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.