Purchasing Property through Foreclosures in Connecticut

Our firm represents title companies, lenders, banks, homeowners and buyers/purchasers in connection with their real estate needs, including financings, restructurings, workouts and foreclosure sales. 

Connecticut law has authorized several different methods of sales involving foreclosed properties and it is important for parties involved to be able to distinguish between the different methods and remain aware of their rights and obligations under each method. 

Non-Judicial Foreclosure – The Tax Collectors Deed

Connecticut law authorizes a municipal tax collector to sell real estate for delinquent real estate tax liens.  After proper publication and notification, the municipality will sell the property in an auction style format in which the municipality will generally bid the amount of the tax liens.  Within two weeks of the sale, the tax collector must execute a tax collector’s deed which is delivered to the town clerk who holds onto it for six months.  During this six month time period, the original owner of the property has the opportunity to pay all of the taxes together with interest and costs and the deed will be canceled.  If the debts are not paid within the six month time frame, the tax collector will record the deed and title will vest.  It is extremely important for the tax collector to follow the statutory steps, and since there is no record or judicial oversight title insurance companies will generally not insure property purchased through this process.

Strict Foreclosure

Under a strict foreclosure a lender gains title to property without an actual foreclosure sale.  Strict foreclosure begins with the filing of a complaint in the Connecticut Superior Court and the recording of a lis pendens on the land records.  The recording of the lis pendens freezes the title, so that any person attempting to acquire title is subject to the judgment of the court.  After a court hearing or default ruling, the court determines the amount due to the Plaintiff and gives each Defendant a law day.  The significance of a law day is that it dictates when a Defendant must pay the debt.  The owner of the property is given the first law day and thus the first opportunity to pay the debts due and retain his property.  Law days are then assigned in inverse order of priority.  If a party does not pay by its law day, then it is foreclosed out and the party with the next law day is given the opportunity to pay the Plaintiff and retain the property and so on and so forth until there are no more Defendants and thus no more law days.  If one of the Defendants pays the full amount due on its law day then it will receive a Satisfaction of Judgment from the Plaintiff and file it with the court.  After recording a certified copy of the Satisfaction of Judgment, title will vest in the purchaser, as anyone with a higher priority was paid, and anyone with a lower priority was foreclosed from acquiring title because they missed there law day.  If the law days all run and nobody has paid the Plaintiff, then title will vest free and clear of the interest of any of the Defendants and a certificate of foreclosure on behalf of the Plaintiff is filed. 

Foreclosure by Sale

It is also possible to purchase property through a foreclosure by sale.  Foreclosure by sale is more common in cases where the value of the property is substantially more than the value of the debts.  A foreclosure by sale is within the discretion of the court and if ordered, the judge will usually appoint an attorney to act as committee.  The committee is responsible for preparing the property for sale, advertising, dealing with interested parties, conducting the auction, signing a contract, submitting the sale for court approval and delivering a deed to the bidder.  The bidding process in a foreclosure by sale is open to any party and the starting bid is generally the amount of the debt.  If nobody bids above the amount of the debt, the lender would assume title to the property.  The bidding is done in an auction style format with the highest bidder acquiring title, which is free and clear of the interests of the Plaintiff and all named Defendants.  Typically, if a purchaser wins the bid he will place a 10% deposit on the property and will have thirty days to close or risk losing the deposit.  It is, therefore, important to promptly contact the committee to begin working out the details for the closing in order to ensure the closing occurs within the 30 day window.      

When purchasing property through foreclosure, whether it be through the above described methods or some other method, there are certain issues that a purchaser should keep in mind.  It is important for a purchaser to have someone familiar with contracts review the contract to check for any warranties or lack thereof and to check what type of deed is going to be delivered at the closing.  It is rare for a lender to give a warranty deed.  The lender will sometimes give a quit claim deed or a special warranty deed.  It is also important to have someone familiar with foreclosure laws to perform a title search.  The title search can lead to numerous “red flags” such as the existence of federal tax liens, the existence of a bankruptcy petition, deceased, missing or omitted parties, the existence of priority lienholders or issues with the property description. The purchaser should also ascertain if people are still living on the property and whether someone has brought an order for their ejectment.  It is further necessary to have someone review the court file and foreclosure docket to make sure that all lienholders have either been foreclosed out or paid off.  All of these precautions are necessary to prevent parties with a superior claim to the property coming in at a later time and asserting their claim.

For more information concerning purchasing property through foreclosure and/or our Real Estate, Corporate Law and/or Litigation Departments, please contact:

Charles J. Spiess          (203) 358-0800      CSpiess@dmoc.com
Robert E. Murray         (203) 358-0800      RMurray@dmoc.com
Richard E. Castiglioni  (203) 358-0800       RCastiglioni@dmoc.com

This publication is a service to our clients and friends.  It is designed only to give general information on the development actually covered.  It is not intended to be a comprehensive summary of recent developments in the law, treat exhaustively the subjects covered, provide legal advice or render a legal opinion.