So you bought a foreclosed home. Now what?

This is an archived article that was published on sltrib.com in 2010, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

It seemed too good to be true: You bought a house in foreclosure at a fraction of the former price. Maybe you even remodeled with all the money you saved.

But now thousands of foreclosures may be invalid because of bank paperwork problems. Should you worry?

"Anyone who's purchased a foreclosed property in the last three years should be really 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 lenders have frozen tens of thousands of foreclosures in at least some states while they review papers for errors.

For homeowners, there are several questions to ask. But first, experts say, they should check 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 ownership. Most people who take out mortgages are required to buy a policy. For those paying cash, it's optional but highly advisable.

"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 people buying homes out of foreclosure.

Foreclosure listing service RealtyTrac Inc. says nearly 250,000 homes sold from April to June, or 24 percent, were in foreclosure. In Nevada, it was 56 percent. Arizona was next with 47 percent and California third with 43 percent.

The cost of title insurance varies by state and circumstance but is often roughly 0.5 percent of the mortgage — or around $1,000 for a $200,000 loan.

A homeowner with title insurance shouldn't have to worry if the previous owner stakes a claim to the home. Even a successful claim, experts say, would almost certainly end up with the title company settling with the evicted homeowner.

If they failed to make payments, evicted homeowners might not be able to afford their old homes anyway. They're more likely to seek a large check than a return to a house with an outsized debt.