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Low starting bid a red flag in foreclosure auction

June 22, 2018
By ERIC FEICHTHALER - Real Estate Law , Cape Coral Daily Breeze

Dear Mr. Feichthaler:

Some of my friends have purchased real estate at foreclosure auctions, so I am considering giving this a shot. There is one condominium that is worth about $300,000 that has a starting bid of only $12,000. I have been watching these auctions, and sometimes there isn't a bid in these situations at all. Should I have concerns, or should I make a bid?

-Steven W.

Dear Steven,

We have several clients that engage in foreclosure and tax deed auctions. In reality, there are hundreds of investors that are also looking for great deals at these auctions. There are several reasons why the above starting bid of $12,000 indicates danger, rather than a bargain. It is imperative that you do your due diligence any time you are considering buying property at foreclosure. Why would an owner of property allow it to be sold for a fraction of what it's worth?

Likely answers include that the foreclosing party is the condominium association. If so, the winner at the sale would take the condominium subject any mortgages on the property. If there was a mortgage of $300,000 from the economic peak, the interest and other charges could make that existing lien enormous. Although you would not become personally responsible for that mortgage, it would be valid against your condominium. Any money you bid to purchase the property could be lost if this is the case. That is why it is vital to thoroughly review the foreclosure docket to see what parties are involved, and what mortgages or other liens may remain after the sale. You may be able to negotiate with the first mortgage holder, but they may have little to gain by accepting anything less than the value of the property as payment.

Everyone, especially first-time in-vestors, should seek professional advice prior to placing bids or completing the purchase of properties at foreclosure auction. Logic doesn't always follow reality, which could lead to a buyer making a very expensive assumption on how these auctions work.

Eric P. Feichthaler has lived in Cape Coral for 28 years and graduated from Mariner High School in Cape Coral. After completing law school at Georgetown University in Washington, D.C., he returned to Southwest Florida to practice law and raise a family. He served as mayor of Cape Coral from 2005-2008, and continued his service to the community through his chairmanship of the Harney Point Kiwanis Club KidsFest from 2011-2015, which provides a free day of fun and learning to thousands of Cape Coral families, and funds numerous scholarships. He has been married to his wife, Mary, for 14 years, and they have four children together. Recently, he earned his board certification in Real Estate Law from the Florida Bar. He is also a Supreme Court Certified Circuit Civil Mediator.

This article is general in nature and not intended as legal advice to anyone. Individuals should seek legal counsel before acting on any matter of legal rights and obligations.

 
 
 

 

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