Newbie at the Courthouse

[Tom A.]

Hey all, 

I find myself looking into a foreclosure auction at the courthouse. I know it sounds very dangerous for a newbie to start with a foreclosure. So I have been reading every topic about foreclosures and trying to be prepared as much as I can so that risk involved will be minimum. 

So far, I talked to my real estate agent about it and she started with pulling a preliminary report on title. we will proceed with a full report via title company too. 

What really bothers me is that numbers... As I read from different posts, some people unfortunately bid to a second mortgage without noticing it and ended up walking away with capital loss but nothing. 

One of the post was explaining this situation with an example that if the property value is at 200K and if the auction bid ended with a lot less, say 40K, than there is a big chance that this 40K was a second mortgage/lien... 

Well, my situation is similar and somewhat raises flags. This is a property worth about 170K according to other properties all around, but the bid process start at only 16K. And this really bothers me. 

My agent and I did research, so far there is only some HOA fees and mortgage payments/fee are late and needs to be paid which totals around 22K.

I also should mention about the first mortgage. It was 69K in year of 1986 and scheduled to be end in 2026. (From this, if mortgage owner pay regularly from the beginning, then remaining 22K makes sense)

Another thing is that owner processed a line of credit (100K) against the property in 2007. Now I have absolutely no information if there is a remaining balance for this line of credit. I hope it would become clear after full title search. 

Having said these, I know that I will be buying a title insurance before the auction day... 

My question are :

1- How will I make sure that I am not bidding a second mortgage or some sort (such as IRS lien),  

2 - Will full title search reveal everything? 

3- How does title insurance make my investment immune to any liens that are not recorded?

4- What would be the worst case scenario if I do due diligence, do a full title search and also buy a title insurance?

5-Especially, how does this overall deal sound to foreclosure experienced investors?

Thanks so much for any input.

Cheers

Tom

[Chad U.]

It could be the 1st mortgage is the one foreclosing on this property, however since you mentioned there's a LOC registered as well, you need to determine WHO is foreclosing. If the LOC party is foreclosing, then the 1st mortgage will remain since they are 2nd in line, but if the 1st mortgage party is foreclosing, then the LOC lien SHOULD be wiped at auction. However, you need to ensure that the 1st mortgage foreclosing party names any other lien holders in the action, including the LOC party, or the other liens may not be wiped out at the auction. Some liens will survive regardless, depending on the State, such as HOA & taxes.

There's a good thread to read regarding LOC and junior liens here:

http://www.biggerpockets.com/forums/51/topics/1414...

And as @Wayne Brooks mentioned, you can't get Title insurance prior to auction, and best to consult a local RE attorney who is well versed in foreclosure auctions.