Buying a "Flipped" House (past Foreclosure) in Alabama - Things You Need to Know!
As a professional Real Estate Agent in the North Alabama area for several years, these are the things I think any potential buyer should know about buying a foreclosure, and, specifically, a previous foreclosure bought by an investor, "fixed up" and "flipped".
In Alabama, the Right of Redemption Law exists: this law allows the original owner to reclaim their property up to one year AFTER foreclosure date! YES - this is TRUE! One year! Now the previous owner (or other persons) must pay the foreclosed amount, plus 12%, plus all MANDATORY repairs (not cosmetic!) to reclaim this property; and in the State of Alabama, less than 1% of such properties are claimed. HOWEVER, in dealing with these types of properties, it can become confusing and cause the innocent buyer to get the "short end of the stick". When buying "flipped" house from a foreclosure, please make sure you ALWAYS use a knowledgeable agent, like me, who is working strictly for you! OR, you the buyer, could be left with nothing!
Now - let's talk about the "flipped" house being sold by the investor who purchased the foreclosure, has "fixed it up" and is now selling it; selling it still at an awesome price - but??? That's the key - the "but"! Many of these listings do NOT show "right of redemption may still exist". Again, you need an agent who can investigate and find this information. Not only does a buyer need to know if their mortgage company will even finance a home with a remaining Right of Redemption, but they need a Buyer's Agent looking out for their utmost best interest - what happens SHOULD an individual reclaim their "right of redemption"?
A knowledgeable Buyer's Agent will write an offer to include the following verbiage: Seller to provide a Right of Redemption Bond. As any good Real Estate Attorney will tell you, this bond protects both the mortgage company -- and the current purchaser. When Buying a "Flipped" House, many mortgage companies will not even fund the mortgage unless seller provides this bond. This bond means that if an individual DOES engage his "Right of Redemption", the mortgage company is paid in full, the current buyer is relieved of any debt to the mortgage company, and the insurance company will go to the "signer" of the Bond to recoup some of the monies. Herein lies the problem --- the reason many "flippers" do not want to issue a Right of Redemption Bond! They then become liable to the mortgage company. Many "flippers" will offer an Indemnity Letter. Don't be fooled. This is not the same thing. The indemnity letter means this: should an individual invoke his "right of redemption", the current buyer "owes" the mortgage company for the balance of the mortgage. The Indemnity Letter states the seller will reimburse the current buyer for these amounts; yes - as long as the current buyer can RETRIEVE those amounts! Sometimes it takes an actual lawsuit - which isn't always successful. Most attorneys and mortgage companies will not accept an Indemnity Letter.
Finally, when Buying a "Flipped" House, make sure your Buyer's Agent puts the following verbiage in any offer: should the property be reclaimed under the Right of Redemption, the Purchaser to be reimbursed for any "out of pocket" monies, including moving expenses, down payments, earnest monies, etc.
Good Luck - and call me if you need a knowledgeable Real Estate Agent!