There is an auction starting very soon on a property. I am looking to close quickly. 2 bed 2 bath condo unit. Bid starting at roughly 27k. The unit is in complete disrepair (All appliances, carpet, cabinets, kitchen, bedrooms, and bathrooms need rehab. Windows are fine, some spots need drywall patches, we will do the painting ourselves).
At the auction, they require a “Buyer’s Premium equal to 5% of the Winning Bid Amount or $2,500 (whichever is greater) will be added to all Winning Bid Amounts to determine the Total Purchase Price.”, “an Earnest Money Deposit of 5% of the total purchase price or $2,500 (whichever is greater) is required of the winner”, title fees, which typically cost between $500 and $1500 and are based on the purchase price, and escrow fees typically ranging between $850 to $1,375, paid in accordance with the applicable purchase sale agreement.
What concerned me about the listing are 2 things:
Buyer will receive a Special Warranty Deed or equivalent.
Property is being offered as is, where is.
I am 100% new to fix and flips, and auctions. My questions are as follows:
What is a special warranty deed? I did some research on the term, but am still unclear.
Should I contact a lawyer and request a research of the chain of title?
How do I get title insurance? Can I get title insurance on an auctioned property?
Should I have a home inspection done prior to the auction, or does the auction allow for contingencies prior to transfer of the lien in case the property is not up to par?
How much cash should I have on hand, aside from the 5% earnest money deposit, at the auction? Are they expecting cash in full on the property at auction? If so, does anyone know any good hard money lenders in the area?
I have a contractor that is a close family friend coming with me tomorrow to check the property and give me an estimate of labor costs, and my grandfather works at Home Depot, so I will be going with him to take down all material costs we will need for the full rehab, and I will then be using the bigger pockets fix and flip calculator to see what my max bid should be in order to turn a decent profit. I just need to know the ins and outs of auctions, lien disputes, and hard cash lender info in NJ to complete most of my research.
Also, is there anything else I am missing in my due diligence against this auction fix and flip? The auction is in 10 days, so I️ am looking to try and put in an offer before the auction starts to get in early.
Any and all help is welcome.
Thank you to this great community. I️ have been a Pro member for under a week and am already seeing the great benefits this community can bring!
Hi @David Casas and welcome. I love your enthusiasm. I don't mean this to sound mean, but I would caution any investor going into an auction. Of all the ways to acquire property in real estate, I see it as the most likely to get an someone inexperienced in the mode of investment in a lot of trouble. To begin with, I'm presuming you are talking about a foreclosure auction. If you're looking to get involved in bidding in these types of auctions I would strongly encourage you to spend a great deal of time simply attending with no intent to bid and learning how to deal with title and due diligence probably for several months before considering making a bid.
If it's a post foreclosure bank owned property at auction then it's a completely different scenario in almost every way imaginable. If you aren't sure which it is I would start by learning the differences between the two and what that entails. Depending on which interests you more that should help define which direction you should go in your research. Good luck!
This is obviously an Xhome REO auction. The special warranty deed is fine as long the auction terms include title insurance, which they usually do. But buy the insurance yourself, don’t take the “free” title insurance as they typically don’t search for unrecorded items and they will be exempted in the “free” title policy.
My attorney noted a special warranty deed was not an issue on the auction house I bid on (Xome). I lost the bid so not sure how things progress after you win.
Hi David: Both are standard. A special warranty deed is no problem if you have title insurance. All it means is that they won't warrant anything that happened before they took title. Any foreclosure or REO will have the same type of deed. Like others said, get private insurance, don't let the auction company direct where you purchase your insurance from.
Property is also always sold as is where is in those types of sales. All it means is that you are responsible for any type of latent or patent defect and you have done or take the risk of not having had the opportunity to do your own diligence. It's a risk, certainly, if they didn't let you in in advance, because you have no idea what you are getting into, but that's why you always do a drive-by and try your best to ascertain how bad the property condition is and what worst case scenario is for your budget. If they did allow you to do inspections then I wouldn't worry about that language at all as long as you did thorough diligence.
That being said, also like other said, any auction deal comes with it's risks. Best of luck!
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