After You Win a Foreclosure Auction: Closing, Title and Possession

The first deadline after a foreclosure auction is paying any balance due. Pay in the form and by the time the terms require, and get written proof: a receipt, a certificate of sale or a memorandum of sale, depending on the state and the sale. If your funds came from more than one source, as described in how to line up funds for a foreclosure auction, confirm that each payment was received.

Then call your insurance agent. Once you have paid, you generally have an insurable interest even before the deed is delivered, and the property may be vacant, damaged or occupied by someone who does not insure the building. Tell the insurer the property was bought at a foreclosure sale and whether it is occupied, since standard homeowners policies often limit coverage for vacant homes.

Start a file for every document and cost from this point on. You will need it for the deed, title insurance, taxes and any refinance.

The deed you receive depends on how the property was foreclosed:

• Trustee's deed. In a non-judicial sale, the trustee issues a trustee's deed, often called a trustee's deed upon sale. It usually states that the required notices were given and the sale was conducted as required.
• Sheriff's or referee's deed. After a judicial foreclosure, the sheriff, referee or other court officer issues the deed, in some states only after the court confirms the sale or a redemption period ends.

These deeds generally carry few or no warranties of title. They pass whatever interest the sale conveyed under state law, which is why title work after the sale matters.

Find out who records the deed and when. In some places the trustee or sheriff records it; in others the buyer does. Recording gives public notice of your ownership. When the recorded deed comes back, check the legal description, the parcel number and the name of the buyer, and pay any transfer taxes and recording fees due. For how recording works in general, see closing and recording a property purchase.

No title insurance policy comes with an auction purchase, but many buyers can get one afterward. Title insurers often review the foreclosure file before they insure, looking at whether notices were properly given, whether the sale followed state law and whether all required parties were named or notified.

Expect the title company to:

• Run a fresh title search covering the foreclosed loan and everything recorded since.
• Identify any liens that survived the sale, such as property taxes, a senior mortgage or certain municipal liens, and require them to be paid or resolved.
• Ask about redemption rights, court confirmation and possession before it issues a policy.
• Sometimes list exceptions for matters it will not cover.

If a title company will not insure, ask why. A gap in the foreclosure process or an unreleased lien may be fixable with releases from lienholders or, in some cases, a quiet title action filed by an attorney. Lenders who refinance the property or finance a future buyer usually require title insurance, so resolving these issues early protects your exit plan.

Whether the former owner or junior lienholders have a right of redemption after the sale, and for how long, depends on the state and the type of foreclosure. Many states have no post-sale redemption for most residential trustee sales, while others allow it for months. Some judicial states also require the court to confirm the sale before a deed is issued. The basics are explained in how foreclosure auctions work. In practice, after you win:

• Limit what you spend. If the property is redeemed, you typically get back the purchase price and certain allowed amounts, but not necessarily what you spent on improvements.
• Ask what you may do. Rules on possession, collecting rent and making repairs during the period vary by state. Some allow only the maintenance needed to protect the property.
• Document necessary costs. Keep receipts for taxes, insurance and maintenance, since some states let a buyer recover certain costs on redemption.
• Calendar the end date. Know exactly when the period ends and what document, if any, completes your ownership.

If someone lives in the property, you must use the legal process to gain possession. Changing the locks, shutting off utilities or removing belongings yourself, often called self-help eviction, is generally illegal and can expose you to damages.

The process depends on who the occupant is:

• Former owners. A former owner who stays after the sale usually has no right to remain. Depending on the state, you may need to give written notice and then file an eviction (sometimes called unlawful detainer), an ejectment action or a request for a writ of possession in the foreclosure case.
• Tenants. The federal Protecting Tenants at Foreclosure Act generally requires the new owner to give bona fide tenants at least 90 days' notice before requiring them to move, and in many cases lets a tenant with a lease stay until the lease ends unless the buyer will live in the home as a primary residence. State and local laws, such as rent control or just-cause eviction rules, can add protections.
• Unknown occupants. If you are not sure who lives there or on what terms, find out through notice and the legal process rather than assumptions.

Timelines range from weeks to many months, depending on the state, court schedules and whether the occupant contests. Belongings left behind are also governed by state rules on notice and storage. A local real estate or landlord-tenant attorney can tell you which notices and filings apply.

Many buyers offer cash for keys: a payment to the occupant in exchange for moving out voluntarily by an agreed date and leaving the property in agreed condition. It can be faster and less costly than an eviction, and it gives the occupant money toward moving.

A workable agreement is in writing and usually covers:

• The move-out date and the amount to be paid.
• Payment only after the occupant leaves, returns all keys and the property is checked.
• The expected condition, such as broom-clean with fixtures and appliances left in place.
• What happens to belongings left behind.
• Signatures from all adult occupants.

Be respectful and clear in every contact, and never pressure or threaten an occupant. If an occupant declines, the legal process is still available. Because tenant protections can limit what you may ask for, have an attorney review the agreement, especially with tenants.

Once the property is lawfully yours to occupy and any occupants have left, move quickly to protect it:

• Change the locks and secure doors, windows, garages and outbuildings.
• Document the condition with dated photos and video before any work starts.
• Set up utilities in your name, and check for leaks or winterize if the home has been vacant.
• Update insurance for vacancy, renovation or rental use as your plan changes.
• Inspect fully. A professional home inspection can reveal problems you could not see before the sale and help you revise your repair budget.
• Check local requirements, such as vacant property registration, open code violations, HOA notices and unpaid utility charges.

Then return to your plan. If you used short-term money, start on the refinance or resale steps you set out before the sale, and track every cost against the budget you used to set your bid. Those records help with taxes, with lender questions and with setting better maximum bids at future auctions.