In part one we talked about pre-foreclosures. This is when you buy the property after it is in foreclosure but before it goes to the auction. In a pre-foreclosure you are dealing with the private owner and sometimes also with the lender, especially if you do a short sale.
In this post we will talk about actually purchasing the property at the auction. These auctions are scheduled to be held either at the Palmer Court House or the Anchorage Court House. When you read the legal notice, you will see who the contact person is and when the auction is scheduled. You will want to call the day before the auction to ensure that it will in fact be held. Often the auction is postponed or cancelled for some reason.
When you show up at the court house you will want to have proof that you can pay the price in cash. This can include a letter of credit, or a cashiers check. You will not be able to get a normal mortgage on the property because the lender will want to be paid “cash as-is”.
You will be purchasing the property “as is”. Often you will have little to no opportunity to inspect the property before you pay for it. You will have no recourse if you find problems with the property after you own it. Often these properties have significant damage. I have seen foreclosed properties with all the cabinets removed, all the light fixtures removed, the pipes frozen and broken, and a glacier flowing out the front door.
When you do purchase the property at the auction you will receive a trustees deed. This deed will wipe out any other liens against the property except a federal lien such as an IRS lien. If the IRS does come back and take the property, they will need to reimburse the purchaser of the property.
Normally only a few people show up for these auctions because they are so risky. The real savvy investors who are willing to take risks occasionally buy properties here for 50 cents on the dollar or less. But they often get stuck with major repairs as well. Most often, the lender opens the bidding with the amount owed on the property and that is the only bid. Then the property goes back to the lender who has to put it back on the market. It is now a Real Estate Owned, (REO), property.
REO properties are almost always listed with a Realtor on the MLS system. That is the subject for part 3.