There are several issues to look for when bidding on a foreclosure. A buyer needs to spend some time researching the physical property as well as the conditions that go with the land. Before making a bid on a foreclosure at an auction sale, make a checklist covering these seven areas.

1. Debts Recorded on the Title

Scrutinize the title to the property. This document will tell you if there are any liens on the house. If you purchase a home with some types of claims on the title, you become responsible for paying off those debts to get a clear title. A debt that can be attached to a title is unpaid property taxes. To have a clear title, you will need to catch up on the back taxes. Another form of debt might be outstanding home owner’s association dues.

2. Easements

While researching the title, look for easements recorded on the land. It is not uncommon for utility companies to have easements across the property to supply power to structures. Easements such as roads and setbacks should be noted. Surrounding neighbors may have the right to cross the property also even if there is not currently a road in place. 

3. Insurance

Contact your insurance representative to find out if the property can be insured and if so, how much will it cost. Some matters that affect the cost and insurability of homes are high fire danger areas, flood zones, and earthquake faults. Many of these regions are still insurable but at a higher rate, so factor that into your overall expenses.

4. Occupied or Vacant

You may be purchasing an occupied home. The occupant could be the previous owner or tenants, so you will want to find out if anyone is living in the house. If they are tenants, they will have legal rights. If you buy the house with people in it, you will be responsible for the eviction process if you do not want them to continue living there. Eviction can be expensive and involve law enforcement and legal fees. If the house is vacant, there is always a chance someone will break in and vandalize it. If you win the bid at the auction, be sure to secure the property immediately.

5. Residential, Commercial or Other

Visit the local building and planning office to verify the zoning of the land. A home may be being used as a resident, but the city or county may require it to be changed to another zone if any upgrades or permits are pulled on the property.

6. General Condition

Inspect the structure and land and note its condition. Many foreclosures may not have power, or other utilities turned on, so you may have to do a visual inspection only. Electricity or water may not be turned on due to safety issues, such as a missing power box or plumbing.

7. Cost

After considering all of these factors, figure a baseline cost. Calculate what the property is worth in good condition. If it needs work, subtract those fees. Your bid should be based on this bottom figure, and if the auction price exceeds that, it might be best to walk away and look for the next deal.



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