Legal Question in Real Estate Law in California

Re: Buying a Deed in Lieu property

Buying a foreclosed property where there is a trustee's deed in the recent chain of title is a lot safer than accepting a "deed in lieu" because the trustee's deed carries certain warranties, and also if the property were bank REO for a brief time between foreclosure and your purchase, you'd probably be getting a grant deed from the bank, which in turn would carry implied warranties of marketable title. A deed in lieu is likely to be a quitclaim, which carries no warranty whatsoever. Further, even if the defaulting borrower gave you a grant deed, it would be doubtful whether the implied warranties that came with it would be of any value, given the likely flaky financial picture of a defaulting homeowner-borrower.

The bast way to protect yourself is by title insurance that doesn't contain any unacceptable exceptions.

If you have to take title directly from a defaulting borrower, you should have a local real estate lawyer obtain and review the title report.

ALSO, if you are buying a pre-foreclosure property as an investment and not as your own principal residence, you should familiarize yourself with the law on home equity sales contracts and follow its requirements if it applies to you. Look up and read Civil Code sections 1695 to 1695.17.