My husband and I are having trouble finding a reasonably priced home to buy in the neighborhood we like in Indianapolis, Indiana. I just found out that there’s a great house being foreclosed where we're hoping to live. I'm very interested, but I’m also a little concerned. I’ve heard that there are a lot of risks to buying foreclosure homes (though I’m not really sure what those risks are). One issue that really worries me is that the owners might have the right to catch up on their mortgage payments and get the house back even after the foreclosure. Could this happen to us after we've bought the property and moved in?
No, in Indiana, the former homeowners cannot get the house back after the foreclosure sale. (Some other states give foreclosed homeowners a certain amount of time after the foreclosure to repurchase or “redeem” the home by reimbursing the party who bought it at the foreclosure sale for the full purchase price, plus various other costs. Indiana law, on the other hand, has no such provision.)
However, if there was an IRS lien on the home at the time of the foreclosure, this could affect your ability to settle into your new home without worrying that you could eventually lose it. While the homeowners won’t be able to take the property away from you after the foreclosure, it is possible (though rare) for the IRS to redeem after the foreclosure sale if there was a federal tax lien on the property.
Homeowners Cannot Redeem After a Foreclosure Sale in Indiana
Under Indiana law, the owners cannot redeem the home after the foreclosure sale (Ind. Code § 32-29-7-7, § 32-29-7-13). (Indiana law does permit the homeowners to redeem the home prior to the sale, but this won’t affect you, obviously, if you purchase the home at the sale.)
When the IRS Has the Right to Redeem
If the homeowners failed to pay their federal income taxes, the IRS may have placed a federal tax lien on the home. The IRS then gets a 120-day period to redeem the house after the foreclosure sale.
However, the IRS does not exercise its right to redeem very often. (It would only do so if it believed that it could later sell the property for more than you bought it for at the foreclosure sale. The IRS would send you a notice ahead of time if it considers redeeming the home.)
Some Risks You Should Consider When Buying a Foreclosed Home
Some of the risks associated with buying a foreclosed home are:
- You don’t get any disclosures. With a foreclosure sale, you aren’t entitled to receive any disclosures about the condition of the property before the sale takes place. (In a normal sale, the seller would have to provide you with information about the property's features, physical condition, and more.)
- You may not get to look inside the house before the sale. Since the homeowners own the home up until the sale, you may not be able to get a good look inside it before the sale. In addition, you must buy the home “as is” in a foreclosure sale. This means you won’t be able to negotiate any repairs. Since the owners are in foreclosure, this likely means that they stopped paying to maintain the house a while ago and it could need considerable repairs -- which you won’t know about until after the sale. (Learn more in Nolo’s Buying Foreclosed Properties area.)
How to Locate Indiana’s Redemption Laws
To find the laws covering redemption rights in Indiana, go to Title 32, Article 29, Chapter 7 of the Indiana Code.