Most recently a client found a auction property in an area he was interested in purchasing which showed an opening bid of $33,000 and a good deal for a property in that community. Knowing the pricing in the community, I said I would see if I could find more information. I thought the pricing seemed a little low and decided to search the public records. After reviewing all the documents of record, I found this $33,000 opening bid property to be in a second lien position to a $173,000 first lien. Once I explained to him that if he had purchased this second lien and the first lienholder decided to pursue a foreclosure, that he would have to pay the delinquency on any first and keep up with those payments or lose any money he invested, he was no longer interested in this “great deal”. Additionally, other liens such as homeowners association assessments, property tax, city and IRS liens can survive the Trustee Sale and be passed onto the new owner of the “paper”.
I strongly suggested to this Canadian client that any auction, trustee sale or foreclosure property that he was going to bid on should be searched by a title company. In other words, prior to bidding, obtain the preliminary search or commitment for title insurance and once the sale was complete, obtain a title insurance policy. The nominal cost of the title insurance policy is well worth the investment funds at stake.
Understand that when buying a property at a trustee sale, the trustee is not required to warrant the title which is why a Quit Claim Deed is used. As the buyer, you are purchasing the property in AS IS condition and no disclosures are made since the bank or lender and trustee know nothing about the property.
In many cases, these properties were for sale prior to the Trustee Sale and your agent will have access to a wealth of information that the general public does not. For example, the property could have been a short sale listed in the MLS and therefore the agent is able to pull up all the data along with photos to give you an idea of how the property looked “at the time it was listed” which can and does change or take photos of the property and/or the area. Additionally, the agent will have a good relationship with a title company and can also assist in arranging your search(s).
These are not traditional transactions with a buyer, seller, their agents and the lender and are much more complex. While agents are not typically involved in these types of transactions, find yourself a good agent that can do a ton of legwork for you, agee in writing to pay a negotiated fee and obtain your title insurance policy. All of this creates a better scenario for you as an investor or buyer.