The title of a home can give you more headaches than almost any other document associated with a foreclosure or short sale.

Title problems used to be fairly rare, as most home sales were straightforward. But, during the financial crisis of 2008, many homeowners discovered that title problems prevented them from doing what they wanted to do – get out from under their mortgage. Homeowners are still having problems that originated 6 years ago.

If you're thinking of buying or selling a foreclosure or short sale property, here's what you need to know to protect yourself.

Everyone Wants To Know About The Title

In a normal sale, when you sell your home, the title is free and clear. There are no outstanding debts on the property. But, in a situation where you owe more on your house than what it's worth, you may decide that you want out. It's an understandable dilemma. You're never going to get back out of it what you paid for it, so you don't want to hold onto the home.

The problem is that you're "under water" on the house. That means that every lender and buyer will be scrutinizing the title, looking for what needs to be done to get that title free and clear. You're not going to be able to just walk away from the house. And, even if you do manage to get away, your credit report, and history, follows you.

For buyers, a title search may turn up some nasty surprises like unpaid taxes, multiple liens, and even a messy mortgage situation where more than one lender lays equitable claim to the house.

Short Sale Problems

Sign of the Times-Foreclosure by respres (CC BY 2.0)

Sign of the Times-Foreclosure by respres (CC BY 2.0)

A short sale is when a seller sells his home for less than what he owes on the property. For example, if you owe $200,000 on your home, but you can only sell your house for $175,000, you're short $25,000.

The seller has to convince the bank to take a loss on the mortgage, which is no easy proposition. Banks don't like losing money. At the same time, if you can't afford to pay them, they may have no other option.

A Roselle Park Short Sales Specialist [1] will often be able to help you sell the house within 6 months, so that you're not sitting there with a mortgage hanging over your head that you can't afford. On paper, short sales look simple.

The buyer comes in, makes and offer, you and the bank approve it, and then you lose your down payment on the house and the bank takes a loss on the mortgage. In practice, it can get nasty. A title search may turn up any number of problems that will delay the sale.

Your buyer may back out of the deal. The bank may end up losing some paperwork (it happens a lot). Your bank may not accept the offer from the buyer.

Foreclosure Problems

Foreclosures are when the bank repossesses a home and then tries to sell it at auction. Many buyers lick their chops at foreclosure sales because they believe they're getting a good deal. But, seasoned buyers know that the 30+ percent discount on the home comes with strings. A title search may turn up unpaid taxes, for example.

When homeowners discover that they are being foreclosed on, they often lose interest in keeping the house in good working order. It falls into disrepair, and you may end up walking into a flooded basement, leaky pipes, a roof that's rotted down to the decking or rafters, or a funky smell that requires a complete remodel.

By Lisa Anders

Lisa has helped many people stay in their homes during tough times. A real estate consultant and avid blogger, she enjoys instructing people on how to ride out life's challenges by blogging online. Look for her interesting posts on a variety of websites, including investing, real estate and finance blogs.

[1] www.njshortsalecenter.com/roselle-park-real-estate-agents-short-sale-specialists/

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