Risks of purchasing at a Foreclosure Auction?

5 Replies

Good Morning Fellow Investors,

So....I've flipped a several properties in the last year in a half and most of which have been REOs and a few estate sales. I live in the outskirts of the DC area and there are no shortage of investors and high demand for affordable properties. With the REO inventories being so low and competition so stiff, I would like to acquire more properties through foreclosure auctions (online or live). I guess I have been hesitant to proceed with this method of purchase due the horror stories I've heard about all these liens and debt you can end up purchasing. Would it be sufficient due diligence to run and title report prior to purchase or are there other things I should be doing before submitting a bid?

Any advice on this topic would be most appreciated.

Jade 

See topic 516927

https://www.biggerpockets.com/forums/41/topics/516927-buying-an-auction-property-no-inspection-contingency-view

@Jade Graue there are some pretty big risks for sure but I wouldn't let it scare you off if you're financially able to handle the risk. 

Getting clear title and clearing outstanding liens which you mention is the biggest one. If you have a method to reasonably inexpensively obtain a title report that will likely take care of most of those issues.

As mentioned above, you often can't see inside the house and so the damages/repairs can be much greater than you think. This can be mitigated a few ways. Peaking in the windows and looking at the exterior condition can tell you a lot. Also you can guess somewhat by square footage and age. But you will always be wrong on some so be prepared for that. You will lose on every so many you win on.

Lastly, be prepared for problems with the prior owner not wanting to leave. If the house is obviously not vacant you can find yourself with a tough eviction especially if your state is tenant friendly.

most of the on line auctions you can buy subject to clear title. its only if your going to the courthouse steps and buying ( in your area I assume sherrif sales) were the risk is higher  .. Out our way we have Trustee sales on the court house steps and its cash and carry.. no gimme's or do over's.. I have seen many bidders fumble.. IE bid on stuff they should not have bid on..

But if you say go to Auction.com and bid on line with them. its a normal escrow.. and if they are selling and not providing title insurance or allowing you to purchase your own.. then just don't bid on that particular asset .. unless you know whats going on with it.. that's usually a red flag anyway.

but by and large we have had no problem with those deals.

  @Jay Hinrichs   Congrats on your 17,k posts & 17,k Votes  It is something to be proud of !!!  Thanks for all you'r Great posts on BP.   Mark G

@Mark Gustafson   Ok thanks.. I had one guy write me a private message and accuse me of not having any life at all and I must be forsaking my family over BP etc.

its was quite comical really.. I explained to him I type fast and it does not take me any time to think about answers.. after 40 years of slogging this stuff most if not all of my answers are just straight off the top of my head..

This guy went on to tell me about all the family outings he did including sky diving.. well my retort was I don't sky dive I own airplanes and fly them myself  LOL...

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