If I buy a home at a foreclosure sale in Montana, can its owners later take it back?

If you buy a foreclosure home in Montana, you have little worry that the former owners will pay off and reclaim the home.

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Question

I’m hoping to buy a house in Montana that sits on a few acres, maybe three or so. I found several properties that fit this description online; and all of them are in foreclosure. I’m thinking about purchasing one of the properties at the foreclosure sale, but I’m worried that the homeowners might be able to get it back afterwards somehow. Can this happen?

Answer

It is possible, although not common, for Montana homeowners to get the property back after a foreclosure. They would do so by paying you the purchase price you paid at the foreclosure sale plus interest, as well as amounts you paid for things like repairs and taxes, within one year after the sale. This is known as redeeming the property.

However, Montana law prohibits most foreclosed homeowners from redeeming and even those that get the chance to redeem usually don't do it.

The Homeowners’ Right to Redeem in Montana

In Montana, foreclosed homeowners do not get the right to redeem the home after the sale if the foreclosure is a nonjudicial (out-of-court) foreclosure under the state’s Small Tract Financing Act (Mont. Code Ann. § 25-13-802, § 71-1-228.) Most foreclosures fall into this category, so the homeowners probably won’t get the opportunity to get the house back after the sale. (There is also no right of redemption after a judicial sale of a trust indenture, if the lender is not entitled to a deficiency judgment. See First State Bank of Forsyth v. Chunkapura, 226 Mont. 54, 734 P.2d 1203 (1987)).

If the sale is not covered by the Small Tract Financing Act, then the former homeowners get one year within which they may redeem the home.

How to find out if the foreclosure is nonjudicial or judicial. One way to find out the foreclosure process is to go to www.zillow.com. First, you must sign up for a free account and log in, otherwise you won’t be able to view all of the foreclosure information. Next, find the home by entering the address in the search box. This pulls up a map. Then click on the home’s address, which is a link to its Web page. Scroll approximately one-third of the way down and click on “More foreclosure information.” This will tell you whether the foreclosure is nonjudical or judicial. (If you want to call someone for information about the foreclosure, you can probably find the name and phone number of the foreclosure trustee or attorney on this screen, as well.)

Even if the homeowners do get a right to redeem the property after the sale, most don’t. This is because a Montana homeowner who, perhaps only a year ago, was unable to keep up on the home’s mortgage payments, would have to turn around and come up with financing to cover not only the purchase price, but additional amounts as well.

Possibility of Redemption by the IRS

Under federal law, the Internal Revenue Service (IRS) gets 120 days (or the allowable period under state law, whichever is longer) to redeem the property after a foreclosure if there was a federal tax lien on the home. The right to redeem automatically expires if the IRS does not take action within this time frame. (If you request it, the IRS may agree to release the right to redeem before the redemption period expires.)

In order to redeem the property, the IRS would have to pay you the amount you paid at the foreclosure sale, plus:

  • 6% interest from the sale date
  • all amounts you paid to senior lienholders, and
  • the amounts you paid for necessary expenses, such as for repairs or insurance. (The IRS would charge you the fair market rental value for your use of the property during the redemption period and deduct this amount from the total that it pays you to redeem.)

Redemptions by the IRS are not common, either. The IRS would redeem only if it believes that it could it could later sell the property for more than you bought it for at the foreclosure sale. If the IRS considers redeeming the property, it would send you a notice ahead of time, letting you know.

Other Things to Consider If You’re Thinking About Buying a Home at a Foreclosure Sale

While you don’t have to worry too much about the foreclosed homeowners or the IRS taking the house away from you after the foreclosure sale, there are a couple of other things to consider if you’re thinking about buying a home this way. For one thing, you will not receive any seller disclosures, which provide inside information about the features and condition of the property before the sale, as you would in a regular home sale.

On top of that, you’ll have to the home “as is,” without being able to negotiate any repairs. Since the owner was in foreclosure, this means the house could be in serious disrepair. (Learn more in Nolo’s Buying Foreclosed Properties area.)

How to Locate Montana’s Redemption Laws

To find the statutes that discuss the right to redeem in Montana, go to Title 71, Chapter 1, Part 2 and Part 3 of the Montana Code. Also, see Title 25, Chapter 13, Part 8.

by: , Contributing Editor

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