What the realtor is most likely talking about are the foreclosures that go to auction on the courthouse steps. They are being sold with whatever liens are attached to the property. In many cases, the bank is asking too much and they end up buying it back and holding on to it for redemption (not the case in every state) Once it comes out of redemption and is through the rest of the legal process, they contract realtors or an REO specialist to sell as a foreclosure. Once it’s on the market for purchase, whoever buys the property should have a qualified title company check all lien history and other problems that may arise with clearing the title. All liens including taxes, HOA past dues, water bills etc. should be paid by the bank by settlement.

As we move into the re-set of the real estate market, our research indicates that brokerages are taking out special insurance for protection from future lawsuits that may arise from exactly these situations. We are also aware that there are thousands of agents being trained to work in this market due to the fact that between 30-50% of sales are either short sales or REO. We are also aware that there are small clauses in the documents which allow the financial institutions to seek dificency judgments and send additional encumbrances to collection agencies. We are looking at the tip of the iceburg of our new world and caution needs to be exercised...

This is why we use a title company. Title Insurance is the only way you can protect yourself from outstanding liens on a home. It is a good investment.

Thanks for the replies guys

All of you made similar point about getting a good title company and buying the title insurance. However, I chose Kelly's answer as she also mentioned the property taxes part of my question.

I have personally purchased a number of foreclosure properties over the years. I always use a first class title company to examine all title issues and always buy the title insurance. It is pricey but like all other insurance well worth the price if you actually need to use it. The property taxes must be made current to convey the title and you will pay them from the closing date forward. Good luck!!! And, keep asking those questions!!!

If the property actually went through foreclosure, it wipes out all junior leins, except IRS leins - if it is a pre foreclosure property, you do need to have a careful title search done, and always buy title insurance (I hate the high price, because of the commissions they pay).

Good Luck!

Bill Wootan

Buyers have the right to select a title company. Typically a title company's role is to ensure that all parties are protected and all liens and property taxes are paid off and clear insurable title is conveyed to the buyer. You need to discuss these issues with the title company that you select -- ask lots of questions and make sure you are clear about the answers.