I live in a rented condo in Kansas City, Missouri, but I’m looking for a house to purchase. I found one online that is being foreclosed and it looks good as far as I can tell from the photos. I’m considering purchasing it at the foreclosure sale, but I’m nervous about taking this route. Based on what I’ve read on the Internet, it sounds like there can be some problems with buying a foreclosed house. For one thing, I read that in Missouri the former homeowners can get the house back even after the foreclosure sale takes place. Is this something I need to worry about?
No. If you purchase a home at a foreclosure sale in Missouri, the former homeowners cannot get it back.
Missouri law does give the former homeowners one year to repurchase (or “redeem”) the home after the foreclosure, but only if the foreclosing lender buys it at the sale. Obviously, this wouldn’t affect you if you purchase the home.
However, it is possible for the IRS to take the home away from you after the foreclosure sale by redeeming it if there was a federal tax lien on the property. (This doesn’t happen too often though.) We’ll describe below how the IRS’s right to redeem the home works and how this could affect your ability to move into your new home without worrying that you may lose it.
The IRS’ Right to Redeem
If a homeowner does not pay his or her federal income taxes, the IRS may record a Notice of Federal Tax Lien in the land records. When this lien gets wiped out in a foreclosure, the IRS gets 120 days from the date of the sale to redeem the property.
IRS redemptions do not happen very often. This is because the IRS would only redeem the home if it could subsequently sell it for more than you paid at the foreclosure sale. (If the IRS decided to do this, you would first learn about it when you receive a notice from the IRS telling you that it is considering redeeming the home.)
The IRS may agree to release its right to redeem before the 120 days are up if you submit a request and, in some cases, pay the IRS the value of the redemption right.
How Much the IRS Must Pay to Redeem
In order to redeem the home, the IRS would have to reimburse you the amount you paid at the foreclosure sale, plus certain additional amounts such as:
- 6% interest
- amounts you paid to senior lienholders, and
- amounts you paid for repairs and maintenance.
Things to Think About When Buying a Home at a Foreclosure Sale
As you suspect, there are a few other potential problems when it comes to buying a home at a foreclosure sale. For instance, you won’t get any seller disclosures letting you know about the condition of the property before the foreclosure sale takes place.
Also, you’ll be purchasing the home “as is,” without the ability to negotiate repairs. Because the former owners were facing financial difficulties, this could mean they didn’t properly maintain the home. Even worse, if the former owners were angry about the foreclosure, they may have intentionally caused damage to the home and it could need significant restoration. (Learn more in Nolo’s Buying Foreclosed Properties area.)
How to Locate Missouri’s Redemption Laws
To find the statutes that discuss the homeowners’ right to redeem a home in Missouri, go to Chapter 443 of the Missouri Revised Statutes.