If you purchase real property at foreclosure, you might just buy yourself a lawsuit and nothing more. The trustee’s deed, by which you acquire title, is without warranty and is subject to any defects in title, including those which may not appear of record. While you may have a defense to certain claims if you are a bona fide purchaser, it is very costly to defend even frivolous lawsuits. If the claim is colorable and one for which the claimant has title insurance, chances are it will be very expensive to defend. If you lose, you will lose the property too. The notice of pendency of action will certainly put a wrench into any plans you have to resell or borrow against the equity.
Only very sophisticated investors, with enough financial backing to support lengthy and contentious litigation, should consider purchasing real property at foreclosure and then only after thoroughly vetting the chain of title and comparing it with a preliminary title report. Still, that may not be enough. Only an abstract of title or title insurance, not a preliminary report, offers protection if the representations in the report turn out to be inaccurate. Unfortunately, either may be difficult or impossible to obtain for the purchase of real property at auction, or the cost for a tenuous auction purchase might be considered too high.
If you have read this advice too late, or discounted it, and purchased property at foreclosure, and have also bought a lawsuit, give me a call. I am here to help.
I consult with clients and accept cases involving foreclosure, trustee sales, and lien priority, including quiet title and wrongful foreclosure actions. For other types of cases I accept, please scroll my “Home” and “My Practice” pages. If you are seeking a legal consultation or representation, please give me a call at 818-971-9409. – Michael Daymude
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