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Buying A Home on 'The Courthouse Steps'

Buying A Home on 'The Courthouse Steps'

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By Elaine VonCannon, ABR, SRES, Associate Broker, Notary, Team Leader, Property Manager, Award Winning Agent

Foreclosure auctions take place at the county courthouse of the county in which the foreclosed property is located. It occurs on specified days of each month. Auctions aren’t always well-attended, and you could find yourself as the only one there. If that’s the case, it could mean that the property isn’t widely viewed as a bargain (for price or condition) and you will need to beware. The lender can specify a “reserve price,” which is the minimum they will accept to transfer the property. This will cover the lender’s exposure in the property or at least minimize it if the property is likely to sell below the outstanding loan amount.

You must come with certified funds on auction day and be ready to complete the purchase immediately. Unlike regular real estate transactions, there is no escrow period between the time you sign an offer and close the sale. Typically a deposit of $20,000.00, or 10% of the sale price, whichever is lower, in cash or cashier’s check will be required at the time of sale. The balance of the purchase price, with interest, will be due within fifteen (15) days of sale. In the event of default by the successful bidder, the entire deposit shall be forfeited and applied to the costs and expenses of sale and Substitute Trustee’s fee.

All other public charges or assessments, including water/sewer charges, whether incurred prior to or after the sale, and all other costs incident to settlement to be paid by the purchaser. Purchaser agrees to pay the seller’s attorneys at settlement, a fee of $445.00 for review of the settlement documents If the property receives no bids, the lender will take the property back. It is then classified as “REO,” or real estate owned by the lender that the lender will sell at a later date. Typically listing it with a real estate agent in the MLS.

Foreclosure Property Risks

From a buyer standpoint, the foreclosure is pretty simple and has the potential for great rewards. But there are risks you need to keep in mind.

1. Property Condition

An inherent problem with foreclosures is that you generally won’t be able to do a home inspection. Occupants tend to stay in foreclosed properties until (and after) the last minute, and won’t let you in to inspect. As well, the property could have major structural issues that will be your problem after you buy the house. You’ll be buying sight unseen! Do a drive-by inspection and look closely at the exterior and the property itself for clues. If it’s a wreck on the outside it probably is on the inside. Foreclosed owners sometimes destroy the house intentionally.

2. Title Issues

Never assume that the mortgage is the only lien on a property. If the house is in foreclosure, there are probably other liens as well. Order a title search on any property you are seriously interested in that way you’ll know what you’ll be getting into.

3. Previous Owners Who Won’t Vacate

The previous owners of the house may not leave after you buy their house. You may need to use legal action to have them removed, at your own expense.

4. Financing Issues

Mortgage lenders have standards that don’t usually fit well with foreclosure properties. When you buy a foreclosure, you take it as is; the lender will usually want certain items repaired, and that’s not going to happen. Lenders will also be concerned if you’re buying the house for investment, or worse, to flip for a profit quickly.

Buying foreclosures on the courthouse step typically won’t work if you need to get a mortgage.

5. Post-Foreclosure Issues

Please note: Auctions can be canceled at the last minute. Some of the properties are still occupied and you will be trespassing if you attempt to visit the property.

Buying foreclosures can be profitable. But as you can see, the potential to overpay for the property, to encounter major repair costs or to get into legal entanglements is real. Proceed with caution!