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Real Estate: The Risky Business of Buying Foreclosure Properties.

Posted By Cliff Tuttle | November 14, 2008

Posted by Cliff Tuttle

Foreclosure properties are being dumped on the real estate market in numbers greater than ever. As we all know, when supply grows faster than demand, prices drop. Moreover, the sellers are motivated to move properties, since real estate taxes and other cost mount up while the property deteriorates. All true. But there is a down and dangerous side to buying foreclosure properties. Here are a few things to think about:

1. The real estate title industry is just starting to recognize serious potential title problems in the way foreclosures of securitized properties are handled. During the fast-paced process whereby new mortgage loans were passed along and bundled into pools, little attention was paid to the legally tried and true methods of assigning mortgages on the record and assigning promissory notes by endorsing the note and delivering it to the purchaser. This has lead to situations where foreclosures have been stalled and even stopped dead for lack of traceable provinence. Now title companies and lawyers are questioning whether gaps in the chains of mortgage assignments constitute title defects in properties that have already been foreclosed. Where this will lead, nobody knows. Title companies may refuse to insure some properties outright or require curative action — like redoing the foreclosure or quieting title. Foreclosure properties frequently have a lot of other title problems to address. Expect more scrutiny and fewer waivers.

2. Faced with big losses on resale of properties, foreclosure sellers are insisting upon attaching addenda to agreements of sale that can only be described as draconian. Typically, the buyer must pay every possible cost and be put in a straight jacket where he/she may be in technical default the minute the agreement is signed. Then, the foreclosure seller wields the power conferred by the agreement of sale to manage the transaction to its specifications. Trying to get a case to closing for a foreclosure buyer when the seller and the lender are both trying to run the show can be quite harrowing.

3. Lenders are becoming cranky again. They are apt to surprise you with unique contingencies in their commitments. You may not be able to back out of the deal because the agreement has placed you into default, even when the loan commitment is denied, withdrawn or made subject to untenable conditions.

4. The regulators are back — and they are just getting started. That means Fannie Mae, as well as Treasury, OCC, OTS, etc. Don’t forget the Pennsylvania Department of Banking. They are all going to be trying to prevent the subprime mortgage crisis from happening again by writing acres and acres of new regulations.



CLIFF TUTTLE has been a Pennsylvania lawyer for over 45 years and (inter alia) is a real estate litigator and legal writer. The posts in this blog are intended to provide general information about legal topics of interest to lawyers and consumers with a Pittsburgh and Western Pennsylvania focus. However, this information does not constitute legal advice and there is no lawyer-client relationship created when you read this blog. You are encouraged to leave comments but be aware that posted comments can be read by others. If you wish to contact me in privacy, please use the Contact Form located immediately below this message. I will reply promptly and in strict confidence.

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