1) Ownership: Chain of title might not be so easy to establish if you attempt to purchase the property at auction. Depending on which lien holder is foreclosing on the property and which liens were recorded 1st, you might be facing challenges in getting clear title to the property. We have seen investors bid on the end up bidding on 2nd liens only to find out that there was a senior lien ahead of them in the chain of title!
2) Possession: In case of the San Jose foreclosure auction, unless the property has been abandoned you will be responsible to foreclose and evict the previous owner or tenants. And if the home owners have file bankruptcy, you can not take possession until the bankruptcy is discharged. You can offer them Cash For Keys like the banks do on REOs. Also, California has enacted very tough tenant laws that in case a home is rented with a lease contract, the tenants have the right to remain in the property till the end of the lease.
2) Cash Only: All the foreclosure auctions have to be paid in Cash or Cashier’s check within few days of acceptance of your winning bid. Most investors trusted runner who pay for the purchase on the spot with cashier’s check.
3) High Risk, High Reward: With the Foreclosure Auctions, you have no certainty when you will be able to take possession of the property after winning at the auction, specially if you have to foreclose on the previous owner.
4) No Middle Men: In case of REOs, the buyers are dealing with a listing agent who is working with the Asset Management company retained by the lender. In most cases, the banks will take a certain discount off the Fair Market Value of the REO listing based on how long it’s been on the market. In case of Foreclosure Auction, the banks will retain an auction company to work the list of the assets they plan to sell at the court house steps for cash.
5) No Escrow: In the case of foreclosure auction purchases, there is no escrow. Once you have obtained the title, you need to records it yourself.
In short, the high risks associated with the foreclosure auction purchases imply high rewards. But the main challenge with the foreclosure auctions is that you never know till the day of the auction if that specific property will make it to the auction or it will be cancelled, postponed or withdrawn. So, auctions require a lot of work and patient cash money to be able to chase good deals.
Contact Us if you are in the market for San Jose foreclosure auctions.