Foreclosure Auctions – Understanding the Risks

·2 min read
Foreclosure Auctions – Understanding the Risks

What was once this process of standing on the front steps of the courthouse steps bidding on properties auctioned off by the local clerk has turned into a much easier online bidding experience.

The ease of online bidding and the excitement that comes with the fear of missing out can create a bad day for those not understanding the risks associated with buying foreclosed properties at auctions.

The really bad days are those where the winning bidder finds out that they are not buying a property free and clear of all outstanding liens, so the title they receive from the clerk is one that is still subject to superior liens than the one foreclosed out.

Often times a lower level lien holder, generally a homeowner’s or condominium association, will foreclose out their lien for unpaid assessments in the hope of either attracting a novice bidder at the foreclosure sale or getting a foreclosure title to the property for a long enough period to rent out the property to pay the unpaid amounts.

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When a lower level lien holder is the foreclosing party, then any certificate of title issued to the winning bidder following the auction is still likely subject to satisfaction of the superior liens (typically a first mortgage holder or unpaid real estate taxes).

It should be noted that there are other more obvious risks associated with buying foreclosed properties at auction, including, but not limited to, the unknown physical condition of the property, survey defects, or existing occupants that need to be removed.

Nonetheless, most of these obvious risks can be overcome with the expenditure of funds that can still make a foreclosure auction purchase fruitful.

In order to protect against the greatest risk of buying property at a foreclosure auction, it is prudent to obtain a foreclosure title insurance policy from an attorney.

The foreclosure title insurance policy will effectively complete a title search of the foreclosure property and provide title insurance (upon payment of the full premium) should the insured become the winning bidder at the foreclosure auction.

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