Auctioning Bank Doesn't Hold Clear Title?

9 Replies

Hi everyone,

I'm new.  I searched the forums and haven't found a place where this has been discussed.  I'm considering putting an offer in on a house through Auction.com.  I've been doing a lot of homework to make sure I put in a good offer and limit my risk.  Yesterday, I hit on a big issue that I need to get a handle on before I can bid.  The auction closes Monday 12/29, so I only have a few days.  I've already reached out to a RE attorney and title company, but won't likely hear back until it's too late given the holiday.

Auction.com offers a Special Warranty Deed (not a GWD).  I understand the difference, and it sent me looking for more information on title.  I found that the building originally contstructed in 1964 actually sits across parts of 4 parcels that were never subdivided.  i.e. the property does not sit on an official parcel and have it's own address even though the address has been on the side of the building since 1964.  The County has the owner as a private individual living a block away (who I haven't contacted).  The Assessor's office shows that the bank has been paying property taxes and is the current owner (not the private party), but they're quick to say that they don't care who the owner is officially as long as the taxes are paid.  So now I'm questioning how the bank can legitimately sell the property that shows per platted parcel boundaries as being non-conforming AND under private ownership.  They've locked up the building, which suggests to me that they have some rights as I would simply cut the locks off if I was the private individual who owned the property a block away.

So my questions are:

1) clearly this puts a legal cloud over the property that diminishes its value.  Should I stay away or use this to my advantage?  And if the latter, how best should I take advantage of this situation?

2) how can a bank auction a property that has someone else shown on the county documents as the owner of record?

3) could I get title insurance for this issue?  I don't want to lose all my money if I'm the successful bidder.

Thanks for any help the members of this community can lend.  I'm hoping to get RE attorney feedback too, but am at a loss at this point.

The house is in Albuquerque, NM.

Nothing wrong with a SWD as long as you can get title insurance.  I never offer a GWD when selling my properties since I typically pay for the title policy which protects the buyer so no sense in assuming someone else's liability. 

I've never purchased from Auction.com but I would hope that they offer a sample of their contracts prior to you winning a bid and being responsible for signing a contract form you've never seen. 

1.  What is putting a cloud on title? 

2.  The bank won't be selling a property they don't own even though they may not yet have title, or perhaps the records simply don't reflect a recent transfer of title to the lender. 

3.  If you can't get title insurance, you should walk...period. The non-conforming lots "could" be a big enough issue in itself, but the only way to know for sure if is to determine is a variance was given in the past or the likelihood the city will raise a stink in the future.

@Stephen Roberts  First, you need more info on the property....previous transfers, mortgages, a foreclosure auction that hasn't shown up on property records, etc.  the "current" owner could have bought the property sub2, and the underlying mortgage from the previous owner is being foreclosed on.  Also, one parcel can consists of 4 played lots....read the legal description.

I see 4 types of "auctions" run by auction.com

1 REO's where the bank has already foreclosed

2 Expected REO's where they're in foreclosure, but the foreclosure auction hasn't even occurred yet

3 Short sales, where being the high bidder simply puts you in contract/negotiations on the short sale

4 Trustee foreclosure auctions.

Thanks all for taking the time on 12/24!  I wasn't sure I'd get even a single response.  

Chris, thanks.  I read through the posting you shared.  It gave some great context, but didn't help me answer the questions I don't think.  Sorry if I misunderstood.  I've searched again, but am a little overwhelmed by the results and they don't seem to address the specific issues below.

Guy, thanks.  We talked to the city and the residential use is conforming, but the parcel lot lines are not consistent with their records (I'm not sure if I was right to call it "non-conforming" under this situation).  They said the buildings are grandfathered in because they were built pre '73, but that we'd have to formally subdivide it to correct the parcel boundary discrepancy.  New Question#4) any insight into how much this subdivision would cost?  A few $k? Or if there's even any value (see discussion with Wayne below regarding legal description)

Guy, I'm glad you are confident about Q2 (bank has right to sell), which leads me to a new Q5) is it reasonable that such a correction to title transfer would take 7 months from date of foreclosure in May?  Seems so long.

Guy, I take your point about the title insurance.  There's actually a 3rd private party who owns the 4 parcels that are split in half (since the 1960's) by the property I'm interested in purchasing.  He may be another unknown encumbrance separate from the bank and property owner of record.  I'm not sure I can get title insurance by Monday as time is short.  Q6) If I'm the winning bidder, can I get title insurance after winning the bid but before signing the contract to purchase?  I realize that this may only be something a title co can answer.

Wayne, thanks.  The legal description on property shark (not sure of their source) actually says "N 1/2 OF LOTS 1 THRU 4 BLK 2 WESTSIDE ADDN. UNIT 2".  Q7) Does this suggest to you or the others that the property is legitimate even though the county shows it crossing multiple parcels and not having been subdivided (it's actually a large lot, so the 4 lots would have been divided and then re-aggregated to create the current parcel description)?  I'd prefer not to have to subdivide it without gaining the ability to build more units (ie I don't want to just pay to correct the docs at the county).

Through the magic of google, I've found a legal notice from May 2014 (7mths ago) showing that the recorded owner of the subject property is deceased and that the State auctioned the property to pay for associated fees and a $274k judgement won by a bank (Northstar) against the property owner and heirs (judgement seems high since the property has been appraised at normal condition by the state for $140k and I didn't think that Albuquerque saw the degree of price run up and corresponding crash circa 2008 seen in other parts of the country!?).

Northstar is the current bank owner auctioning the property through Auction.com, so Q8) am I right to assume that they bought it from themselves on the courthouse steps in order to take the property through a reserve auction and improve their chance of a higher sale price by setting a reserve minimum?

Thanks again for your generous support and any more you or others can provide on the new questions 4-8 above!

@Stephen Roberts  There's nothing like trying to get last minutes research when a drop dead date is preceded by a big holiday and few or none are around to help.

All good responses to your post so far.

Auction dot com is in the marketing business. Just like **********, eBay and all other online sellers, they move tens of thousands of assets. 

As to what you are buying, you really have to do your homework to understand what representations are being made, if any.

Tax assessors tax the asset but are not in the business of representing ownership. So, tax roles are often the wrong place to seek title status.

For this, you need to examine the chain of title from the county recorder. Since offering a Special Warranty Deed is Auction dot com's way of transferring title without guaranteeing you of condition of title, it's up to you to determine what lien position the lender's security possesses and intends to sell.

If a 1st mortgage (or trust deed), you'd be bidding on that lien position. 

If the successful bidder, you'd get a deed that puts you in the ownership position (and condition of title) that the collateral was in at time the lien recorded, subject to any remaining senior liens, typically property taxes and such.

You can probably find the answer online by either county recorders online access or, absent this, a subscription service such as PropertyRadar or other commercial online service.

Lastly, you will probably not be able to get title insurance from point of purchase unless it is offered by Auction dot com. Not to worry, as this can be obtained after the fact, as long as you understand that that it will be up to pay for and clean up any issues that could still arise.

Next time, you'll see the benefit to you of beginning research earlier rather than later.

Merry Christmas!

"We talked to the city and the residential use is conforming, but the parcel lot lines are not consistent with their records (I'm not sure if I was right to call it "non-conforming" under this situation). They said the buildings are grandfathered in because they were built pre '73, but that we'd have to formally subdivide it to correct the parcel boundary discrepancy. New Question#4) any insight into how much this subdivision would cost? A few $k? Or if there's even any value (see discussion with Wayne below regarding legal description)"

Still not clear on the boundary issue but will address what I can below.  Subdividing costs can vary dramatically so you'd have to check with your municipality. 


"Guy, I'm glad you are confident about Q2 (bank has right to sell), which leads me to a new Q5) is it reasonable that such a correction to title transfer would take 7 months from date of foreclosure in May? Seems so long."

Again, this depends on the county in which the property is located. Our county updates typically take less than 60 days. But again, I'm worried less about what the county tax records show...I would look at the official public records to see who is on title as of the last transfer. 

"Guy, I take your point about the title insurance. There's actually a 3rd private party who owns the 4 parcels that are split in half (since the 1960's) by the property I'm interested in purchasing. He may be another unknown encumbrance separate from the bank and property owner of record. I'm not sure I can get title insurance by Monday as time is short. Q6) If I'm the winning bidder, can I get title insurance after winning the bid but before signing the contract to purchase? I realize that this may only be something a title co can answer."

You won't get title insurance until the title company has a chance to review the chain of title, which won't happen until they have a copy of the contract.  If you win the bid, that should only give you the right to contract and not force you into a purchase regardless of whether clear title can be obtained. 


"The legal description on property shark (not sure of their source) actually says "N 1/2 OF LOTS 1 THRU 4 BLK 2 WESTSIDE ADDN. UNIT 2". Q7) Does this suggest to you or the others that the property is legitimate even though the county shows it crossing multiple parcels and not having been subdivided (it's actually a large lot, so the 4 lots would have been divided and then re-aggregated to create the current parcel description)? I'd prefer not to have to subdivide it without gaining the ability to build more units (ie I don't want to just pay to correct the docs at the county)."

This type of legal description is actually very common in older parts of town. The legal described here doesn't indicate several parcels are involved...it only indicates the legal description for the subject property includes a portion of several lots, which again, is quite common and does not indicate a need to subdivide, etc. because these lot portions are already part of the subject property.

@Guy Gimenez  has it with regards to the "legality" of the lot. Think about it this way, lot and parcel boundaries don't "actually" exist and at the same time you will always own a portion of them not the whole thing. What I mean is that all they are is someone's idea of the way in which property could/should be owned or sold. 

So some time a 100+ years ago the land was "sectioned" that is divided into 1 square mile portions (640 acres). Maybe someone bought the whole thing or more likely it was then divided into smaller tracts often referred to as 1/4 sections (160 acres). Those smaller tracts were divided into smaller parcels which were ultimately divided into large lots that a developer may have created a subdivision on resulting in individual lots that are a manageable size for a person to buy and build a home. 

At any of those points portions of those may have been sold as opposed to the whole thing. What if the land was divided in 1/4 sections but I only need/want 80 acres? Well I would buy the 80 acres with the legal description of "The north half of parcel 1 of tract 3" That gives me ownership of that 80 acres even though it's not the whole parcel. So like I mentioned above those lot lines were someone's idea of where the land should divide but don't necessarily have to transfer based on them. 

When you get to individual city type lots, maybe someone back in the day wanted an extra large yard so they bought 1 1/2 lots. Now a house sits on "two" separate lots. Since that time minimum lot sizes may have changed and you can legally subdivide to create distinct lots that could be sold independently. but when you look back at record you'll still see those original lot descriptions  since you always have to trace the description back from the original divisions up through today. The old mapping divisions never "go away" they just get "re-described" to reflect how you want them to be owned or sold today. 

So could you have a home that doesn't sit on a legal subdivision? Yes. More likely scenario though is that it is 100% legally owned and that it is in the clear. If the legal description reflected in the foreclosure case is the lots as you described and the house sits on those lots as described (or portions thereof) then the foreclosure action is being completed on the correct property.

@rick harmon, thanks! I agree more lead time would be good and save me some late nights.  They announced the auction on12 /17.  It seems odd to try to auction during the holidays and also give such short notice.  Regarding title insurance, I just discovered that auction.com has provided a title insurance commitment letter with exclusions.

@Guy Gimenez, thanks again!  Very clear.  Matt, thanks also!  Great context and I'm thinking I should now share this with the county representative I met (who had expressed such concern).

I've also found the prior mortgage docs and will be using them tomorrow to better understand the banks position.  Thanks again for resolving the subject of this thread.

Glad it was of help! It's what I do a lot for clients in my job as a Civil Engineer so I'm more familiar with it than most I'd assume. I'm not sure about where this property is, but many counties have all the maps available online to buy for a few $$$ a page so you could pull them and check yourself. You can usually "view" the pages prior to purchase to make sure it's the correct one. You can't save the viewed page and it's a lower quality image. For what I do I need the actual document to refer back to, but if you look at it and make notes you can probably get enough information to give yourself confidence in the validity of the split as it stands today.

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