Vetting properties for encumbrances?

Question

New investor here. I am considering  mortgage foreclosed properties at the milwaukee sheriffs auction and I am learning about the process.

Any insight on the process of identifying encumbrances ?

Any insight/advice about the sheriffs auction in general?

I only know the limited info. Available on the website and from an older post on here from 6 years ago.

Thanks.

Marcus Auerbach · Answer

@Ariel Nelson - sheriff sales is probably not the best place to start as a new investor. Actually it might be the worst.

It's not a matter of learning the process; it's the fact that you are buying a property in unknown condition, both physically as awell as financially. If you are seasoned from a lot of flips you have the means (contractors, knowledge) to deal with about everything efficiently and deep enough pockets that you can afford to loose money on one deal.

On top of that people do not loose properties to forclosure anymore; they are not under water, they can just sell it. We went from 48% distressed sales to under 1%.

Amy A. · Answer

I've learned from experience that it's very risky to purchase without a professional title exam.  I believe that these sheriff's auctions are "as is", but I could be wrong, so check your local laws.  All my foreclosure flips were REO's, so that I could use MY title attorney and get title insurance.  There were several times that they found problems that a regular search of the public record for encumbrances wouldn't show (and the bank's title company was less than honest about it).  For example, a garage on the property line (I still bought it, but had budgeted to tear it down), improperly discharged previous mortgages, improperly documented foreclosure judgements, and a strip of land that wasn't included accidentally (causing the property to violate setbacks).  These are things I would never have imagined being an issue, and I'm sure there are more crazy problems out there.

If there is a property at the sheriff's auction that you absolutely must have, you could order a title exam ahead of time.  These cost a few hundred dollars.  Also, you might live in an area with more modern house lots than I do, so you're less likely to have some of the issues I listed above.  The owner of the land the garage was on tried to shake me down for tens of thousands of dollars for a tiny strip of land because he thought he had me trapped.  It was fun to tear that garage down, lol!

Cara McGurry · Answer

@Marcus Auerbach thanks for the info.

Marcus Auerbach · Answer

We used to have a ton of them years ago in the wake of 2008, now they are only very few, so it's not a really interesting source. You won't be able to see the property from the insode, all you have is the address. If you are lucky you can find old pictures on MLS or somewhere on the internet. You don't know the condition and you can't do an insoection - you are buying as is. It's a little like the Storage Wars - you try to predict what you get, but it's all guesses.

When you go to the auction there will be an attorney from the bank, who will bid against you, especially if there are no other bidders. So at the very least you have to beat the bank. As far as encumberances thats what you hire a title company for. Expect costly surprises, it's part of the game! Like I said, this is pretty much the last thing you want to attempt as a newbie!

Cara McGurry · Answer

@Marcus Auerbach

Sounds like you have some experience with these auctions. Can you speak to the process in more detail? Specifically do you have any tips on how to check for encumbrances in the city of Milwaukee?

Pete Harper · Answer

@Ariel Nelson

I'm not familiar with Wisconsin laws. However in Texas you can do a partial title search yourself at the county clerks office or on their web portal. First research the property on the county central appraisal district. This will give you owners name and property details. In Texas there are special rules for owner occupied homesteads. Read your local regulations.

The sheriffs auction does not clear other liens, only taxes. To see if there are other liens you can search the county clerks office to see what other liens are recorded. I was burned on a building lot I bought after finding out there were weed abatement liens totaling more than what I paid. Fortunately I was able to convince the city to forgive the liens.

Or as others have suggested pay a title company to do a title search. This gets expensive as you usually bid on multiple properties and your win rate is typically low.

Vetting properties for encumbrances?

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