Urban Vue Properties ~ Blog

Nationwide, many communities have been hit hard by the swell of home foreclosures.  New York City has not been spared.  Although there are several steps in the home foreclosure process, one of particular interest to active home buyers is the auction of the property by the court.   The allure of purchasing a home below market value is captivating.  But Buyers Beware!  The home foreclosure auction is no place for novices.  I have seen countless neophytes succumb to the many pitfalls.  The unprepared have faced many unwelcome “surprises” including lost down payments, holdover tenants, the purchase of unihabitable homes and tens of thousands of dollars in necessary repairs.  Despite the obstacles, with advanced preparation a savvy home buyer might be able to pick up a steal at the auction.  The key to auction success is simple.  DO YOUR DUE DILIGENCE!  The following tips will help buyers navigate the home foreclosure auction process in the five boroughs of New York City (Brooklyn, Bronx, Manhattan, Queens, Staten Island). 

Tip 1 - Identify a Property:  All New York City foreclosure auction sales are legally required to be published once weekly for a four week period in local periodicals.  You can locate potential properties to bid on by checking the “legal notices” section in your local newspaper.  The legal notice will contain pertinent information about the sale including: the date of sale and terms of sale (including final judgement amount, plaintiff, defendant, legal description of the property, bank attorney, referee and court).  If you lack the time and patience to filter through local periodicals, a few online companies have already done the legwork.  For a fee, companies like Property Shark (www.propertyshark.com) and Profiles Publications, Inc. (www.nyforeclosures.com) provide lists of upcoming foreclosure auctions in New York City, as well as other locales.

Tip 2 - Search Property Records:  Once you have identified a property that piques your interest, it’s time to get to work learning a few details about the property.  New York City’s property document online search system, called ACRIS, is an invaluable tool and a recommended starting point.   Among other things, ACRIS allows users to search property records (such as deeds and mortgages) and view documents online for Manhattan, Brooklyn, Queens, Bronx and Staten Island back to 1966.  With ACRIS users can determine whether a particular property has additional mortgages (that are not being foreclosed as part of the auction process) or any outstanding liens.  To the extent these things do exist at the time of a foreclosure auction, they become an auction buyers problem to clear up.  It’s also a wise idea to check with the NYC Housing Preservation and Development (HPD) agency and  NYC Department of Buildings (DOB) to make sure there are no complaints or violations on the property that need to be cleared.  There are also property files available at the local court house where the auction will be held.  Before heading to view any court files just make sure you make note of the case name and index number from the legal notice or 3rd party auction list.

Tip 3- What You Don’t See Is What You Get:  All auction properties are sold “as is”.  So what you see is what you get.  But in the case of a foreclosed home, you do not get to see much.  Typically, you can only view the exterior of a property.  No procedure allows for an interior showing.  If the property is vacant you will defintely not be able to view the inside.   If the property is occupied and if you are courageous and bold enough you could perhaps contact the current occupants to arrange a showing.  This is a touchy issue though.  Current occupants may be hostile and insulted at the request to view a home that they are being booted from, so you have to use your best judgment on this issue.  In any event, viewing the property in person is highly recommended.  You will get a sense of the neighborhood, whether the property is vacant, and the general condition of the grounds and house exterior.

Tip 4 - Go For A Test Run:  If you make the decision that you want to bid on a house, prior to the actual auction day, you should visit several auctions at the court house as a spectator to observe how the process runs.  The overwhelming majority of bidders are investment pros.  They are at the auction every week and know exactly how the system works.  You should learn the system too so you are better prepared.

Tip 5 - Check Your Reserves:  Most foreclosure auction properties are in some state of neglect and disrepair that must be addressed prior to the new owners moving in.  Once you have targeted how much you can afford to bid on a property, make sure you have cash reserves set aside to deal with necessary maintenance and repair issues.   One of the reasons foreclosure auctions are so risky is that there’s really no way to predict how much work a particular home will need.  You have to be prepared and should envision the worst case scenario when doing your budget.  Maybe a paint job is all that’s required.  Or you may need a new roof, new floors, and windows.  There’s the possibility of severe water damage, structural issues, or asbestos abatement issues.

Tip 6 - Auction Day - Before You Leave:  The big day has arrived.  But before you dash over to the court house you should call the office of the plaintiff’s attorney to make sure the auction you are interested in hasn’t been cancelled or postponed.  Many law offices now have automated phone systems that list all the auctions scheduled for that day.  In some instances you’ll speak to an employee who can confirm whether an action is still scheduled for that day.  

Tip 7 - Auction Day - Head To The Bank:  If you bid on a property at the auction you must be prepared to leave a 10% down payment with the referee at the end of the bidding process.  Payment must be by bank check or certified check.  Cash is sometimes acceptable.  Confirm proper payment method by checking the details in the terms of sale.  You should know the maximum amount that you plan to bid up to — this will help you determine how much of a down payment check you will need.   

Tip 8 - Auction Day - At The Courthouse:  The auctioneer will begin the auction by announcing certain key details, including the plaintiff and defendant, the address, and the upset price (i.e., the price that the bank/plaintiff is willing to bid up to).  The bidding will sometimes be started at the upset price.  In other instances bidding starts at $1,000.  But don’t get too excited.  You will not get the property for anywhere close to $1,000.  Remember, if the upset price is $250,000 then the bank is not going to accept anything below $250,000 at the auction.  If the bidding exceeds the upset price then the property will be sold to the highest bidder.  If there are no bidders or the upset price is not met, the property will go to the bank (and becomes a bank-owned/REO property).  Once the property is “sold” to the high bidder, the high bidder will immediately follow the referee to sign documents and turn over the 10% down payment.  If you do not have the correct down payment (either in form or amount) you may be banned from attending future auctions in that particular county and the property will be immediately auctioned off again.

Tip 9 - Preparing to Close:  After the auction, bidders have 30 days to close on the property.  If you fail to close within the 30 day period you will forfeit your 10% deposit and the property will go back to the auction block.  There is no mortgage contingency with auction properties, so relying on a mortgage to purchase one of these homes is exceptionally risky.  If you don’t have the cash available to close an auction property then you should skip bidding altogether.

Tip 10 - You Might Just Be A Landlord:  One thing you have to consider is that an auction property does not have to be delivered to you vacant.  If there are squatters or previous occupants still in the home, you will have to formerly evict these now holdover tenant if they do not willingly leave.  This is an additional expense and can delay entry into your new home by months.

 

 

 

 

 

 

 

 The current buzzwords in the residential real estate industry are “REO’s” and “Short Sales.”  This is no surprise, though, since the market is currently inundated with these types of homes.  Short sales have become so common that our local New York City area MLS recently added a “short sale” category to the search database, allowing real estate agents to include or exclude these types of properties from their property searches.  Even more telling, a recent search of available homes in a particular neighborhood in Queens, New York produced 110 homes for sale.  Only 9 of these homes were NOT short sales.

 

Here’s a little primer on the Lingo.  A REO (real estate-owned) property is owned by the mortgage lender.  In this situation, the property has been foreclosed on by the bank because at the auction to sell the property, no buyer stepped forward willing to purchase the property at the price sought by the bank. The bank has taken title to the property and is now attempting to sell it.  A short sale property, on the other hand, is still owned by the seller.  The property may be going through the foreclosure process, or the owner may have just begun to become delinquent in paying the mortgage, or the seller may not be in default at all.  In any event, the bank ultimately agrees to be paid “short” on the “sale” of the property (i.e, the bank agrees to accept less than what the seller owes on the property).  The short is necessary because the value of the subject home has fallen and the seller does not receive sufficient funds from the buyer to pay off the balance of the mortgage.  By allowing the short sale, the bank avoids a foreclosure proceeding and all the time and expenses that go along with it.

 

Housing prices have dropped significantly.  Mortgage rates have too.  So what’s the mass appeal of these types of distressed properties when buyers have their pick of the litter?  This obsession, if you can call it that, is driven by the search for the almighty deal. 

 

Regardless of the shopper, buyers unquestionably want bargains.  This natural desire is as strong with the real estate buyer as with any other type of buyer.  Many buyers have convinced themselves that they can get this bargain by purchasing a short sale or REO.  Some even refuse to view any property that isn’t a short sale or REO.  Other are so focused on the mere concept of getting a deal (or a steal) that they have bypassed homes that meet all of their criteria, are move-in ready, and fairly priced.

 

Granted, some short sales and REO’s may be profitable in those situations where the properties are sold under market value.  But in most cases, short sales and REOS are better suited for investors, not the typical homebuyer looking for a place to lay their head.  But bargain hunters don’t despair.  If you’re a buyer who isn’t buying because you’re searching for a deal, limiting your property search to short sales or REOs might be right for you if: 

• Patience is a virtue that you possess.  The short sale is a process that is anything but short.  In fact, because this type of purchase is subject to the approval of the seller’s lender, closing can take anywhere from several weeks to several months (with the latter being the norm given the current backlog due to the flood of short sales and REOs on the market).  The process can become even longer if the seller has multiple loans on the property, because that second lender is also going to have conditions that need to be satisfied.  Similarly, REOs are also subject to bank approval.  Although the bank has already approved the price at which it will sell, because banks are flooded with tons of offers from potential buyers in search of a deal this process can also take an indefinite amount of time (although, not as long as a short sale).  If you need to close by a certain date or plan to time your purchase with the sale of a home you currently occupy, fugetaboutit – the timing likely won’t work the way you envision.

 

•  You Recover Quickly From Having The Rug Swept Out From Under You.  Until there is an accepted offer by the bank on a short sale the seller and lender will continue to entertain offers from other buyers. So having the seller say they accept your offer and will submit it for bank approval means nothing.  If a higher or better offer comes in, the bank will likely accept that offer, which means you may have spent a ton of time waiting … for nothing.

 

•   Waiting Months to Get A Response Doesn’t Perturb You, Even If The Response Isn’t In Your Favor.  Even if you wait up to four months just to get any response from the bank, there’s no guarantee that the lender will accept your offer.  The bank can outright reject your offer.  If you’re lucky, they may tell you why but sinc ethey have no obligation to do so you may never know why.

 

• You Don’t Have A Need to Know About The History of The Property.  With REOs, there is usually very little information about the property and no seller disclosures. The previous owners and occupants have been booted.  The bank likely has no substantive details about the condition of the property or any problems that need to be remedied.  Buyers may fare a little better with short sales in this regard.  If the seller still occupies the home, they can provide potential buyers with more detailed information about the home.

 

• You Don’t Wince at the Sight of a Missing Roof, Pigeon Poop and Rooms Filled Floor To Ceiling With Debris.  Short sales and REOS are sold in “As Is” condition.  So what you see is what you get. And sometimes what you get is more than most can handle.  We have purchased many distressed properties.  One such REO was previously occupied solely by a hoarder.  Every room (from the attic to the basement) was filled top to bottom with every manner of junk: papers, boxes, furniture, food, major appliances, and clothes. The fees for garbage removal alone were approximately $15,000 – and this particular home was only 1200 square feet!  Another home had a partial roof, no working plumbing and was in the possession of squatters.  But in this instance the squatters were pigeons that had for months used the walls and the floors as their personal restroom. If knowing that you will live in a house that recently had some pretty gross stuff going on doesn’t bother you then you can pursue your short sale/REO dreams. 

 

• You’re A Handy-Man (or Woman).  Short sales typically have deferred maintenance issues.  Short sale sellers have difficulty staying current with their mortgage payments.  It’s typical and likely that upkeep and maintenance issues on the house are not high on the list of priorities and have been neglected.  The physical condition of REO properties tends to be much worse than short sales.  We’ve all seen the properties with their boarded up windows, unkempt landscaping, and front doors overrun with junk mail, circulars and newspapers.  Also common are stories of foreclosed homeowners intentionally damaging properties before the bank gets possession.  Common are damaged walls, broken windows, water damage and debris-filled homes.  If you are a handyman or contractor who doesn’t mind getting down and dirty you can repair and restore the house to your liking at a substantial cost savings.

 

•  You’re Not A Handy-Man (or Woman), But You Have Unlimited Time and Cash Flow Set Aside To Hire Others.  Most short sale and REO buyers are so focused on getting a deal that they don’t think past the aspect of saving money on the acquisition of the property.  This is a huge pitfall of buying these types of distressed properties, and unfortunately, far too many buyers have seen the “profit” they made at the time of purchase devoured by the cost of curing violations and performing necessary repairs.  Before you buy that short sale or REO, you should investigate how much it will cost to make any needed repairs or renovations, and whether you can devote the time to supervise the work needed to be done.  Hiring an inspector is key.  Getting estimates from contractors is also wise.  No one likes a $30,000 surprise.

 

Though not appropriate for everyone, buying a short sale or REO can be a way to get a home for less than market value.  So yes, you can get a steal. But before you jump on the short sale and REO bandwagon make sure you can weather the nuances attendant to these types of transactions.