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This isn't completely accurate. The whole point of the foreclosure process is to extinguish any liens. Property has to have clear title so it can be transferred and as a public policy, we need property to be able to be transferred. So, at the end of a foreclosure process (as long as the foreclosure was done properly, and all lien holders received proper legal notice of the proceedings), title to the property will be cleared and will pass.
The more typical problem is that at an auction, the property is sold as is, with no recourse. There could be major problems with the home, and that is the risk a purchaser takes.
Usually, an owner who runs into trouble paying the mortgage does try to sell the property. But time is of the essence, and if the homeowner is under water (i.e. owes more than the home is worth), this won't be a successful endeavor. An owner in this sort of trouble has typically deferred maintenance on the home, since if they can't even pay the mortgage, they aren't going to be able to afford any other large expenses related to upkeep, either. Sometimes, though, a mortgagor just panics and denies he is in trouble and will literally just run away from the home when it goes into foreclosure.
The bank then just wants to recover what they are owed.
Auction on the courthouse steps is different than a bank selling it via foreclosure direct to the buyer. Banks selling directly have cleared the title. Auctions do not always have clear title. Depending on your state rules regarding liens, there might the waiting periods and redemption rights involved. I know as I have bought houses at auction in my state.
Courthouse steps is a Trustee Sale,. A sale if/when the lender takes it back is often referred to as REO, which can be on MLS or sites like Hubzu, or both, and rarely, a bank will have its own REO department and you can deal directly with them. Haven't seen much of that lately,, but some of the banks had their listings on their websites, that were not part of MLS.
I was looking at a house that hit the market at $100,000 as an investment property (short sale). Needed prob $20k worth of work, $10k if I did most of it myself. Fixed up I figured it would appraise for $150k allowing me to do a cashout refi and move on to another property... Literally an hour before I go to checkout the house they up the asking price to $130,000 because they realized there was a lien on the property. They ended up getting no offers... 3 months later it's in foreclosure and goes to sheriff auction. Ends up selling for $86,000 at the auction.. I had the luxury of walking the house and knew it was worth every bit of $86k but I don't have an extra $100,000 cash sitting around for the house and repairs. Had they not upped the price I would have purchased at $100,000 with a mortgage.
It's the same with any kind of auction tho.. I bought a John Deere Gator last year at auction for $800, put a $50 carb on it and some paint and decided to sell it, got $3,400 for it.
Homes are auctioned, because the sale will bring in more than the taxes due or the balance of a loan, and that is all the one auctioning the property off, cares about. Holding it for months, paying the holding costs, makes no sense when they can get their money out of it by an auction. Any additional money raised by the sale, will not go to them anyway.
Homes are auctioned, because the sale will bring in more than the taxes due or the balance of a loan, and that is all the one auctioning the property off, cares about. Holding it for months, paying the holding costs, makes no sense when they can get their money out of it by an auction. Any additional money raised by the sale, will not go to them anyway.
Of course, that depends on the state.
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