Losing your shirt at foreclosure auctions

[Nat C.]

I am very keen on trying my hand at foreclosure auctions but I am certainly concerned about the risks. There are some horror stories online of people buying a property which a half million dollar debt attached to it.

My understanding is investors can lose big money through acquiring properties with major title issues. Obviously running title searches on multiple properties prior to auction is uneconomical due to the number of auctions postponed and cancelled.

In Miami Dade you can access A LOT of information online through public records. I can find out all mortgages recorded on the property, any liens, like unpaid water bills, code violations and basically anything that was ever recorded against the property.

One risk I can think of is tax liens because they are sold off to investors every June, so taxes appear to be paid online but a 3rd party could be holding that note.

For those of you with experience in this field, would your recommend, or say stay away?

[Brian Burke]

@Nat C. I've posted about the risks of foreclosure auctions many times on BP, search for me and "auction" and you can probably find a lot of those posts. Buying at auction is a high-risk undertaking for many reasons. The big two are physical condition and title. It's important to keep in mind that buying at foreclosure auction is not a purchase transaction, it's a legal transaction.  All of the buyer protections that come with a purchase transaction are nowhere to be found in a foreclosure auction.

Is it a profitable business?  Yes. If it weren't I wouldn't have been doing it for 20+ years. But casual buyers get eaten up for lunch, either by the professional sharks or by the property's termites. Why?  Because pros buy quantity and can afford the occasional major fail. If a casual buyer has a single major fail it can wipe out their life savings. I lost count of how many times I've seen that happen.

You say that you'll only buy if the price is well under market value...but you are unlikely to be the only one bidding (and if you are, be afraid) and the other bidders, likely to be pros, won't sit idly by while a property goes to a new bidder at a huge discount.

Finally, yes, taxes are an issue, but in your state you also have to watch out for super-senior unpaid HOA dues, and those are harder to accurately quantify than taxes.