Is buying from a foreclosure auction safe? What could go wrong?

Question

Hi! My wife and I are looking to buy our first property in Miami. We have around $80k that we can put down, but neither of us has a traditional job that we can use to get a traditional loan.

We found the Miami-Dade foreclosure auction website and it seems like a place where we can pick up a property for under $80k, all cash.

But we're not sure we understand how foreclosure auctions work. For example:

1. If a property is being auctioned that has a $150k mortgage, and we win the auction with a bid of $70k, do we need to pay the outstanding balance on the mortgage? Or does the $70k "wipe out" the mortgage?

2. Is it possible that the property has other liens against it, aside from the $150k mortgage? If there are other liens, do those get wiped out by my $70k as well? If not... how can I make sure that the property doesn't have any other liens against it? Do I need to hire a title company, or is there a way that we can check for ourselves?

3. Is it possible that the property has a squatter in it, or some other major problems? If so, how can we do due diligence?

4. Is there anything else we're not thinking of, that we should be looking out for?

5. Is buying on a foreclosure auction stupid in the first place, because the properties are essentially "on the market" which means that we are unlikely to get a below-market deal?

Thank you so much in advance! 🙏

Jason Brown · Answer

Hi Kevin,

Welcome to my neck of the woods.

If you're interested in picking up something here in Miami keep the following in mind.

1. You need to make sure that you are paying off the FIRST position lien. This is the most critical component of the entire process. Paying off any junior debt is essentially throwing money down the drain. Only the superior lien will wipe away the junior lien holders upon satisfaction.

2. A LOT OF THINGS SURVIVE FORECLOSURE: If you are buying a Condo then past due HOA fees will still be due and those can be substantial. All property taxes must be brought current. Municipality liens for code violations will also remain as well as utilities bills that were not paid.

3. Finally, although rare, tax liens related to previous owner could also affect the foreclosure which the IRS reserves the right to take up to 120 days after the sale (don't quote me on that)

Good Luck!

Matthew T. · Answer

@Kevin Ellerton ok well I buy a lot of foreclosure auctions in MA and CT so I will speak from that point of view but you should check and understand the rules in your area.

1.  If the 150k mortgage is the one foreclosing and lets it go for 70k at auction then the rest of the lein is wiped out

2. Yes it is possible that their are other leins on the property.  You need to figure out what position the lein that is holding the auction is in. If it is in first position and not a tax lein then all other subsequent leins are wiped out except municipal leins.

3.  I am not sure the rules and laws in your area for foreclosure auctions but in my states we do not have access and there can be squatters and tenants.  And if you win the auction they are your responsibility to handle.  It is an as is sale.

4.  Over estimate your repairs.  If you can't get in to do a full walk through you need to anticipate unforeseen repairs.

5. I am not familiar with your the auctions in your area but mine are not " on the market " and you can get good deals.  Not always but some times.

Hope this helps

5.

Wayne Brooks · Answer

@Kevin Ellerton

Lien priority is determined by “first in time, first in line”.

You can look up the property liens....search the owner name on the Clerk of Court’s Official Records search. Be aware though, variations in a name used can cause you to miss stuff. There is no way to accurately determine HOA past dues unless the HOA has filed an actual lien. If no lie has been filed you are Still responsible for them.

If the current owner acquired the property by Quit Claim, you have to search the previous owner(s).

Most important....do Not bid on HOA/Condo association Plaintiff foreclosures....all Mortgage’s and other liens will remain on the property.

Your best bet starting out is to order a title search from one of the online title search firms, about $50.

Matthew T. · Answer

@Kevin Ellerton Ok to find out the lein priority in my area I look up the land records.  From there you can find which bank filed the foreclosure notice then you look at their lein and find out when it was recorded.  If it was recorded prior to any other lein it is in first position.  You will also be able to see any other leins there as well.  It is all public information.

Kevin Ellerton · Answer

Thanks @Matthew T. and @Jason Brown! That is extremely helpful, and answers all of my conceptual questions. Now I'm just left with the concrete questions of "how do I figure that out...?"

.... how can I find out which position the lein is in, and how can I find the amounts of the other liens (like municipal leins)?

... how can i find out if there are squatters & tenants? Do I need to actually go knock on the door? Not the easiest thing to do during pandemic 😂

... how can I find out about past-due HOA fees, past due property taxes, municipality liens, and tax liens on the previous owner?

Thank you guys, I really appreciate your help... I think this is all need to know in order to be able to finally move forward with this and get out of the hamster wheel of renting :-)

Is buying from a foreclosure auction safe? What could go wrong?

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