I’m thinking about buying a house at a foreclosure sale in Vermont, but I’m a little leery about this. As I understand it, the foreclosed-upon homeowners get a certain amount of time to “redeem” the home and keep it. Could they really get the house back after I’ve bought it? I don't want to buy a house and then lose it!
Homeowners in Vermont do get a "redemption period" (during which they can pay off the mortgage loan and keep the house), but it occurs before the foreclosure sale, so it won’t affect you if you buy the house this way. (The Vermont foreclosure sale process is discussed in more detail below.)
On the other hand, it is possible that the IRS may redeem the home after the sale -- but only under certain circumstances. Keep reading to find out when the IRS might take the home away from you after you buy it at a foreclosure sale and how often this occurs.
In Vermont, residential foreclosures go through state court. This means the foreclosing party, such as a bank, must file a lawsuit in order to foreclose the home. In most cases, the court gives the lender a judgment, sets a redemption period, and (once the redemption period expires) the home is sold to pay off the debt. (Vermont also allows strict foreclosures where the court gives the home to the lender without a foreclosure sale. This isn't applicable to your situation since there is no foreclosure sale in a strict foreclosure.)
After the foreclosure sale, the foreclosing party will file a report with the court, along with a request for confirmation of the sale. The court will then issue an order confirming the sale to you, assuming you were the high bidder at the foreclosure sale (Vt. Stat. Ann. tit. 12, § 4954).
The confirmation order is then recorded in the land records of the town where the property is located. This transfers the title to the home to you (Vt. Stat. Ann. tit. 12, § 4954).
After the foreclosure sale, there is no redemption period for Vermont homeowners.
The Internal Revenue Service may potentially redeem the home after the sale, but it can only do this if it held a federal tax lien on the home at the time of the foreclosure.
How IRS redemptions work. Basically, if the homeowners did not pay their federal income taxes, the IRS will record a Notice of Federal Tax Lien in the land records. When that lien is foreclosed, the IRS gets a 120-day redemption period. During this time, the IRS could choose to take the home away from you by redeeming it. To do this, the IRS would reimburse you the price you paid at the foreclosure sale plus certain additional amounts.
How likely is this to occur? IRS redemptions rarely happen. The IRS only redeems in situations where it believes that it could subsequently resell the home for more than the price you paid at the foreclosure sale.
If the IRS were to consider redeeming the house, it would send you a notice in advance.
If you’re considering buying a home at a foreclosure sale, there are a few other potential drawbacks to consider.
To begin with, you won’t get any seller disclosures -- that is, written statements by the sellers telling you about the property's features and their physical condition -- which means you probably won’t really know what you’re getting until after you purchase the home. There could be missing appliances or significant damage (like foundation issues) that you won’t know be prepared for (or able to budget for) ahead of time. (Typically, you won’t be able get inside the house prior to the sale to look around.)
Also, even if you know that the house is damaged, you’ll have to buy it “as is” without being able to negotiate repairs. Since the homeowners were in foreclosure, this could mean that they didn’t have enough money to properly maintain the home (or worse, they may have stripped everything of value) and it could need significant restoration. It’s also possible that the house could be vacant and has been deteriorating over time. (Learn more in Nolo’s Buying Foreclosed Properties area.)
If you want to locate the statutes that discuss the right to redeem in a Vermont foreclosure, go to Title 12, Chapter 172 of the Vermont Statutes.