Should You Buy Foreclosures At Auctions? Part 2

If you intend to build your foreclosed homes investing portfolio by purchasing at foreclosures auction, you need to understand that it is a risky process. All the traditional help and controls to protect you are no longer applicable—no real estate agent to help you through the process; no title report on the property or title insurance and no escrow accounts.

Here are the most common consideration for neophyte investors and seasoned buyers when investing in foreclosure properties sold at auctions.

Basic information

Generally, foreclosures are auctioned at a trustee sale or a courthouse for a sheriff’s auction, in the county where the property is located. These auctions are usually advertised at least a week advance– in the legal-advertising section of a local county newspaper prior to the sale. This provides investors the necessary time to conduct their due diligence of the homes listed for auctioned. Many counties have websites you can visit to obtain basic information about the property to be auctioned.

Keep in mind that lots of homeowners will settle the foreclosures and keep their homes before the date of the sale

Interior inspection unlikely

Do not expect to be able to gain access to inspect the interior of the foreclosures before the bidding. However, you should inspect the exterior—and who knows—you may be able to look through windows to get so ideas of the general conditions. If not, you are operating in the blind when it comes to the interior walls, ceilings, floors, fixtures and cabinetry.
Other concerns can include infestation, termite damage, vandalism or hazards like asbestos or lead paint, or other issues often revealed in mandatory disclosures in other transaction types, which the winner bidder would not find out until after the sale.

For beginning or experienced investors, the inability to inspect the electricity, plumbing/septic and heating and cooling systems and other building components need to be accounted for when determining a bid amount or you risk a major surprise when you take possession of the property.

Clean title risk

Bidders must also consider that foreclosed properties sold at auction are not guaranteed to come with a title free of encumbrances. Therefore, you should invest consider investing money for a title search. If you fail to identify a problem with a title, such as a tax lien by the IRS, you may win the bid and lose any potential profit to paying off the lien. The bottom line: the trustee or sheriff

Winning bidder must pay all cash

Depending on the state or county where you buy homes repo, it will be likely consist of an all cash transaction. If you fail to come up with the cash by the designated deadline—24 hours, a week or month depending on the state—you will probably lose your deposit.

Other considerations

Some other things you need to be aware of are court ruling and procedural errors that can overturn a foreclosed properties sale In addition, in some state the owner has a “redemption period.” This refers to the period after the auction in which the owners has the opportunity to pay the delinquent amount of the loan and recover ownership of the home.

Investing in foreclosures is a risky venture for seasoned investors, but especially risky for anyone just starting out. If you decide to take a plunge, be aware of the pitfalls and proceed with caution.

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