are sold without the disclosures a normal seller provides and usually without a chance for a full inspection. You are buying the condition as well as the title. Budget for the unknown, and lean on a title search and, where possible, an owner’s policy to cover the part you cannot see in the records. My guide to survey, appraisal, and inspection covers the rest of the diligence.
How I help
I run the title before you buy, tell you what liens or defects would survive the foreclosure, and arrange an owner’s title insurance policy where it is available. On a bank-owned purchase I handle the closing like any other, with the added title scrutiny these deals deserve. The goal is simple: you know exactly what you are buying before your money moves. If you are considering bidding at the sale itself, my guide to buying a home at auction goes deeper, and you can read what an owner’s policy covers in what title insurance covers.
Send me the property and I will run the title, tell you what liens or defects would come with it, and arrange owner’s coverage where it is available, in Virginia or West Virginia.
Get Your Free Quoteor call (703) 552-4155Frequently asked questions
Is buying a foreclosure in Virginia safe?
It can be, but it carries more risk than a normal purchase. Foreclosures are sold as-is with no seller disclosures, and old liens or defects can ride along with the property. A title search before you buy and an owner’s title insurance policy afterward are what make it safer.
Can I get title insurance on a foreclosure?
Usually yes on a bank-owned home bought after the foreclosure, where the closing works like a normal sale. At a trustee’s auction it is often harder to line up beforehand, which is why a title search before bidding matters so much.
Do old liens survive a foreclosure in Virginia?
A properly conducted foreclosure generally clears junior liens, but senior liens, unpaid property taxes, and certain other claims can survive and become the buyer’s responsibility. A title search is the only way to know what would carry over.
Can the former owner get the house back after foreclosure?
In Virginia, a borrower generally does not have a statutory right to redeem the home after a non-judicial foreclosure sale, so their chance to cure usually ends at the sale. A federal tax lien can carry a limited federal redemption period, which is checked as part of the title work.
What is the difference between a foreclosure auction and a bank-owned home?
At a foreclosure auction, a trustee sells the property under the deed of trust, often as-is and for cash with little chance to inspect. If no one buys, the lender takes it back and resells it as bank-owned, which looks more like a normal purchase with a title search and insurance available.
Do I need a title search if I buy a foreclosure?
Yes. With a foreclosure no seller stands behind the title, so a title search is the only way to learn what liens or defects come with the property. Skipping it is how a bargain can turn into an expensive surprise.
This article is general information about buying foreclosures in Virginia and West Virginia. It is not legal advice for your specific transaction, and the risks on a particular property depend on its records and facts. Please confirm the details with me directly.