Risk Versus the Reward for Buying Foreclosures at Auction

During the first Tuesday of each month you will find buyers going to the local Courthouse looking to buy a foreclosed property. You will see people congregated on the Courthouse steps looking for a "great deal!" 

Don't leap blindly however! There are issues to consider before buying because as we know in Georgia, "Buyer Beware!"

Remember that the Sale is AS IS so bring a certified check! No financing involved and no contingencies! You must have money in hand! Also, "all sales are final!" There is no use in trying to return a home bought off the Courthouse steps if you make a mistake! They won't let you!

You know when you go into a contract on a home listed for sale, like a bank REO listed in MLS you can walk through the house and do an inspection after going under contract. With a home sold on the Courthouse steps that opportunity does not exist! Remember that these are homes that in all probability had people living in them up until that sale date! There is no method or ability to do a home inspection and once again, all sales are FINAL, so there is no due diligence or home inspeciton period to save you either!

Another issue is that the existing Sellers may destroy or remove items in the house prior to moving!  I have been in plenty of bank owned properties post-eviction of a previous owner and at times there are holes in walls, missing light figures from in and out of the entire house, and missing appliances.  Once I was in a house where it looked like someone took a sledge hammer and smashed in the countertops and cabinets!  With a bank REO (a home in bank inventory post-foreclosure sale date), many times banks will make repairs, put new carpet in the home, and even paint the interior! Not so with auction homes!

With homes bought off the auction block there is no contract from a seller who would normally be held to be responsible for liens, mold, structural or mechanical issues, and the general condition of the property.  

Have you done a title search on each and every potential property that you want to make an offer on at the Courthouse sale? This is where the real "Gotcha" may happen.  Mortgage liens eventually go away.  What may not go away or it may take months or years to are non-mortgage liens on a property. Taxes, liens, or encumbrances on a property that stay with a property. HOA fees that had not been paid for years in the thousands! Are there easements on the property that might hurt the marketability of the property for you in the future upon resale? No title insurance at closing?  Any clouds on title would be a killer and could cost thousands to rectify themselves. No title inspection means no survey and no comparison of a filed survey with a foreclosure deed making sure the legal description matches what is being sold on the auction block!

Did the bank foreclosing on the property meet all procedural requirements in the foreclosure? This is a good one. Did the lender file proper foreclosure procedure? Did they advertise the sale date in the paper? Something simple like this can trip you up! I saw one Georgia property recently in which the transferring attorney could not find an advertisement in any paper in Georgia for the previous owner of the property. This means the foreclosure really did not happen! Not yet! Makes you hold on to that certified check a little tighter to think about doesn't it!

Did the bank give the IRS proper notice to sell the property if there are any federal tax liens on the property? Any procedural issues found down the road could hurt your marketability of having a good title on the property. 

Remember that buying any property is all about location. Do you know about crime, zoning, and neighborhood issues? Many properties too fall off the foreclosure sale list due to owner's catching back up on a mortgage, the investor putting off the sale date in a postponement, or title issues. 

Please keep in mind that buying on the Courthouse steps is fraught with potential peril.  You have to prepare to protect yourself or go by a bank REO from Fannie, Freddie, or HUD or any number of other lenders and have a due diligence period, title search, finance your purchase, and know that you are buying a property for a great price that has quantifiable issues that you can at least know upfront or you keep looking!

Remember, you make money in real estate when you buy, not when you sell!

For more information on Dacula neighborhoods feel free to call Hank Bailey at (678) 252-9257, email to hankbailey@prudentialgeorgia.com or follow @PrudentialGARE on twitter.

Click here to view Dacula neighborhoods and MLS listings in each, and visit my new website www.hankbailey.prudentialgeorgia.com to create an advanced MLS search including foreclosures, short sales, new construction, and by schools! 

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