January 15, 2015
Buying Foreclosed Property in NYC
The pursuit of a good deal at a foreclosure auction is not for the faint of heart. First, despite the old adage, you almost certainly will have to judge a book by its cover since you won’t get a glimpse of the interior until after you already own the property. When it comes to the interior, you will be literally bidding blind.
Second, even getting to the point of placing a bid on a given property can be a frustrating experience. Although many properties are listed for foreclosure auction on a particular date, few will actually go under the gavel as the debtor has multiple options to delay the sale, including bankruptcy filings. Not knowing which properties will actually be auctioned makes complete due diligence difficult, time consuming and potentially impractical.
Third, the list of potential risks goes well beyond the interior condition, including structural issues that can’t be identified from outside the property, tenants or squatters who may be protected by local housing laws, and even serious title issues. One would expect that the terms of the foreclosure sale would require the referee to provide clear or marketable title to the property, but this is not always the case.
Despite this, you can take practical steps to mitigate the risk through careful research. Ordering title searches, trying to ascertain if there are tenants, speaking to neighbors, and assessing the exterior condition of the property are all important. Ultimately, a disciplined approach to valuation (i.e., not overpaying) is sometimes the best protection against unforeseen problems.