Foreclosure Auctions are not eBay or Child’s Play. Novice Investors Beware!
Investors looking for a great deal at Florida foreclosure auctions may want to think twice before clicking “Buy Now”. Records show amateur investors are falling victim to a simple mistake that’s costing them thousands. When novice real estate investors turn up at foreclosure auctions, what they don’t know is they are often bidding on second or third mortgages. These mortgages get trumped by first, or primary, mortgages when the first mortgages foreclose; leaving the investors with only the money left after the first mortgage has been paid off, which in this market usually means nothing.
The Sun-Sentinel interviewed investor, Gus Armenakis. Armenakis bought what he thought was the only mortgage on a home for $102,600. The County had appraised the home at $325,800. After the sale, Armenakis found out that Wells Fargo had a first mortgage on the home for $386,593. This means that as soon as Wells Fargo forecloses on the house, the bank will be able to recoup as much of the value of the house as they can, up to the value of their mortgage, effectively leaving Armenakis out of the entire $102,600 he spent.
This problem is getting worse now that counties offer foreclosure auctions online. Online access opens up the bidding process to more people, most of whom are inexperienced. While the counties do disclose the risks of the bidding process, marketing ploys have effectively played down the risks involved. One such tactic suggested that bidding on real estate is as easy as eBay.
Take it from the experts: it’s not! In foreclosure auctions, there are no guarantees and you can’t return the goods. The foreclosure bidding process is a treacherous one and should not be undertaken by the faint of heart.
However, investors can safeguard against some of the pitfalls by performing a title search, often for as little as $100. Weston Title and Escrow has been performing title searches and issuing title policies for foreclosure investors since 1994. Title searches allow potential investors to find out who has a lien against a particular property, which then enables them to make sure that the foreclosures that they are bidding on are the primary liens. If you are an investor or potential investor in foreclosure properties, protect yourself by getting a title search before laying down big money on a foreclosed property.