Foreclosure auction - worth bidding with many liens & inhabitants

Foreclosures
6yFollow

Foreclosure auction - worth bidding with many liens & inhabitants

Dav Horn
Member since 2020 · 4 posts · 0 votes

I am looking to dip my toe in the foreclosure market for the first time, and would like some help to clarify the many (sometime conflicting) inputs on the status of liens associated with a foreclosed property being sold at auction.

My interest in this property is two fold - I am out of state, but own I piece of property close to the foreclosure.  The objective is to fix up the foreclosure property and flip it (or rent) and also use it as a base to develop my current piece of property to become my permanent home.

The foreclosure estimated price is about $450,000.  I am guessing the market price for the fixed up house is about $600,000.

The foreclosure property is complicated.

There are approximately 25+ liens on it, with multiple mortgages, HOA, local property taxes, and federal taxes. I have spoken to the county clerk as well as the trustee, but neither of them can or have provided much information. I have reached out to the owners to buy it from them, but have not gotten any responses.

On top of the lien, it is my understanding that the house is still occupied.

Questions:

What liens stay and what liens go with a foreclosure? It is my understanding that the HOA stay & the federal tax go after a buyout period. What about local taxes and other mortgages? How to fined out if the foreclosure is by the primary or junior mortgage lender? Does it matter?

How much does eviction usually cost if that is required?

What is the thought process around discounting for the lien risk?

Is it better to wait and assume that it will not sell, and buy from the bank at REO?

What is the best way to get in touch with the bank to make an offer on the property - will the trustee provide that information at that point?

Would a title company or real estate attorney help with this process?

Thanks to everyone reading this and commenting - it would be about $1k to travel out for the auction, so I want to avoid that if it is a waste of time and money (and health) flying out to the auction.  

Thanks,


David

0Reply
7 views

Most Popular Reply

Ron S.
Paradise, CA · Member since 2015 · 1k+ posts · 871 votes
6y

What liens stay? It depends on who is foreclosing. Any lien behind the foreclosing entity will get wiped out, absent property taxes, sometimes some HOA's, and sometimes some utility liens. Even the Federal tax liens will sunset and expire at about 120 days after the foreclosure sale. It matters very much if its the junior or senior foreclosing. just google or search, "I bid and got the junior lien at foreclosure sale now what".

Eviction costs depend and vary. Cash for keys is usually cheaper in the long run.

Discounting for lien risk is a futile effort. Don't risk anything, find out exactly what the liens are, what the priority of liens are, and what will get wiped out (Title company can help with that. Attorney can help with that).

Is it better to wait? Depends. If you wait until REO, you'll pay full retail and compete with everyone as the property will be listed with an agent (Always). If you bid at foreclosure, you might still pay full retail but you'll only compete with those that have pockets as deep or deeper than you.

You don't get to "get in touch with the bank to make an offer". They don't own it. If they did own it, still wouldn't talk to you. 

What state is this property in?

2Reply
See this reply in the discussion

7 Replies

Jump to latestLatest
  • Ron S.
    Paradise, CA · Member since 2015 · 1k+ posts · 871 votes
    6y

    What liens stay? It depends on who is foreclosing. Any lien behind the foreclosing entity will get wiped out, absent property taxes, sometimes some HOA's, and sometimes some utility liens. Even the Federal tax liens will sunset and expire at about 120 days after the foreclosure sale. It matters very much if its the junior or senior foreclosing. just google or search, "I bid and got the junior lien at foreclosure sale now what".

    Eviction costs depend and vary. Cash for keys is usually cheaper in the long run.

    Discounting for lien risk is a futile effort. Don't risk anything, find out exactly what the liens are, what the priority of liens are, and what will get wiped out (Title company can help with that. Attorney can help with that).

    Is it better to wait? Depends. If you wait until REO, you'll pay full retail and compete with everyone as the property will be listed with an agent (Always). If you bid at foreclosure, you might still pay full retail but you'll only compete with those that have pockets as deep or deeper than you.

    You don't get to "get in touch with the bank to make an offer". They don't own it. If they did own it, still wouldn't talk to you. 

    What state is this property in?

    2Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    6y

    As@Ron S.  Mentioned, which lien holder is foreclosing is Paramount. A title search, and perhaps having someone interpret it for you, is crucial.  Property taxes will Always stay with the property, hoa fees are state dependent.

    1Reply
  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    6y

    Pay for a full title search now, including a request for the docket and notices served in the foreclosure case. If you cannot interpret the search results, pay an attorney to review and confirm lien position and which if any liens will survive.

    Based upon the title report/exam it should become pretty clear whether or not the property will actually sell at auction. 

    Gimer Law516 Reviews
    WebsiteView Page
    1Reply
  • Dav Horn
    OP
    Member since 2020 · 4 posts · 0 votes
    6y

    Thanks, folks.  Very helpful.  Will do as recommended.

    0Reply
  • Dav Horn
    OP
    Member since 2020 · 4 posts · 0 votes
    6y

    Sorry, Ron S. - Missed your question at the end.  The property is in NM.  I have found some additional information - a helpful clerk in the court office pointed out where I could find the filing.  

    It gets a little more complicated.  It appears there was an initial mortgage at time of purchase.  4 years later, another for 100k more was executed.  After that, what the document is calling a second & third mortgage for lesser amounts were issued.

    In the court documents, the defendants include the initial lender, as well as the other lien holders - the HOA, the local government, the US government, and the 2nd & 3rd mortgage lenders.

    It looks like the company issuing the  Lis Pendens bought / obtained the paper from the lender (what they are calling the 1st mortgage, but is really the second) and is the plaintiff in the case.

    I am guessing (unless the original amount was paid off) it is therefore a foreclosure by a junior interest.  I am also guessing that since the original lender is a defendant in this, that the first load was not paid off...

    Not sure if this helps clarify any input, or just raises more red flags.

    Any comment / insight is welcome!

    Thanks,


    Dave

    0Reply
  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    6y

    @Dav Horn You need more information. The lawsuit sounds like it involves more than a foreclosure... the plaintiff may be asking the court to determine the rights of all of those with an interest in the property.

    There would not be a need to include the first mortgage holder in the suit if this was simply the foreclosure of a subordinate lien. 

    Pull the complaint. See what relief is sought. If the plaintiff is asking the court to decide things that affect lien priority, it could be some time before this property can be sold, regardless of the fact that a sale has been scheduled. 

    Until everything is very clear I would not roll the dice and participate in an auction sale. Most likely the sale gets postponed indefinitely anyway. 

    Gimer Law516 Reviews
    WebsiteView Page
    1Reply
  • Dav Horn
    OP
    Member since 2020 · 4 posts · 0 votes
    6y

    Hi Tom,

    Thanks. I looked at the complaint history more closely (this thing started 4 years ago) and noticed that HOA, the local tax authority and the IRS issued disclaimers to be removed from the suit.

    Am I correct by doing this that they are dropping there claim on the property and therefore the associated lien, or is there some way they can disassociated themselves from having an interest in this legal action, while retaining a claim against the property?

    The original, 2nd & 3rd mortgage lenders did respond and no disclaimer.

    This went through mediation, multiple stay requests, with a judgement at the end of last year.  It was scheduled for auction but postponed due to the Covid situation...

    I only have a summary statement - looks like I will need to try and find everything associated with the case.

    Thanks again - very much an education...

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free