Foreclosure Due diligence

8 Replies

Hey everyone, 

Looking to buy a foreclosed condo in my area. Of course I am unable to access the home or get a home inspection. What due dilligence is available to me and Is there a standard  % or amount people set aside for repairs when looking into investing in a site unseen foreclosure? 

Are condos safer bets than homes?

Originally posted by @Eric Bender :

Hey everyone, 

Looking to buy a foreclosed condo in my area. Of course I am unable to access the home or get a home inspection. What due dilligence is available to me and Is there a standard  % or amount people set aside for repairs when looking into investing in a site unseen foreclosure? 

Are condos safer bets than homes?

Well...that's kind of like asking if used Audis are safer bets than Volkswagens. It all depends on the previous owner. I guess with Condos, if the HOA is any good, at least you don't have to worry about common areas but then you have to worry about neighbors, bylaws, CC&R's, HOA dues, litigation, etc. Maybe someone on the board would let you look at a vacant unit to at least get some perspective of layout if nothing else?

@Eric Bender The % of value you can buy the condo for at trustee or sheriff's sale depends on your market. Yes, generally you don't have to worry about the typical big ticket items because they are covered by the association.

Are you buying to flip or to hold? That'll affect your rehab estimates. I bought 25 condos between 2011 and 2013 in lower income neighborhoods in CA. I picked them up for $10k to $55k and these things sold for $135k to $275k in 2007. Condos get hurt especially bad in a downturn because banks stop lending on them and you're limited to cash buyers. Bank lending hasn't come back yet on my stuff but I have hope since FHA just announced that they were loosening the rules on condos.

Our rehabs averaged $5k but that was only to make them rent ready. You have to consider your specific market when estimating rehab.

The two other things you need to be aware of when buying condos:

1. Are you in a super lien state where the HOA is due a certain amount of delinquent dues from the new buyer?

2. Are there restrictions on renting out the condo? Some HOAs limit occupancy to owners only. This will affect your ability to re-sell, especially if there is no bank lending.

@Andy Mirza Thanks for the information Andy. Sounds like your well versed in this realm so I appreciate any advice you can give. I am just starting down this path.

My plan is to flip properties with only the necessary repairs done before re-sale. I’m hoping to obtain properties at a low enough price that I can turn around and sell them to another investor for a bargain, a win-win situation. I do live in a super lien state (FL) so I have to do my due diligence on that end. 

I am seeing condos with market values of 200–300k go for around 50k at auction. Even if the place needs substantial work I believe I can make a profit.

Am I missing something? What risks am I leaving myself open to?

@Eric Bender $50k for a $200-$300k condo sounds very unlikely even for an off-market deal with no competition. Buying at the courthouse steps involves an open market and competition, which means that you won't see bargains like this. Something's wrong. You might be looking at the opening bid not the winning bid. You might be looking at an HOA lien or 2nd mortgage foreclosure, which are subject to senior loans. Are you aware of lien priority and which ones get wiped out and which don't? If not, do a search on BP, all this info is already out there....

@Eric Bender Yes you are missing something....something important!  The properties that selling for those “discounts” are typically foreclosures by the hoa’s, for unpaid hoa dues.  Any first mtg on the property Stays attached to the property.  The knowledgeable guys buy them anyway, usually $10-15k, if they think they can make money by simply renting them out to make their money back before the mortgage lender forecloses.

@Andy Mirza So your saying the lien people are bidding on is a junior lien and when they win they will still have to pay the mortgage or any other more senior lien agreement, correct?

Is there an easy way to check what lien is being bid on and what other liens agreements are in place or is the best way to consult a professional/title search company? I’ve looked at the online county clerks office but I just see deed transfers.

@Wayne Brooks Wow that’s an interesting idea. So they let the property go into foreclosure but are cashing rent checks in the mean time?! 

@Eric Bender Yes, they may try to intervene and delay the foreclosure but the play is to collect more rent than what they paid.

On the Clerk’s site you can see all mtgs and liens on the properties and the LP for the foreclosure....this tells you who is foreclosing and if you look chronologically, you can determine what position they are in.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here