Whos buying at Auction in Austin?

Question

Hey BP Austin!

Does anyone have experience buying at the court house steps in Austin?  What are the pro's/con's of seeking property this way?  Any thoughts welcome!

Alex G. · Answer

I bought several in the 90s.

The cons are: - These are all cash sales in Texas, i.e., you have to pay the full bid after conclusion of the auction in certified funds. - Pretty stiff competition against some VERY experienced people with decades of buying at the auctions.- You can't see the inside of the property, so you're taking significant risks as to the condition. You have to price in pretty aggressive amount of repairs, especially for older properties. You can assume some percentage of them will have foundation problems, system problems, roof leaks, etc.- Significant title risks. No title insurance available at the auction. Properties are sold "as is, where is, subject to any senior liens or other legal matters". It means you have to do a fair amount of title research yourself or subscribe to some service that will provide title research for you - at least for the properties you'd like to bid on.- You have to drive by and take a close look at all properties you plan to bid on - to make sure there is still a house there. I remember a property once was sold at the auction that was hit by a lightning and burned to the ground. - There is the risk of damage to the property after you bought it, before you can get hazard insurance.- The owners might still be occupying the property. In this case you will have to go through eviction to get them out. Some may be pissed off and intentionally damage the property.- You may have a risk of a litigation after buying on your hands, IF a homeowner claims a wrongful foreclosure or similar dispute with the lender. That will tie up the property (and your money) in court for a while.- There is a possibility of a homeowner filing bankruptcy after the auction which will complicate the eviction process and delay your possession.- There is a possibility of unpaid property taxes, HOA dues, city or state liens that may attach to the property and will become your responsibility and increase your costs.- If there are IRS liens against the owners, you won't be able to get title insurance for up to 180 days after the auction. IRS has the right to redeem the property from you with 180 days by paying you the amount of your bid. I.e., you shouldn't really improve the property during that time or IRS may become of beneficiary of your rehab work. And you'll have your money sitting idle for 180 days if the property does get redeemed.Pros: (assuming the property is already vacant or occupied by tenants, and no legal disputes with the homeowners)- It could be a lot cheaper buying process since there is no formal closing process. There are no closing costs, title policy, financing costs, filing fees, etc. You just get a deed from the foreclosure trustee, and you own it.- It's also a lot faster buying/possession process . No contracts, no negotiations, no escrow period, etc. You can win an auction bid in the morning and show up at the house with a locksmith in the afternoon to take possession (if it's vacant). - In case of a senior lien foreclosure, the auction sale will wipe out various junior liens (mortgages, judgements or mechanics liens, etc) in the process. Both senior and junior lien foreclosures clears out all unsettled estate issues. As a result you get a good title, where otherwise you'd have to pay these lienholders and settle/probate estates to get the purchase closed through a title company. - Owner doesn't have redemption rights (barring any litigation for wrongful foreclosure). So the sale is final (see exceptions for IRS liens above).It's a pretty technical field in the title / legal areas. I suggest studying the subject well before you plunge. There is a fair amount of risk involved. Some of the newer properties (<10 years old) with a very short history of ownership and mortgages may be a bit safer. Primarily because not much history and deterioration happened since they were built and sold the first or second time. It's a lot simpler to check the title on these for DIY person.I suggest attending a few auctions and doing a good bit of research before bidding. Also determine the max bid for each target property and never step over it. Sometimes it's not easy to stop in a heat of the auction.Good luck!

Chris Wolfe · Answer

@Alex G.Great info thanks a lot.  Yeah I know the competition is very fierce, no surprise there.  Just more wondering what the pitfalls are that are specific to the Austin area.  Thank you for the insight, very helpful!