Buy a $368,854 condo for $40,784.25 on auction?

Question

Hey BP community!  I wanted to get some opinions on a property for sale on an auction:

Here are the property specs:

Zestimate: $368,854

2 beds 3 baths 10,60 sqft

Location: Duarte, CA

The amount of secured indebtedness with interest and costs is
$ 40,784.25
(Amount subject to revision)

This seems too good to be true... buy a $350,000 condo for $40,784.25? What am I missing here? Are there any extra payments I should be aware of? I have never bought a foreclosure before so I don't know if this is normal or not. If you need more info, let me know.

Craig Jeppesen · Answer

First that is just the starting bid and will go for much more than that.

Second, a zestimate is worthless.

Third you need cash to buy at an auction.

Lynnette E. · Answer

You need to be very careful about exactly WHAT debt you are bidding on.  It likely is not a first loan, maybe a HELOC, or a contractor lien, or maybe the HOA is putting their debt up for bid.  If you bid and it is not the first, you will still owe the money for the first, or any other loan that is senior.

If this truly is a first, and there are not a lot of other debts attached to the title, you should talk directly to the owner and see if they will sell it to you for the debt and a small amount of  cash.  This will let you avoid the competition of other bidders.

My guess is that this is a 2 or 3 in line loan, and the first is $300k.

Wayne Brooks · Answer

There may be other senior debts that stay with the property....a prime example is a condo or house in an HOA being auctioned by the HOA association for past HOA dues....any mtg on the property remains with the property.

And as mentioned, if the $40k IS the senior or only debt, other bidders will bid it up.

That is the reality.

Ryan M. · Answer

@Collin Emerson Miller With that small of a mortgage relative to its value, it probably will get worked out before auction. If it does make it to auction, it will get bid up to its value. You aren't going to be the only bidder at an auction with those kinds of numbers.

Brandon Richey · Answer

@Collin Emerson Miller you need to send this to a trusted title company to do a deeds and records search for liens etc. I am pretty experienced on buying foreclosures and my advice before you buy is to make sure their are no liens. You could be buying the second lien and they may have an underlying primary. I will say buying foreclosures while risky can be great. While I have never had a deal like this I did once buy a house for $38k that was worth 120k with only minor work needed.

Frank Chin · Answer

I bought property at foreclosure auctions, including condos. There are some too good too be true situations, but this may or may not be one of them, more than likely, may not.

There usually are unpaid mortgage payments, taxes, which they advise you of, but that doesn't mean they will accept your bid at that price, as there usually are other bidders. The important thing is if whether or not this is an absolute auction, the bank will not counter bid, and the highest bidder wins regardless. I've been to auctions where I was the only bidder attending, submitted my bid, the auctioneer took it pending acceptance, only to be notified some time later the bid is under the reserve price and therefore rejected. It was not an absolute auction.

I only heard of one auction, for a condo at the complex where I already bought two at auction, where it was not declared an absolute auction, the foreclosed owner bought his twin brother to observe. The condo originally sold for $125K, had an outstanding mortgage balance of over $100K, bank foreclosed, no other bidders showed up. The owner and the auctioneer talked the twin brother into bidding since he's already there, he submitted a bid of $5K, eventually to $8K and it was accepted and no reserve price set. He can't pay more as that's all he's got on his credit card, as the winner had to pay cash. The HOA was so upset over it that they proposed a bylaw giving them the right of first refusal as such ridiculous sales price would ruin condo prices at the complex which is why I heard about it. I don't know what went wrong at this on site auction, but that's what happened. Normally the foreclosing bank will not accept anything so far below the mortgage, but when this happened, the foreclosing bank was a failing bank under control of the RTC (Resolution Trust Corporation) at the time, so the bank doesn't care either.

What I'm saying there could be more going on, find out more, or just submit your bid and see what happens.

Buy a $368,854﻿﻿﻿ condo for $40,784.25 on auction?

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Buy a $368,854 condo for $40,784.25 on auction?