Buying Property in Auction - Other Risks?

Question

I am looking to purchase an investment property through the public auction process here in Louisville, KY. The property I'll be targeting is in an excellent location but I have good reason to believe it will require a major update inside (although nothing structural or roof-related). I have surveyed the property from the outside and I'm extremely familiar with the location and trends in that area. Just a few questions:

1.) Other than the risks of purchasing the property unseen on the inside, is there any other major risk to be aware of? As I understand here in Louisville, properties are sold "free and clear of all liens" which I understand to mean there won't be any other undisclosed liens that should have been factored into the bid price.

2.) Kentucky has a "120 day Right of Redemption" rule that would give the current owner a path to retain the property should the property sell for less than 2/3rds of the appraised value. However, the county has not listed an appraised value on the property. Am I right to believe that should my bid be the highest that this risk no longer exists? I don't want to wait months to start a rehab project.

Thanks in advance!

-Kevin

Chris Seveney · Answer

@Kevin Nichter

You should always run title on a property at auction to understand the liens and if any are superior to you when purchasing

Also have an attorney review redemption laws as you mentioned you do not want to renovate then have them redeem

The other consideration is just because you foreclose you still have to evict.

Trevor Greenwell · Answer

Definitely do a title search to be safe.  Never take anyone’s word for it.  Do your due diligence.

James Wilcox · Answer

You're on the right track, but with the major risks that you mentioned. The Right of Redemption, in reality, is quite rare nowadays. Most properties don't even come close to going below the two-thirds of their appraised value, and some even go well above that. The MC sales are not necessarily discount properties. Additionally, individuals who have lost their properties usually lack the funds to repurchase them. Although this remains a potential risk, it is more common to simply let the property sit until the redemption period expires if this scenario comes up.Regarding the appraised values, your master commissioner will likely have them. It would be a good idea to give them a call and inquire about the values before hand if not posted online. They can also explain the MC sales process.

Another potential issue that could arise is related to the title or custody of the property. This could cause delays in the closing process or, in some cases, result in the cancellation of the purchase altogether, even if you won the bid. Eviction or dealing with people currently residing in the investment property could also be a challenge you might face.Furthermore, these properties tend to remain vacant for a certain period, making them susceptible to vandalism and theft. Therefore, ensuring the security of the property during renovation becomes an important concern.

Buying Property in Auction - Other Risks?

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