Image by Mohamed Hassan-Pixabay
Real estate investors employ myriad methods in locating below-market value and off-market properties: public records, online resources such as Opendoor or Trulia, driving for dollars, social networking, direct mail, and foreclosure auctions. Foreclosures happen when a mortgage holder can no longer make payments and the loaning institution takes control of the asset, usually auctioning the property off to satisfy some or all of the debt. These auctions can be conducted live (at the actual site or a public building) or online. They are free to attend, but you must register to participate in the bidding. Whether online or live you must provide proof of the ability to pay.
Kimberly Palmer of US News lists five ways to find these auctions:
° Bank websites which often list foreclosed properties with the agents’ contact info
° Your local county office will have a list of foreclosures
° Work with a real restate broker in-the-know about local properties nearing foreclosure
Foreclosure auctions can offer lucrative outcomes but also come with potential risks. HGTV, king of the over night, over the top flip stories, offers good information on the advantages and disadvantages for those considering a foreclosure property. Some of the additional risks include:
1. The property may be occupied by the owners or renters. It then becomes your responsibility to evict them. Each state differs on eviction with cause, but it could adds weeks to your turn around.
2. Limited or no inspection prior to the auction, particularly if the house is still occupied. Auction houses might give up to 72 hours prior to the auction or none at all. Sometimes the best you can do is get a home inspector to view the outside for visible signs structural damage to the foundation and roof. If it rains during that time period, look for drainage problems.
3. A clouded title in which is any encumbrance (such as a lien or a fraudulent title) puts the title into question. Get a preliminary title report for secondary liens.
4. Non-refundable earnest money deposit (EMD). EMD is not always required but shows commitment. You can avoid this problem if you have your financing lined up.
5. No sales mortgage or appraisal contingencies.
6. Speed of auctions – You will be competing against seasoned bidders. Have your budget foremost in your mind, do your homework and know when to walk away.
7. No seller discounts or warranties
8. Post-foreclosure Right of Redemption which would allow the original owner to reclaim the property after the auction. Not all states allow post foreclosure right of redemption. Amy Loftsfordon, attorney and legal editor for NOLO, lists all 50 state’s status on right of redemption. Check your state’s current law.
Try to mitigate your risk by:
1. Investigating the auctioning entity, whether it’s an auction house or real estate brokerage firm. Look on your state’s department of licensing website. Verify your auction house is qualified, licensed and has no outstanding compllalints.
2. Understand the requirements of each auction – deposits, payments, fees
3. Do as much homework on the property as possible (see above) before bid time
4. Make sure any improvement made were properly permitted
5. Know the rules of the HOA if the neighborhood has one.
6. What are the zoning laws?
All that said, buying a home at a foreclosure auction can be a great deal, if you can handle the risk and do the homework.