When you purchase a pre-foreclousre you are responsible for obtaining clear title or the property will be subject to the existing encumbrances. That is why with a short sale you have to have the 2nd mortgage holder agree to a substantial reduction in principle. When you purchase a property at the the foreclosure sale at the steps you also have to be very careful. Very often the auction will be for a lien that is not in priority, so you are actually purchasing the position of the lien and you are still subject to the existing priority lien.
My suggestion would be, if you are seriously interested in acquiring property through these methods, to hire an attorney for an hour of their time and pick their brain. It will well be worth the money you pay to strengthen your knowledge. People make extremely ugly mistakes in this business. Best of luck.
Very truly yours,
Douglas Montgomery, Broker/Owner
Home NY Corp.