Due Diligence: What are the things you should know before buying a foreclosure home at an auction?

There are a few key things you need to look out for when contemplating purchasing a home at an auction, including:  (1)  Check Title:  get in touch with a title company (Chicago, FATCO, Fidelity, etc.) and get a preliminary title report.  Review the PTR to check for monetary liens (deeds of trust, tax liens, unpaid property taxes) and easements or other encumbrances that may affect the value or marketability of the property. Also, the PTR should be used to check vesting (i.e. whether the seller actually owns the property).  (2)  Determine value:  If you are financing the purchase, then an appraisal will be required and that will provide guidance as to value.  However, if you are buying all cash then an appraisal may not be in the equation.  In that case, you'll need to look at comparable sales on your own.  If you are using a broker, utilize the broker and have the broker perform a brief survey of property in the geographic region for purposes of determining value.  (3)  Inspect the Property to determine if there are any red flags:  Go out to the property with a contractor and have them look for any major red flags including condition of the roof, structural components, deferred maintenance etc.  Have them prepare an informal bid.  This can come in handy in case you are already in contract and you need to negotiate a price reduction with the Seller.  (4)  What is your business plan:  Are you going to occupy and live in the home yourself?  Are you going to rent it out as an income producing property?  Are you going to flip in 6-18 months or are you intending on holding for the long term (5+ years)?  This will help you determine what you should pay for the property.  For example, if you are looking to purchase in a distressed geographic location, then a flip may not be your best bet since no matter what you do to the house, you may not realize the value you create through renovations during the hold period.  However, if you think in x years the market in that location will recover and you are planning on holding for that period, then that same investment may make sense.  (5)  Will the Bank convey title through a Grant Deed or Quitclaim Deed:  This is a very important question.  Although most of the time when you are acquiring real estate you will receive a grant deed, often times banks may want to convey via a quitclaim deed instead.  Be careful.  A grant deed comes with various implied warranties whereas a quitclaim deed does not.  With the former you are much more protected.  You should make this inquiry early on to protect yourself and your title to the property post purchase. Bottom line, know the property (i.e. issues with title, condition of the property, value) and know what your goals are.  That way you will know what you can afford to bid on the property.

Anything that you question, is an important question indeed. When you have two routes to take, the somewhat questionable one, or the more well traveled one, consider taking the safer route.  We all have choices, but don't choose to maybe lose on something big, when there are many better options out there.    Your views, comments and any upvotes are greatly appreciated.

All good advice here.  I was on the Broker Council of the largest REO servicer in the country 2010-2012, so I'm intimately familiar with foreclosures.The conveyance "title" the seller utilizes only covers to an "insurable" standard, not a marketable standard. Have your attorney interpret that for you, as I'm not an attorney.I know of one instance where an investor bought a property (not through me) and had a title claim, but the title company would only pay up to the original purchase price and not cover the tens of thousands worth of improvements.  There was a suit I believe and I don't know the result.Also heck with an attorney about conveying the property when you sell.  You don;t want to convey more of the "bundle of rights" than what you own.

If you are buying it as an investment then you need to decide whether you are a buy and hold or a flipper. In either case you don't want to overpay so understanding the market value is paramount. If you are flipping a home you need to be able to estimate what repairs are needed and what the cost will be for making those repairs. There is a lot to consider so what I would recommend is that you find a person who does this regularly and shadow them. Buying at auction is extremely risky and should not be entered into without guidance.

1. Liens2. comps3. visual inspection4. courthouse history5. financing 6. exitYou may not get the BEST deals but you will still get OKAY deals without insider access as long as you look around and know property/paperwork in your area. Nobody is going to tell you where the best deals are because that's competition they don't want. People are going to misdirect you intentionally. Look around for yourself. Take some chances. Lose some. You will eventually win. Try a place like this:http://myinvestco.com/review/auction/It’s a combination of experience and cash

Aside from this being a very risky business and I agree with every word of caution above... I attended an auction and watched an experience buyer pay over $200k for a 2nd mortgage worth pennies.  I spent a year attending, researching and doing "mock" buys before I did my first.  34 successful auctions later it still scares the **** out of me and I'm convinced I'll lose at least. 1 or 2 before I get to a hundred.  be careful out there...!

In my opinion, the most important thing to check before bidding on an auction property are the current liens and clean title. All junior liens, those made after the loan under foreclosure, are eliminated. But all liens on the property that were made BEFORE the one under foreclosure remain on the property. These loan holders can also foreclose on the property and you can lose your investment. A basic title search can reveal if the property has other debts such as first mortgages, unpaid real estate taxes or contractor liens.

Everything you said is correct you need to check for liens and due diligence on whether you are making a solid business decision in purchasing the real property.  If given the opportunity, I would recommend hiring an inspector to conduct an internal inspection.  However, if you are interested in a property that is in severe poor condition then I do not see how an inspection would help.  It all depends on the condition of the property and the amount of money you see yourself investing in renovating it.

It wouldn't make much sense to hire an inspector as you are generally not allowed inside of these homes. At best you can hope to drive by and peek inside of the windows. By looking around the outside you should be able to rule out any occupants but the overall condition of the home will be a toss up. You may need to replace bad or missing plumbing inside the home and underground on the way to the street. You won't know whether or not the furnace and hot water tank are present let alone working.