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IT'S TIME TO REDISCOVER THE FORECLOSURE SALE

Not only is the whole of real estate cyclical, but so are the component parts.

Take bidding at foreclosure sales for an example. Years ago a bidder couldn't get near the auctioneer -- what with the hordes of people who attended.

Then there was a period when no one showed up.

Now people have once again discovered the foreclosure sale.

Why? It has to do with the perception that there are great values in real estate foreclosures to be had. In realty there are -- if you know what you are doing.

Basically, there are two types of foreclosure -- in personam, which means all the parties are served personally; and in rem, which means the parties are not served personally, but notice is published in the paper.

In personam actions usually involve real estate taxes that haven't been paid to the municipality assessing them.

The in personam action generally lists the address of the property being foreclosed so you usually have a good idea of what you are bidding on.

The in rem action generally only lists the section, block, and lot number (S.B.L. number), so you have to be careful you are bidding on the improvement you want and not the small alley in the rear. This can be done by visiting the appropriate tax collectors office and matching up the S.B.L. number with the property description.

Next comes a visit to the property to determine its value and condition. Unlike a normal sale however, it is extremely unlikely the people who own the house will invite you in -- and so you must assume the worst case scenario, for it is also unlikely that people about to lose their house will keep it in pristine condition. That is the reason most bids at foreclosure are far less than you can get in the open market with a real estate agents' help.

It is advisable to call the attorney for the person doing the foreclosure a day before the actual sale. Many sales never take place because the people being foreclosed usually do something to save the property -- either make payment arrangements or file bankruptcy which automatically stays the sale.

Also, that attorney will likely give you the opening bid -- which will give you a further idea of whether or not you are wasting your time by attending.

Should you decide that you still want to attend, be there early. Sales scheduled for 10 a.m., for example, must start promptly at 10 a.m. Listen carefully to the terms of sale which are read by the referee just before the sale begins. They are like the contract of sale in a normal real estate -- absolutely binding on all the parties.

Generally, the terms of sale require a 10 percent down payment by cash or certified check with your bid. In rem tax sales, however, usually require a 20 percent down payment.

Figure the most you will bid and bring 10 percent or 20 percent of that. It prevents you from getting carried away and bidding more than the property is worth.

If you are lucky enough to acquire the property for less, it really doesn't matter that your deposit is more than 10 percent or 20 percent, because usually you have to close on your bid in a very short time span, generally two to four weeks. This makes it imperative that any financing you desire be arranged as much as possible before the sale.

Also, remember that if you are unable to close, the property will probably be resold, in which case you will not only lose your deposit, but could be sued for the amount of your bid should the new sale not bring as much money as your bid.

Even more important, the terms of sale will tell you what you are going to have to pay in addition to your bid. For example, in mortgage foreclosures you are buying subject to real estate taxes and any mortgages that were put on ahead of the one being foreclosed. In tax foreclosures, you are buying subject to federal tax liens which are not cut off in an in rem action.

Like in all real estate matters, you are wise to consult with your lawyer as soon as possible. His or her fee will be only a small percentage of what it otherwise may cost you should you misstep.
Franklin Pack, senior partner of Pack, Hartman, Ball & Huckabone, P.C., is a real estate practitioner, lecturer and columnist.

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