Q: Does a seller have to disclose a foreclosure prior to signing an agreement of sale?
A:
The seller's obligation is to deliver clear title to the property at the settlement/closing of the purchase. In other words, the existing mortgage lien must be released, and the only way the mortgage holder will release is to receive full payment (or some other negotiated amount). I strongly recommend that you get a pay-off figure from your mortgage holder, and alert them once you have a signed offer, and ask that they provide a release of mortgage at settlement. I'd think they'd be happy to do so.
Talk with your realtor, and fully disclose the foreclosure case to him/her. Your realtor will be able to determine whether local practice or rules require disclosure of the foreclosure.
If you sign an Agreement of Sale, and cannot deliver clear title at settlement, you will be liable for breach of the agreement.
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