Closing on a house checklist:

CHECK, CHECK, CHECK AND CHECK AGAIN!

Before you buy any foreclosure property, check everything out, then check again, and again, and again! Avoid a disaster and be sure you check on every possible variable before you plunk down your money and buy any foreclosure. Remember, the trick is to know what you are buying. Buy low and sell high sounds simple, but verification of a property's true value and all of its debts and liabilities is not.

There are many steps to proper due-diligence in buying foreclosures. Skip one and you may be doomed for disaster, that is, if you think losing your nest egg is a disaster!

Simply put, you need to verify all loans, liens, judgments, assessments, leases, market and physical conditions related to each property you are interested in, before you buy. First determine if the subject property has any equity worth pursuing. Then verify the subject note in foreclosure. Then verify any senior and junior liens (note junior liens are only relevant if you buying the property from the current owner (Trustor) as you will be stepping into his/her shoes and inheriting all of the junior liens. Junior liens are those liens which have been recorded at the County Recorders office after the date of the subject loan or lien. Buying from a trustee or sheriff wipes out all junior liens, in most states, so you can disregard them if you are buying the property at auction. However, you still need to review each note (mortgage document) to verify if the senior lien, may have subordinated to a junior lien. In this case, a junior lien may be senior and may still need to be satisfied even if you are buying at auction. This is possible, if the senior subordinated to a junior, e.g. a mortgage for the construction of a house, may be subordinated to a junior lien provided for the land itself. This is rare, but a real possibility which is often overlooked.

Another, overlooked item is checking on all liens against the owner (Trustor) of the property. There may be tax liens or judgments against an owner which are senior to the subject loan in foreclosure, (but that is also rare). Most institutional lenders will require all senior non-mortgage related liens to be removed (paid off) before they loan and record their lien on a property. However, it is possible that they might have overlooked a senior lien (tax or judgment) and recorded anyway. This does not change the priority of the senior lien and your obligation to pay it off once you own the property. IRS liens are a classic that most foreclosure buyers overlook. An IRS lien can further impact you, even if it is junior. The IRS has a 120 day right of redemption (a time period within which the IRS can pay you what you paid for the property, provided you bought it at auction and wiped all junior liens). During this 120 day period, you should not make any added investment in the property. Wait out the 120 day redemption period, then proceed.

Verify if there are any senior leases or contracts against the property that will not be wiped out even at an auction, and more certainly must be maintained if you are buying prior to an auction. Check on the history of the property with local real estate agents, or better yet in the MLS. You can learn if the property has been on the market prior to foreclosure, and perhaps why it didn't sell. Many times, the comments section of a previous listing on the property will provide a description, including any significant defects, e.g. a cracked slab, foundation, roof or structural problems. Drive by, walk around and even inside, if you can, and try to determine what repairs and cosmetic fixes will be needed to resell the property.

Every step of the way, you need to re-evaluate the total debts that you will be responsible for and the current debt-to-value (DTV) ratio. At any stage of your evaluation, the property could fall out of a desirable ratio of DTV and should be discarded. Don't buy a "lemon", or a property that is upside down. Don't skip any of the steps in your evaluation, and be certain you have double checked everything. Read the documents, thoroughly research the debts, the previous sales and marketing history, the neighborhood sales and current listings, tax liens against both the property and the owner/Trustor, and be realistic on the cost of any repairs. Avoid costly mistakes. Don't rely on anyone's advice that you are not 100% certain of their qualifications and professionalism. A bad title rep or customer service person can overlook a lien without consequence to them. Since you will not get a title insurance policy when buying the property at auction, you are buying it bare bones. Likewise, unless you request an actual policy before you buy the property from the current owner/Trustor in default, you are also buying it at your own risk. Check, check, check...ask, ask, ask, then check again!

Shark Bait - The foreclosure buyers' software provides you with a Check List "Task Master" that will walk you through every step, making sure no item was overlooked. Before you purchase any property, you will have on-screen visual verification that you have checked every area and item. As discovered, all liens may be added to the record and the DTV ratio will be constantly updated. At any point in the process you can dump a record that no longer looks good. Shark Bait will gather all of your research and comments into one database, interfacing each item as necessary. Shark Bait will automatically generate forms and reports that you can use to send to your broker, agent, title rep, etc. for quick and easy verification of items you'll need to check out. As these reports are completed by your team and returned, you can quickly enter any new information in the appropriate record and re-evaluate all of the variables for continued qualification.

Whether you use Shark Bait, or just paper lists and notices out of your legal newspaper and your own research at the County Recorders office, you need to quickly determine all of these variables, and check out every item before you buy. Don't skip over any step or assume any condition about a property, or the status of any liens. Check, check, check...

We hope this tip was helpful in your foreclosure buying efforts. Please visit us at http://www.digitaldeal.com and take our free tour of the Shark Bait software.

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