Sheriff's Auctions and Redemption Period Risk

[Brad Havens]

I'm looking into a sheriff's auction for a property where the owner is still an occupant.  I'd be purchasing this with the intent for it to be my primary residence, at some point, not a fix & flip.  I stopped by the property and briefly talked to the owner who said they were working on 're-doing' the loan and that they didn't believe it was going to be an issue for them to retain the house.  Trying to decode what they meant by that (and how true it might be), my guess is that it has to do w/ the state having a 'redemption period' of up to 90 days after the auction date, during which the owner can reclaim the property if they are able to pay off the current mortgage in full (e.g. refinance).  This would provide them a path to still retain ownership, even if the auction sale completes.  

Through research, I did find that the property has been foreclosed several years ago, but it was halted due to the owner filing for bankruptcy. Also, throughout the foreclosure process the owner has filed several court answer documents stating that they are still attempting to find a resolution, but their options are running out (e.g. cashing out IRA). This makes me believe that they may be overstating (or over-estimating) their possibility of 're-doing' the loan. That being said, they've owned the house for a number of years and it's in a growing area, so it appears that they have a decent amount of equity in the place. To me, this suggests that they're less likely to walk away from it, and would possibly still have some avenues for using that equity to get them through, in some manner.

My question is, based on that, is it still worth placing a bid on the property at the auction (would be paying cash for it)?  If I won the auction and the owner is able to reclaim the house 90 days afterwards, there's an opportunity cost involved with having my money tied up for that long.  Alternatively, if after the auction they decided to list the property with a realtor above the auction amount in hopes of earning back some cash, I would not be able to put in an offer due to all my cash being tied up in the auction (it would be much preferable for me to buy via this more traditional route, as then I would have more regular financing options available, even if it was a bit more expensive).  Would it be better to not bid on the auction and communicate w/ the owner directly in the hopes of arranging some kind of direct sale?  Or is is still worth placing the bid and rolling the dice on the redemption period elapsing?  Or is there some other option that I'm not thinking of?

Thanks!

[Ryan M.]

@Brad Havens

Nobody is going to refinance them. After the auction they won't even be owners any longer. If they can't keep up with their payments, they sure aren't going to have a very good chance of coming up with the whole amount to redeem.

Read your state statutes on foreclosures to learn about the redemption period. If you are going to bid on foreclosures you should know your state's laws and procedures. There are usually very specific rules and circumstances for redemption. I would bid on it and then worry about getting them out of the house either by an agreement or eviction.