I’ve noticed that there are a lot of houses being foreclosed in my neighborhood of West Virginia and I’m thinking about buying one at the foreclosure sale. (Currently I live in a rental house.) In fact, there’s a great house down the street that is in foreclosure. I'm reluctant, though, to buy it this way, because someone once told me that the owners could get the house back after the foreclosure by “redeeming” it, which I think means reimbursing me for the amount I paid at the sale. Is that correct?
No, at least, not where you live. You don’t have to worry about the former, foreclosed owners getting the house back after you buy it. West Virginia law doesn’t allow foreclosed homeowners to redeem a home after a foreclosure.
While you don’t have to worry about the former owners getting the house back after the foreclosure, the IRS could potentially take the house away from you by redeeming it (that is, reimbursing you for the full purchase price, plus other amounts) if the circumstances are right. (Find out below how this works and whether it should affect your ability to settle into your new home without being nervous that you could eventually lose it.)
The IRS can redeem a house after a foreclosure sale if there was a federal tax lien on the property at the time of the foreclosure. According to federal law, the IRS gets a 120-day post-sale redemption period. If the IRS doesn’t redeem during this time, the right automatically expires.
To redeem the house, the IRS must reimburse you for the amount you paid at the foreclosure sale, plus certain amounts such as:
Even if the IRS has the right to take the house away from you this way, it is not particularly common for the IRS to redeem a property. It would only redeem if it believes that it could it could later sell the house for more than you bought it for at the foreclosure sale.
While you don’t have to be especially concerned about the IRS redeeming the house, there are a few other issues to think about if you’re considering buying a house at a foreclosure sale. One important thing to remember is that you won’t get any seller disclosures regarding the condition of the house prior to the sale. In West Virginia, as in most states, sellers in non-foreclosure transactions must fill out a form in which they tell the buyer about all material or adverse facts within their knowledge that relate to the physical condition of the property and are not readily observable.
Also, you won’t be able to arrange a traditional inspection of the house before the sale and you’ll have to buy the home “as is,” without negotiating any repairs. Since the owners were clearly having financial difficulties (otherwise they probably wouldn’t have gone through a foreclosure), this means the house could need a significant amount of repair and maintenance. (Learn more in Nolo’s Buying Foreclosed Properties area.)