While it’s an effective way to purchase a foreclosure in Mobile, buying a pre-foreclosure home can be extremely risky in its own right.  Granted each phase of the foreclosure process has its own pros and cons but when you start adding people into the mix (a homeowner that may be distraught).

Consider the possibility of existing liens on the property that the owner neglected to mention.  Another issue is that utility bills could potentially become the problem of the new owner (that’s you).  You may not necessarily have to pay them but utility companies may give you problems as a “new owner” and refuse to transfer or turn on electricity at a home that has a large delinquent bill.

There could also be issues with unpaid property taxes.  If there are outstanding taxes, those may very well fall on you as the new owner – especially if there is a tax lien on the home.

Another issue can arise where contractual paperwork is not handled properly between the buyer (you) and the seller (the homeowner).  Under some circumstances, they may have the ability to rescind the sale and – long after the sale has been completed – show back up and demand a reversal.  They can even sue to have the sale reversed.  While it may seem implausible or unfair from a buyer perspective, if you aren’t aware of the law its easy to get taken for a ride.  Unfortunately in many courts, ignorance of the law is no excuse.

Can the seller can legally deed the property to you? What if the seller is already in bankruptcy? The deed is likely not valid unless it has gone through the bankruptcy court. You have to call the local bankruptcy court to check for a possible filing. And, of course, the seller could have filed bankruptcy in another bankruptcy court that you did not call.

And, even if the seller does not file bankruptcy until after your purchase, you may have to deed the property back to the seller up to three years after you bought it.

If selling the property made the seller destitute, and the seller sold for much below market value--which you hope he did so you could make a good profit--the bankruptcy trustee can require you to deed the property into the bankruptcy estate on the grounds that the sale was a "fraudulent transfer," wherein the seller deprived his creditors of an asset which could help pay the debts.

At that point, you become a creditor of the bankruptcy estate. Is this really what you planned when you bought the "great pre-foreclosure deal"? A lot of pre-foreclosure buyers may forego some of the inspections because they are hurrying to buy before the foreclosure auction.

A lot of problems can be avoid with a proper contract, appropriate inspections, the use of escrow, and an experienced agent.  For all intents and purposes, in many cases, the risk isn’t worth the leg work.  That’s why many homeowners prefer simply dealing with REO properties when it comes to buying foreclosures in Mobile.

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