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Foreclosure auctions can be a terrific place to pick up bargains, right? Like my attorney friends always say, it depends. Only recently have foreclosure notices become common in our Hilo newspaper. It’s a dubious honor that we have gone from dead last in the number or foreclosures to currently nesting among the top third in the nation.

Foreclosure notices designate dates when the property will be held “open” for inspection as well as a date for the scheduled auction. The lender’s representative will always attend the auction. They will always overbid anyone who bids below a predetermined price. Most times they will “buy” the property back by bidding as much as their credit letter allows. This letter represents the amount they have into the property, however, they are unlikely to bid more than any opinion of value that has been prepared for them. The foreclosed property is normally re-marketed with a REALTOR®. For this reason, it may be possible to get a fair price at auction but it may not be a “steal”.

There are things to remember and stats to consider. First, not every home will be held open and if an open house actually happens, it offers only a cursory opportunity to view the home before the auction. There is no owner’s disclosure so learning the true condition of the property can be a challenge. Successful bids often go to a confirmation hearing at which time bidding can be re-opened. Any money spent on inspections and financing will be put in jeopardy. Properties are always conveyed “as is” even if the condition changed since the auction. There may be no outs, even for vandalism.

One of the most common reasons to forego an open house, of course, is that the property is still occupied. It’s normally up to new owners to clear the property. Time was in Hawaii when foreclosed properties were considered to have the “cleanest” title. Two things changed this. Mergers and dissolutions of original mortgage lenders required complicated agreements. Sadly, flaws in the pooling and servicing agreements have indefinitely delayed closing in (especially) land court.

In situations where a property was foreclosed through a non-judicial foreclosure (no judge is involved), when an owner signs the property back to the bank (deed-in-lieu) or when an owner mails the keys back to the lender (jingle mail), title companies become so concerned about off record claims that they normally refuse to issue a title policy. Conditions for issuance of a title policy normally involve the assistance of the foreclosed owner. Good luck with that one. No title insurance, no loan, no sale.

So, how bad is the situation in East Hawaii? That’s my homework for next time. In the meantime, here’s yours. Go to my blog at either www.majormom.com, the Team Nakanishi Fan Page or Twitter where you should watch this video. After that, watch this one. The last one’s just for fun. Trust me, you’ll need it after you watch the homework video!

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