I will add to what to look out for as I've been researching foreclosure properties. It probably differs based on state. I'm in CA
I have found that when I dig into foreclosures the financial history of the owners often has other skeletons. This makes sense if you've chosen to stop paying a mortgage you're probably in financial distress and ignoring other financial obligations. I've started to be a little leery if the only thing funky with their finances is the foreclosure. I think... what is hidden? Or what am I missing?
Here are some examples of financial obligations you may be responsible for:
Property taxes (I can go on the property tax portal for the state but that doesn't always tell the whole picture) As often the amount shown doesn't include penalties and interest that may have been accumulating since they defaulted.
Same for State taxes. Not sure how this works in other states but in California delinquent state income taxes where a lien has been put on the property must be paid off to clear the title. Same situation penalties and interest will probably not be reflected in the amount you find in the county recorder's office records.
IRS tax liens on the property. The IRS has 120 days from the day of the auction to seize the property. They rarely do BUT you don't want to do any rehab of the property until that 120 days has passed just in case. If they do seize the property, they will reimburse you what you paid for the property plus some interest and things like property taxes you may have paid but they will not reimburse for improvements made to the property. This only matters if you're planning to do a quick fix and flip otherwise this usually goes away.
As soon as you win the auction immediately contact the trustee to make sure they have properly notified any junior lien holders of the foreclosed property. If they've failed to do this properly the owner of the property can file a lawsuit and put a wrench in your plans while your money sits with the trustee company as the suit travels through the court system. If you do this the day of the auction and you find issues you may be able to null the auction before the trustee disperses funds. At this point you should have had a title company do a title search on the property and you want to compare what you found with what the trustee has record of.
I think that's all I've learned so far. I feel like every time I find another interesting property I learn something new.
I came across a BEAUTIFUL PROPERTY. If there is such a thing as an A++ neighborhood the area this property is in would be it.
Other properties in the area much smaller (1000sq ft smaller, way less land) have recently sold for 3.6m. The property I found sold at auction for 241k!! California allows eligible bidders to bid post auction so I decided to do research on the property. OH BOY!!!
After diving into the property I learned:
It was a second that foreclosed. The first is a 1 million dollar mortgage. I assume they haven't paid much if anything on it. They bought this house during the 2007 craziness. I can't find a through line (as far as transfer of deed) for the first mortgage only the second so no idea what's happening with it. The company who initiated the first and second mortgages (they were executed on the same day) went out of business during the housing crash.
They owe 400k in state income taxes. Have literally not paid state taxes since they bought the property in 2007.
They haven't paid property taxes in two years. Add another 85k
House was abandoned in the middle of a reno. The only plus is no one is occupying the property and there's a roof and walls so not exposed to the elements.
Also discovered they had done renovations without permits which means there could be work that needs to be redone. The city is definitely aware of this property given the number of cases I found had been opened on this property.
So including renovations you're looking at probably 2 million to clean everything up. NOT 241K and just some minor cosmetic renovations.
Researching this property it feels like the owners knew what they were doing. They haven't paid state taxes and someone is going to pay off 400k of taxes for them to get this property.
They don't have any IRS liens as those would stick with them and not the property. If you want to live in a multi-million dollar home for a few years and then leave without any repercussions besides your credit being jacked. Do what they did.
Anyway, I share this as an example of what can happen if you don't do your due diligence with a foreclosure.
Final note: It is difficult to get title insurance on a foreclosure, so know if things show up post auction you will most likely be on the hook for them.
