The Orlando Sentinel published a sob story today about a poor unsuspecting couple who got in over their heads by buying a foreclosure property in an online courthouse foreclosure auction.
The gist of the story is that this couple purchased a property in one of Orlando's nicest neighborhoods for $20,000 at an online, courthouse foreclosure auction. The property had been foreclosed upon by the HOA, not the lender. After they won the auction, and were simply giddy with excitement, they discovered there was an outstanding mortgage lien to Wells Fargo for $220,000. Oops.
The irony? He is a CPA and his wife is a real estate agent. The tone of the article is "buyer beware" when purchasing a property in a foreclosure auction. No kidding. There is a vast difference between an auction at the courthouse and an auction of a bank owned REO property. There is a reason that generally, only professional real estate investors buy properties at courthouse foreclosure auctions. They have a system to research properties, most importantly, any potential title issues, including liens. In the case of this couple, they said they researched the documents that would grant them ownership should they win the auction. They did not have a title search performed. Apparently, the fact that there were only two bidders, and the other backed out before $20,000 didn't raise any flags for them either. Don't get me wrong, I feel bad for these people, but, if it sounds too good to be true...
The reason there are so many bank owned properties is because the bank is the only bidder at the courthouse auction. The balance of the note is higher than the value of the property, so nobody bids on it. Makes sense doesn't it?
Once the bank takes ownership of the property after the courthouse auction, they offer it for sale, most often through a local real estate broker who specializes in bank owned properties. Aside form the recent sensationalized accounts of illegal foreclosures (which are an infinitesimally small percentage of the whole) the bank conveys clear title to the eventual purchaser. When a buyer contracts to purchase that bank owned home, even through an auction, the bank conveys title as any "regular" seller would, and any prudent buyer would purchase a title insurance policy.
Online auctions of bank owned properties differ from "arm's length" transactions only in that they are generally offered 'as-is, where-is", meaning, "make darn sure you inspect the property before you bid, 'cause we're not fixing anything." Online auctions are still a great way for buyers to buy, and sellers to sell. They speed the whole process up, are fair and transparent, but best of all, they enable a buyer to know exactly what they have to bid in order to purchase the property.
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