Risks With Buying a House at a Foreclosure Auction

With the increase in foreclosures, more and more houses are available for purchase through auctions.  Most often foreclosure auctions are held on the steps of a court, and prospective buyers are not allowed into the house before making an offer.  Additionally, the houses available at auction are generally only advertised for a week before the auction.  As with any auction, you are bidding against other people, so the price of the house depends on who else is bidding.  Besides the bidding wars, there are a couple of other things to consider before bidding on a property at a foreclosure auction.

First, because prospective buyers are not allowed into the house before the auction, and the auction does not occur at the property itself, it is almost impossible to tell the condition of the house.  Sure, you can drive by the property, even walk around it before the auction to look in the windows, but you cannot have an inspection done.  Looking in the windows might give you an idea of the condition of the house, but without an inspection, you do not know if the plumbing and electrical systems work, or the heating and cooling systems.  Additionally, the house may have been gutted or trashed, or infested with termites.

Second, prospective buyers cannot be sure that the title of a foreclosed property is clear.  There may be a priority lien on the house that was not wiped away in the foreclosure.  Such liens could be tax liens, child support liens, or even homeowners association liens.  Worse yet, there could be a first mortgage on the house, and you only bid on the second mortgage at the auction.  In most states, auctioneers are not obligated to disclose other liens during a foreclosure auction.

Overall, you can buy properties under market value at foreclosure auctions, but make sure to do your homework first, and be prepared to make repairs on the home.

The information on this page is meant to provide a general overview of the law. The laws in your state and/or city may deviate significantly from those described here. If you have specific questions related to your situation you should speak with a local attorney.

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