Expert: Dick Dennis - 3/15/2010

Question
Hello,
I plan on bidding on a house at a foreclosure auction in the next couple of days. I see you did answer this question 6 years ago, but I want to make sure this is still true...

What liens are a buyer responsible for after purchasing a foreclosed home at an auction? If I'm the successful bidder on a first trust deed, would I also be responsible for a second(if any) on that property after the sale? Do any subordinate liens convey?

Any other tips on buying this home are greatly appreciated.

Thank you...Beth

Answer
As I probably answered six years ago, Beth, when you are the winning bid on an auction for a house, your loan you get to help you buy that property should be the ONLY loan. There should be NO OTHER LIENS OR ENCUMBRANCES of any kind other than property taxes . . . and they should be up to date. Every property in the US always has property taxes as the first lien NO MATTER WHAT, even though the taxes are current.

If you do buy a condo, then you may have a responsibility for a homeowners association fees, but nothing delinquent.

One more thing. Do not get caught up in the frenzy that may arise in the bidding at an auction. I assume you have done your homework and research on the properties you expect to bid on and know what the market is for any of those houses. Just draw a mental line over which you will not cross in the bidding process, no matter what.

Auctioneers are professional salespeople (where the auction is taking place in an auditorium of some kind) and they know how to get you go raise your bid. I won't say they have shills (persons who pose as customers in order to decoy others into participating, as at an auction) there, but just be careful and keep your eyes open. Again, as long as you know the market for any particular home, there should be no way they can make you overbid.

At an auction in which there is only one or two, may three homes are being auctioned by a foreclosure trustee, they are going to open up the bidding at what the foreclosing bank orders (yes, it could be the second mortgage bank, too, so watch out for that. You don't want that because if you win that bidding you will then be responsible for the first mortgage as well.)

Quite often, what we call "the 40 thieves" show up at those kind of auctions. They make deals with each other IN ADVANCE of the start of the auction in which one of them will outbid everybody else (they also serve to raise the ultimate winning bid if they see someone else like yourself trying to bid) then the winning bidder will sell it to one of the other 40 thieves (no, they really do not have 40 people there, it's just a derivation from "Ali Baba and the 40 Thieves" that they earned that title.

By the way, if you can get a copy of my May issue of The Landed Gentry (coming out the first week of April), you'll see my article on bidding at auctions. I do wish you well.

Dick Dennis
CA broker #00349415
dixiedee13@aol.com
Editor & Publisher of The Landed Gentry, a Real Estate Advisory