I am an investor and the house that I like, currently is occupied by a tenant who is taking exceptional care of the premise. It is immaculate and well cared for by the tenants. They are good tenant, and have expressed an interest in staying long term. and I want them to stay should I win the auction.
I just don't want to inherit any unknown debts/liens/issue .Can someone tell me, how does the bank's obligation to me change when it comes to an occupied home ? Do they have to pay off the HOA liens, municipal liens, or any issues that are clouding the title before they hand it over to me via Special Warranty Deed?
Dexter, I can't with certainty answer your questions, but I can provide my experience in the few REO/foreclosed properties I've purchased at auction. Moreover, the correct answers may vary by jurisdiction anyway. Each of the properties I purchased by auction were advertised as being Occupied but by the time I closed and visited the property, the occupants had left. This may just be a Wells Fargo policy (all of my deals were auctioned by WF); they evidently offer cash for keys after foreclosure so their Asset Protection army can secure the place to prevent further deterioration and devaluing.
With respect to liens, outstanding HOA fees, or other surprises, I have access to the MLS databases and LexisNexis and can perform cursory title searches. AND, I always required an owner's Title Policy prior to or on the day of closing to [better] ensure clean title.
You can mitigate the title risk by purchasing title insurance if it's available. Some online auctions provide for the ability to purchase title insurance and others don't, even within the same website, so it's important to read the terms and conditions of the auction attached to the specific property you plan to bid on. The terms and conditions will also typically specify which items are prorated and whether or not the buyer is responsible for clearing any liens.
Notwithstanding title risk, there are other risks that you'll inherit. You'll have to evict the tenant if you decide not to lease to them. Eviction might not be possible right away if the tenant is on a valid lease and you may or may not be aware of the tenant's lease term prior to bidding.
Being that the house is occupied, you likely will not be able to inspect the property prior to bidding so latent defects may not be discovered until it's too late.
Assuming that the house is immaculate and the tenants are good and want to stay, as you say, these risks may be minimal and you might consider them acceptable risks, as would I. Expect the unexpected, however, and be sure to bid with discipline, leaving enough margin to deal with any problems that may arise.
Also check into the foreclosure law in your state, In Michigan there is a 6 month or 1 year redemption period after the foreclosure takes place. All other liens should fall off after the foreclosure, but the HOA may require you to pay the outstanding balance, for reinstatement.
I concur with the above comments. Most online auction sites i.e. Auction.com, Williams & Williams, etc. post their terms & conditions on their sites with the offering. Read this carefully as it should disclose if they're issuing title insurance. If not, you may consider obtaining a title insurance commitment/search in advance f the auction to look for things like HOA liens, IRS liens, etc. Most times, these debts are paid in advance of the auction. Also, if you're the successful bidder, read every word of their lengthy sales contracts for any surprises.
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