Most people consider buying a foreclosure property as a real bargain without deep understanding where the auction price comes from.

The most important thing to take into account is how a property happened to be in foreclosure. The most frequent reason is not paying mortgage or tax bills in time by current owner. It causes liens to be put on the property by governing bodies. It means that a mortgage lender or municipal or federal government will take every measure to receive the payment on the current owner's obligations. Organizing an auction is the simplest way to get the money back.

In case the current property owner had only one lender, the amount of money under which the property is sold might be the only debt against the property. Anyway a slight possibility of other debts is also possible. If the current property owner had a home equity loan for example in addition to home mortgage, there might be several liens against the property from different mortgage lenders.

Most everything we read in our quest for knowledge about foreclosures stresses that a title search must be made early in our investigations. A search of the Title is a way of assuring the advisor to the buyer that the party offering this property for sale has the legal right to do so, the correct legal address and description of the property (for property tax purposes), and that there is nothing preventing the buyer from owning exactly what he intends to purchase.

This public record gives the details of who has previously owned the property and when (aka the Chain of Titles). It includes a tax search, which reveals if any real estate taxes are owed and also any charges against the land itself. Any unpaid property taxes rank above all other liens registered. If you were to purchase a pre-foreclosure without knowledge of a tax lien, then you face the loss of your new investment unless you settle the debt. Title insurance could have protected you, but there's no going back.