I have a very sad story to tell you. I am not making this up, it actually happened. My friend Gary told me that this happened to his niece, Bethany. All the way thru this you are going to say, “well that’s not fair, that can’t happen.” But it did. This did happen in a different state, not Alaska, So let’s go….
Bethany is 40 years old and recently lost her mother. Her father had died about 4 years earlier and so now there was just her and her brother. Bethany’s mom had invested well and had a nice nest egg saved up for her and her brother. So, after everything was said and done, Bethany and her brother were able to share an inheritance of about $340,000.
Months later, Bethany decided to use her inheritance and purchase a home. She wanted to pay cash for something and she spent a lot of time looking for the right thing. She got on an auction site that sold homes that had been foreclosed on.
Bethany is set on getting the best deal she can get and she thinks that using a Realtor will only cost her money. She feels that going to these auction sites is the best way to get the best deal. She logs on and starts her search.
She has a routine, she finds a home she likes, and then drives out to see it (smart) and then decides if she likes the neighborhood, the schools and if it’s a good commute time for her, again, smart.
Finally, she finds the right one! Great location, in really good condition and close to the school. She reads the instructions for making an online bid and she must give them 5% of the estimated sales price just to make her bid. She fills out all the forms and makes her bid online….hits the button…..and waits.
Next day, Bethany logs in to see what has happened, her bid has been accepted and she can close in just 5 days! She is elated, her new home is just around the corner. As sad as it was for her to lose her dad and her mom, she knows both of them would be so proud of her for investing in this lovely home for herself.
She knows that she cannot see inside the home. That’s one of the rules with the auction, she cannot see inside, and she cannot have a home inspector see inside. She is okay with that because it looks solid and nice from the outside, and, remember, she wanted the best deal out there, and she thinks that if she starts spending money on home inspections, her “best deal” isn’t going to be so great anymore.
Bethany feels like she is in good hands because there is a title company handling her closing for her. They will make sure that there are no liens on the property, and she will get a clear title to the property. She feels that the title company will tell her if there is anything wrong with the deed or anything else wrong with the house.
While waiting for closing, Bethany starts the process of getting homeowners insurance and transferring the utilities in her name. She is choosing curtains and lining up a carpet cleaner because she knows it will probably need the carpets cleaned.
The day of closing arrives, and she goes to the bank and gets her cashier’s check made out to the auction company, and then goes to the title company to sign documents. She is given a key and away she goes to start life in her new home.
She drives to her new home and just as she is about to put the key in the lock, the door is flung open and a man inside the home says, “oh no you don’t, this guy owes me money and I am not leaving until I get paid!” Bethany tries to explain that she doesn’t know the seller and she now owns the home, and he must leave. The “squatter” slams the door and yells from behind the door, “I am not leaving”.
Bethany goes to the local Sheriff and says this person won’t get out of her house. The sheriff asks for proof of ownership from Bethany. However, Bethany has no proof yet, the title company says it will come in the mail in about 3 weeks. Sheriff is sympathetic but says there is nothing he can do until she get’s her documentation.
So here is where she is at, she paid cash for a home that she never saw the inside of. There is a squatter in her home, and she has no proof of ownership. Bethany has no idea what this person is doing to the inside of her house while she waits for proof of ownership. He could be destroying the place and he can do a lot of damage in 3 weeks.
Unfortunately, I am unable to tell you the outcome of the transaction with the man in her home because Bethany unexpectedly died before it could be resolved. Now, I am not saying “don’t buy an auction home because you will die!” I AM saying unless you can afford to loose your money or the investment – buying an auction home is very high risk!
Here are some tips:
1) A home at auction is much riskier than going through the normal process. Remember, when you have a realtor in your corner, they are going to watch out for your best interests
2) Auction properties usually don’t allow you to see inside
3) Auction properties usually don’t allow you to have a home inspection
4) Make sure there are no occupants in the home BEFORE you bid. This is difficult to do, but knock on the door!
5) Make sure there are no liens on the property.
6) Watch for hidden fees. Sometimes, you will still owe auction fees after you have agreed upon a price. These fees can be as much as 15% on top of the bid price of the home.
7) Remember that the person who previously owned the home was not financially able to keep the home, that means that regular maintenance of heating systems etc will probably not have been done.
8) If the home is pretty junky on the outside, it’s most likely pretty junky on the inside.
9) Even if you are able to get a home inspection, make sure you have all the heating and cooling systems checked as well
10) Make sure that you order a title report! Don’t just take their word for it. Do a search. It will cost about $250 and then purchase title insurance.
11) There can be many claims against the home, tax liens, second mortgages, contractors’ liens. Title insurance can protect you from some of these liens.
12) You may have to evict a squatter. It’s a real pain too. And of course, they know they will have to leave, you can only imagine the potential for damage. It can take a long time to get your certificate of title.
Be careful about getting tempted into auctions. Remember; if you are buying a home, you don’t pay the realtor fee anyway, the seller does! So, have someone like me on your side!