By Dave Carpenter, AP Personal Finance Writer
It seemed too good to be true: You bought a house in foreclosure at a fraction of the former price. Maybe you even knocked out a wall or two and remodeled with all the money you saved.
But now thousands of foreclosures around the country may be invalid because of bank paperwork problems. Should you worry?
"Anyone who's purchased a foreclosed property in the last three years should really be concerned," says George Babcock, a Providence, R.I., attorney who represents homeowners who have been foreclosed on.
"They should call the attorney that did their closing and say, 'Hey, do I have a problem?'"
Bank of America, JPMorgan Chase and other major lenders have frozen tens of thousands of foreclosures in at least some states while they review the paperwork for errors or mishandling.
For homeowners, there are several questions to ask. But first, experts say, they should check to make sure they have title insurance, which protects the homebuyer from any claim on the property that surfaces after the deal has closed.
Those claims can arise from unpaid taxes or legal glitches in the ownership documents. Most people who take out mortgages are required by their lenders to buy a policy. For those paying cash, it's optional but highly advisable, especially now.
"If you're a bona fide purchaser with title insurance and no knowledge of any irregularities in the transaction, courts are going to be extremely loath to set aside the sale," says Diane Thompson, an attorney with the National Consumer Law Center.
This new twist to the foreclosure crisis is no trivial matter for the large and growing number of people buying homes out of foreclosure.
The foreclosure listing service RealtyTrac Inc. says that nearly 250,000 homes sold from April to June, or 24%, were in foreclosure. In Nevada, it was 56%. Arizona was next with 47% and California third with 43%.