I currently live in Illinois, but am thinking about moving to Madison, Wisconsin. I’ve been researching houses online and found a few good-looking homes that are in foreclosure in the Madison area. I’m contemplating buying a house at a foreclosure sale, but I heard that homeowners in Wisconsin get a long redemption period. I think this means they can buy the home back after the foreclosure by reimbursing me for what I pay at the foreclosure sale. Am I right? If so, how long do the homeowners get to redeem after the sale in Wisconsin?
You don’t have to worry about the foreclosed homeowners getting the house back by “redeeming” it after a Wisconsin foreclosure. While Wisconsin law does give the homeowners a considerable amount of time to redeem the home (five weeks to one year), the redemption period takes place prior to the sale. Once the court confirms the sale to you, the house is yours.
On the flip side, it is possible, though not common, for the IRS to redeem the home after the sale if there was a federal tax lien on the property at the time of the foreclosure. Read on to learn how the IRS’s right to redeem the home works and whether this should make you nervous about buying a home at a foreclosure sale.
If the homeowners don’t pay their federal income taxes, the IRS will then record a Notice of Federal Tax Lien in the county land records. When this lien gets eliminated in a foreclosure, the IRS gets a 120-day redemption period under federal law. To redeem, the IRS would have to pay you the amount you paid at the foreclosure sale, plus interest (at a rate of 6% from the sale date) plus various other amounts. If the IRS does not redeem within the allotted redemption period, this right expires.
The IRS would choose to redeem the home only if it had reason to believe that it could subsequently sell it for more than you paid at the foreclosure sale. What this means for you is that, even if the IRS has the right to redeem, it probably won’t exercise this option, so you don’t have to be too concerned about losing the home this way. (You would first learn about a possible IRS redemption in a notice from the IRS.)
If you buy a home that is subject to an IRS redemption and want peace of mind, you can ask the IRS to release its right to redeem. You would do this by submitting an application and, in some instances, compensating the IRS for the value of the redemption right.
There are a few other issues that you should be aware of if you’re planning on buying a house at a foreclosure sale. For one thing, you need to be prepared to buy the home at the foreclosure sale without getting any seller disclosures informing you about the condition of the house beforehand. (In a traditional sale in Wisconsin, the seller would provide you with written disclosures about any property conditions that might adversely impact its value or structural integrity or that pose a health or safety risk.)
Also, you’ll be purchasing the property “as is.” This means you can’t negotiate repairs and you could be purchasing a home that needs significant work. Homeowners in foreclosure sometimes stop performing routine maintenance on their house and, in some cases, even deliberately damage the home or strip it of anything of value. (Learn more in Nolo’s Buying Foreclosed Properties area.)