I’m considering a move to Virginia Beach, Virginia. There’s a particular section of the city that I want to live in, but there aren’t many homes for sale there. I took a look online and found one that is being foreclosed in the area where I want to live. I haven’t driven by to check it out, but the photos on the Internet look good so I’m not too worried about that. I am worried, however, that the homeowners could potentially “redeem” the house after the foreclosure. (I think this means the former owners can get the home back by reimbursing me for the amount I pay for the home.) I read online that this can happen in some states. Can the homeowners do this in Virginia?
No, in Virginia, former homeowners won’t be able to get a house back by redeeming it after the foreclosure sale. (You are correct that some states have a law that permits the former owners to redeem the home after losing it in foreclosure, which they would do by reimbursing the party who bought it at the sale for the full purchase price, plus various other costs. Virginia, however, doesn’t have a law like this.)
It is possible, though, that the IRS could redeem the house after you buy it at a foreclosure sale -- but only under very specific circumstances. Read on to learn more about how this works and whether you should be concerned about losing your new home to an IRS redemption.
The IRS gets 120 days to redeem the house after a foreclosure sale if there was a federal income tax lien on the property at the time of the foreclosure. If the IRS doesn’t redeem within this time frame, the right to redeem expires.
How much the IRS would have to pay to redeem. In order to redeem, the IRS would have to reimburse you for the amount you paid for the home, plus interest and possibly certain other expenses you paid after the sale as well (including expenses for necessary repairs).
How to find out if there is an IRS tax lien on the home. To find out if there is a federal tax lien on the property, you can ask a title company to run a title search for you prior to the sale. (If there is an IRS lien on the home and you go ahead and buy the home anyway, you many not want to invest in substantial improvements to the home until after the IRS's redemption period expires.)
How you’ll find out if the IRS is considering redeeming the home. You would first learn about a potential IRS redemption when you receive a notice from the IRS. Redemptions don’t happen often, though. (The IRS would redeem only if it believed that it could subsequently sell the home for more than you paid at the foreclosure sale.)
While you don’t have to worry about the former owners getting the home back after a Virginia foreclosure (and an IRS redemption is probably not going to happen either), there are a couple of other issues to keep in mind if you’re starting to seriously consider buying a house at a foreclosure sale.
For starters, you won’t get any seller disclosures about the condition of the house before the foreclosure sale occurs. (In a regular sale, you could request written information from the seller about the house’s features and defects -- see "Virginia Home Buyers: What Does the Seller's Disclosure Form Tell You?".)
You’ll also have to buy the house “as is,” without going inside to do an inspection to look for structural issues and needed repairs. For this reason, you should at least drive by the house to make sure it looks good on the outside at least.
Houses that have gone through a foreclosure tend to need significant work. This is because homeowners who are mad at the bank about the foreclosure sometimes take it out on the home. For example, furious owners have been known to take a sledgehammer to the hardwood floors, the tiled showers, and the cabinets, and vandalize the home in other ways. Even if the former owners didn't purposely vandalize the home, it’s pretty likely that the house will need at least some routine maintenance. (Learn more in Nolo’s Buying Foreclosed Properties area.)