Wednesday, June 21, 2006

Foreclosure Tips From The Experts

Inman News has some tips on foreclosure buying. "'One risk in investing in properties at a foreclosure sale is not doing an appropriate title search and knowing what that property is encumbered with,' said Marvin E. Katz, an attorney in Fort Lauderdale, Fla., which represents lenders in foreclosure proceedings. 'If you think there's a lot of equity there, it could be that the second mortgage was foreclosed, and you're taking the property subject to the first mortgage.'"

"Colorado purchasers are warned of just such a possibility because an influential Colorado resident was burned in a foreclosure sale, said Jon Goodman, an attorney in Boulder who represents both mortgage holders and foreclosure investors. Under Colorado law, he said, public notices for foreclosures must give buyers a heads up that the lien being foreclosed may not be a first mortgage."

"Even if it's the first mortgage that's being foreclosed, you'll probably end up paying other liens, including mechanics or judgment liens, Goodman said. Also, you'll always take subject to an IRS lien and past-due property taxes."

"Though you may know the amount of past-due taxes, you can still end up being surprised by the taxes, said Bruce Bronster, a lawyer in New York City, who represents institutional clients such as lenders in foreclosure sales."

"'You buy thinking the house is taxed at a certain level,' he said, 'but you really need to understand what the taxes are because you may lose some exemptions. For instance, a veteran's or a senior citizen's exemption can be lost in a foreclosure sale, and you could get hit with higher taxes.'"

"Katz said that in Florida, homeowners' association dues and fees typically fall in a foreclosure sale, but not always. 'You have to check the homeowners' association documents,' he said. Condo associations are better protected under Florida law, he said, and you may be forced to pay back the full amount of past-due assessments if you buy at foreclosure sale."

"Goodman said he ran into a situation where a lender foreclosed and discovered the house on the property encroached onto the property next door. 'The neighbor was waiting, loaded for bear, for a deep pocket to go after,' he said, and when the bank foreclosed, he got just that. An unwitting investor might have just as easily been tagged with the headache of an encroaching property."

"The problem with an encroachment, Goodman said, is that you wouldn't necessarily learn of it by doing a title search. 'It would show up on a survey,' he said, 'but foreclosure investors generally don't ante up for a survey before they buy.'"

"Investors can also make huge mistakes by not reading the property's legal description or checking it against an actual address. 'In one case, a purchaser bought a dwelling unit that turned out to be a windowless basement unit with no kitchen or bathroom,' said Bronster. 'He was pretty unhappy and sued to undo the sale. He was successful because the court bent over backwards to help him out, but I think the court was wrong because it really is caveat emptor.'"

"In another case, the purchaser looked up the owner's address and drove by it. 'He saw a nice property in a nice part of town and bought it,' said Bronster. When the investor went to look at the property again after the sale, he realized the property he bought was at a different address than the owner's address he'd looked up. 'He'd bought a run-down single-family house on a different street that was a disaster,' Bronster said."

"The lesson is to read the legal description. 'Drive by the property to get a visual,' said Bronster. 'Look at the street address and make sure it matches the legal description.'"


At 8:50 PM, Blogger Chip said...

In the "old" days, title searches were done on every sold property in Florida. Now, I'm not sure you can get a full search if you wanted to -- searches having been replaced by the infinitely more profitable "Title insurance."

If I were buying a foreclosed property, I absolutely for-sure would want to know if there are any clouds on the title, but how does one do that?

At 7:49 AM, Blogger Loren said...

It just goes to show that when an investment class as a whole is overvalued it is very hard to find good values. The same goes for stocks. They, as a class, are way overvalued. That makes it very difficult to find any value in the market.

Once people are not interested in real estate and there aren't tons of peole at every auction then foreclosures may be worth looking at. With housing in general so overvalued it's not likely there will be any genuine deals in the foreclosure market. Mostly the bank is just trying to find a sucker to unload their headache onto.

My dad always used to clean up at farm auctions. He'd only bid on stuff no one else would bid on. Most times he wouldn't buy anything at all because people would bid things up to more than they were worth. But towards the end of the day or if the weather was really bad there were deals to be had.


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