Newspapers report frequently of late how foreclosures are on the rise. For those that actually go to sale, it may very well be that the lenders or foreclosure investors will wish to flip the property shortly thereafter.
However, there are those distressed homes that never go to sale that is where the pitfalls of California Civil Code 1695 et seq. come into play. Namely, if you buy from Agent, who has purchased the equity from Elderly Widow, you could get dragged into a subsequent rescission action.
When Agent paid Widow, Agent was required to use all the statutory contracts that protect consumers, but may have failed to fill them out correctly. As a result, Widow, who would have normally had 5 days to rescind, now has 2 years.
Agent, getting the property for at least $100k below fair market value sees that the market is flattening out and decides to sell the property to you for $50k below fair market value. You thought you were getting a good deal, right?
Widow can file a Notice of Rescission pursuant to California Civil Code 1695.14 and drag Agent and now you, the new owner into the lawsuit. You will have to prove that you are a bona fide purchaser for value (ie, that you did not conspire with Agent to defraud Widow of her equity). My suggestion? Bring your title policy in to a real estate attorney for review. The attorney may be able to tender to the title insurance company to cover the cost of your defense.