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I'm considering purchasing a home, and given todays market I've been viewing a lot of foreclosures and short sales. That being said, I have a question on short sale VS foreclosure in terms of legal liability from purchasing a home which I'm having trouble finding an answer to.

It seems like the legality of many foreclosures is up in the air due to this robo-signing scandal and in a worse case scenario if I were to purchase a foreclosure the previous owner could one day have me kicked out due to a claim that they were illegally foreclosed on.

That being said, is it legally safer to purchase a short sale as opposed to a foreclosure? My logic here is that it is since a short sale involves the original owner actively participating in the sale as opposed to a foreclosure where the owner is forced to move out and loses ownership of the property.

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up vote 3 down vote accepted

I have to agree with you. On the short sale, it's clear the owner is gone.

But - On a great foreclosure deal, so long as you have a legitimate title company offering title insurance, the risk should be acceptable.

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I'm not sure here, but it seems to me that even if you had title insurance, if a previous owner successfully contests the foreclosure then they get the house back. You may get your money back but that won't compensate you for everything you've done or spent. –  DJClayworth Feb 11 '12 at 21:38
    
Well, DJ, that's interesting. I suppose then, I don't know all the repercussions of title insurance. –  JoeTaxpayer Feb 12 '12 at 0:57
    
Don't take what I said as accurate. Someone may know better than I. –  DJClayworth Feb 12 '12 at 4:21
    
Understood. I took it a as follow up - "what exactly will the title co do in the case of a voided foreclosure?" good question for follow up. –  JoeTaxpayer Feb 12 '12 at 14:01
    
Boom...called it! This article was on cnn today (two weeks after I asked the question): money.cnn.com/2012/03/01/real_estate/foreclosure-sales/… –  Dave Mar 1 '12 at 16:12
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