Due diligence tips before bidding on residential foreclosure sales

Due Diligence Tips Before Bidding on Residential Foreclosure Sales

by Paul A. Krasker, Esquire

There is significant risk in bidding on properties at a foreclosure sale, and these tips are designed to help minimize the risks:

  1. Review the docket sheet at the foreclosure clerk's website carefully to make sure the lender has joined and served all the right parties.  You may need a title search to know if there are second mortgages or other judgments that needed to be added so that good title is available.
  2. Review the tax records at the property appraiser's website to see if the taxes are delinquent.  Foreclosures do not wipe out back tax liabilities.
  3. Inquire with the municipality or the county to see if there are open permits, code liens or code violations on the property.  Foreclosures may wipe out certain code liens if the municipality or county is served (although many liens remain), but code violations and open permits will still need to be addressed.  If this is a 4 unit rental building, make sure the property is zoned for or grandfathered in as a multi unit use.
  4. If applicable, ask the manager of the condominium or homeowners association to identify the outstanding past due assessments.  These assessments, plus legal fees, interest and penalties are due in full if anyone other than an institutional lender purchases the foreclosure property.
  5. Visit the property to see if it is occupied or abandoned, and what conditions exist at the property.  It is helpful to know if the property has been stripped of all fixtures, appliances and HVAC systems, if the pool is now a pond and if the "Clampetts" are now in residence.  Mold remediation issues and tenant eviction procedures can cost more than some foreclosure bids.

In addition to the above tips, there is no substitute for common sense.  If the competing bids are very low (or non-existent), there must be a reason why all the professional bidders who do this for a living are not pursuing the property.

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