When to buy a Title Search for a Foreclosure Auction

[Lucas Bonasio]

Hi guys!

I am just starting on the game of bidding on foreclosed properties at auctions.

After reading many articles and watching several videos, it was made clear to me that, if I wanted to be on the safe (or should I say "less risky") side, then I should purchase a Title Search for the properties I am interested in before going to the auction.

This week I attended my first auction, at the Sheriff's office in Newark, NJ. The place was a meeting room packed with over 50 people. I would say that over 100 properties were auctioned in that day; most of which (about 80% of them) didn't receive any bids and went back to the bank.

Now here is the interesting part:

Title searches are $200 each. Might not seem like a very big expense but, if you are interested in 5 or 6 properties it definitely adds up FAST!

Since I'm no millionaire (yet), I purchased the title searches for 2 properties only prior to going to the auction. I also printed the list of all properties being auctioned on that day and brought it with me. To my surprise tough, several people there also had over 20 properties highlighted on their list. My instant thought was "How can this be?! At $200 per title search, there is no way these people are spending over $4000 in Title Search. But there is also no way they are all "risking it" buying properties without knowing much about the title... SO WHAT'S GOING ON HERE?!"

I know people don't have to pay for a Title Company to do the search and can try to get the info by themselves, but there is another side to this story.........

I know for a fact that (at least in NJ) you can still "back out" of a foreclosure deal withing 10 days of winning the property on an auction. How do I know that? Well, the same title company that I used told me that, "in addition to the Tittle Search and the Judgments On Foreclosed Party Report, we also recommend doing a Chancery Abstract Report. But this can be done during the 10 days you get as a grace period after you buy a house at the auction".

I appreciated the information from the Title Company, since that would save me a lot, considering that each Chancery Abstract also costs $200. BUT THEN IT HIT ME:

Why can't I buy all the reports from the title company (INCLUDING THE TITLE SEARCH) AFTER winning an auction? This would keep me from spending a lot of money on properties that I don't even bid on depending on the upset amount.

What is your recommendation? Is it a sound plan to buy the title search after winning a foreclosure auction, based on the "10 day grace period" I have to back out of the deal? Is anybody here working this way?

Thank you for all the inputs!

[Roman M.]

Lucas,

Leave the auctions to pros.  Lots of ways to get burned.   I really don't recommend it.

Here is how they pros do it:

1. They do their own research through county public records.   Pull a foreclosure file with the clerk of court.  You can't take it home, you have to sign in, view it and then return it.  

There are always the same people attending an auction and if they are bidding on a property there is an indication that it maybe worth going after. If you get friendly with some pros at the auction they maybe kind enough to teach you for a fee, or maybe even let you bid and let you win a property if they know its for you personally.   

2.  Make sure you bid on first mortgage or a tax deed and not on 2nd or 3rd mortgage or condo lien, or mechanical lien as those are subject to all other liens before that.

3.  If you are a winning bidder then you do a title search after you won the auction and before you make the final payment to make sure there are not any things you might have overlooked during your own search.  It will make you sleep better at night.  Sure if there something wrong then you loose your deposit but sometimes it's better then to loose 100% of what you paid for it. 

4. Practice makes perfect.  Do some paper bidding for a little while and follow some of the guys in the room.  I am not sure if they offer courses on it but if they do, you should take them.

Best of luck.