Shy away from lease-to-own deals if property is in foreclosure

Q. A neighbor of a friend of mine is going through foreclosure. The house is empty. I spoke to the neighbor and he is offering to lease the property to me with an option to buy. The option price is great, but I am of course concerned about the foreclosure and whether or not the bank will honor my contract with the current owner. What are some of the things I should be looking out for?

A. The seller can only sell you something he owns. If the foreclosure has been filed, the seller has the longer of three months from the date of judgment or seven months from the date of service to redeem the mortgage, meaning pay off the entire balance due plus interest and costs. Therefore, presuming the foreclosure has been filed, the seller has a very limited time frame to redeem the property and sell the property to you.

One of the major attractions of a lease option is time. Typically, you execute the lease option today, lock in the sales price at today's market value, string the lease option out as long as possible and hope when it comes time to buy, the property has appreciated. Of course, in today's market, that certainly is not guaranteed.

If you have the ability to purchase the property, it would make far more sense to negotiate a sales price and buy now while the seller retains the power to sell. In the event you enter into the lease option and the seller is foreclosed, the lender will be under no obligation to honor either the lease or the option to purchase.

Q. I am purchasing a vacant lot and do not have an attorney. The seller's attorney sent me the title report and it says that the real estate taxes for the years 2005 and 2006 have been sold. What does that mean? Can I still buy the property? Can I force the seller to pay off those taxes before I buy the property? Anything else I should be concerned about?

A. When a property owner fails to pay their property taxes and a certain period of time elapses, those taxes go to sale. The sale is a scheduled event where bidders bid on the right to purchase the property for delinquent taxes. The successful bidder must satisfy the tax arrearage and any future tax arrearages through the redemption period.

In the event the owner elects to redeem the property, he or she must, within the redemption period, pay the successful bidder the amount of the original taxes being sold plus any additional real estate taxes the bidder paid plus interest. The owner will also owe certain fees and expenses to the county. This is all completed through the county treasurer's office.

In the event the owner fails to redeem the taxes before the end of the redemption period, the successful bidder then petitions the court for a tax deed. If the request is granted, the successful bidder becomes the new owner.

There is nothing extraordinary about sold taxes appearing on a title report. Presuming the owner has enough equity in the property, I'm sure the seller intends to pay off the outstanding taxes from the proceeds of the sale. The title company will generally ensure this occurs, as they will be issuing an owners title policy to you free of any exceptions regarding outstanding taxes.

All this being said, I strongly suggest you retain an attorney for your purchase. The cost is probably a tiny percentage of the price you are paying for the property. Without an attorney, the only party at the closing table concerned with your interests is you. If you are not familiar and comfortable with the many elements involved in a real estate transaction, you are rolling the dice that your interests will be thoroughly protected.

• Attorney Tom Resnick's column appears every other week in Homes Plus. Send your questions to Tom Resnick, 345 N. Quentin Road, Palatine IL 60067, by e-mail to tdr100@hotmail.com or call (847) 359-8983.