Foreclosure in Chicago>Question Details

Venjon_2000, Home Buyer in Chicago, IL

Is it risky to buy foreclosed property at an auction?

Asked by Venjon_2000, Chicago, IL Mon Jan 14, 2013

Hi,

I am considering bidding on a foreclosed property at an auction. I did an initial search and it seems that all the taxes have been paid. I was wondering what are some other risks of buying a foreclosed property at an auction? I guess I am okay paying 6 months of HOA fees. Does the fact that it has been already foreclosed mean that I will get a clean title? I am going to get a report from a title insurance agency but I was hoping to get some initial thoughts. I am mostly concerned by a Lis Pendens lien that shows in the property records. However, it seems that the Lis Pendens has been recorded by the mortgage company, so I assume that they recorded the lien when they started the foreclosure procedure. However, they just foreclosed recently but the Lis Pendens is still showing in the property records. Any thoughts?

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Even if you pickup a home at auction at a good price, there are many potential pitfalls that could suck equity out of your investment shortly thereafter. This is a starter list, but any of them could be financially devastating.

1) Unknown liens
2) Condition of the home
3) Back taxes
4) People living in the property and risks associated with getting them out and possible vandalizing
5) In-depth knowledge of market where property is located, value of home and trends of the market

There are full-time auction buyers who dedicate hours and hours of research to the properties and know the ins and outs. Even they purchase properties at auction that they lose money on occasionally. It is not for the feint of heart. Tread carefully.

There are other property purchase avenues with much less risk and high reward.
1 vote Thank Flag Link Mon Jan 14, 2013
just make sure you consult with your attorney so you don't get in over your head which I have seen
0 votes Thank Flag Link Wed Jan 16, 2013
If you buy a property at a sheriff's auction, you are getting the mortgage lien released. The title is still subject to any number of liens.

Best of luck,

Ivan Sagel
312.515.7823
Ivan@atproperties.com
0 votes Thank Flag Link Mon Jan 14, 2013
Vanjon,

Once the property has been foreclosed it is up to the owner (bank) to clear all liens against the property. For example, the reason you do not see bank mortgaged property sell at tax liens is because the banks make sure they continue to pay the property taxes on the property. Banks know they will get more money for the property once the bank resells the property.

Back to the point, it is not a surprise the bank has recoded a Lis Pendens on the property securing their right. The bank still needs to give you clean title to the property. Personally not having been through the auction process I would think they would have to provide the buyer with the same protections as any other buyer when it comes to title. These are questions you need to ask the company holding the auction well ahead of time.

Remember auction buyer. You are buying the property AS IS. Hopefully you will have an opportunity well before the auction to inspect the property and you or someone you know has basic knowledge of property structure. Remember anything that is wrong with the property you will be flipping the bill to repair or bring the property up to code.

Best of luck,

Manuel Brown, Broker
iMove Chicago
0 votes Thank Flag Link Mon Jan 14, 2013
It sounds like you are buying a condominium. A few things to be sure of:

That you know as much as possible about the HOA and the rest of the unit owners in terms of the financial health of the building and the physical condition of the structure.

That a potential buyer in the building can get conventional financing. If they can't you need to understand you are buying a very illiquid asset.

That you have a plan for what you are going to do with it (live in, rent, flip) and know you can do this per their rules and regulations.

You have data showing the price you pay will be at, or preferably below the market value.

You are aware of any issues or repairs needed. AS IS means just that.

You are clear what you will have to pay as a net price. Many auctions have a buyer's premium you will pay as well as the bid price, and past due HOA fees, taxes and penalties.

I strongly recommend you have some guidance from someone who knows this process. Like the man told me when I was looking for my first car, " that is not a good choice, but we aren't worried, there is one for every seat".
0 votes Thank Flag Link Mon Jan 14, 2013
sound like you are ready to go ..you are ok being your own professional
0 votes Thank Flag Link Mon Jan 14, 2013
You need to speak with an attorney about the various legal issues, but if you read the contract they require it should scare you away. You have no inspection, no attorney review which allows you to back out, no guarratee that you will get clear title, no nothing!!!! You need to do a lot of homework BEFORE you put a bid in and most folks do not know all the things they need to do to cover their ass.
0 votes Thank Flag Link Mon Jan 14, 2013
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