If I haven’t scared you enough with my previous blog post warnings about buying property at auctions, let me try one more time! Don’t get me wrong, there are excellent deals to be had at auction if you know comprehensively what you are doing and where the traps are likely to be.

Here is a quick review of wallet draining auction pitfalls:

• Buying a second mortgage foreclosure and thinking that the foreclosure was on the first mortgage when the property is upside down in equity. Your purchase price won’t clear the first mortgage, which will still have a claim against the property for the remaining value because it was not the foreclosure instrument. If the first mortgage isn’t paid off (or if it is in default not bringing the loan current and continuing on with the monthly payments), the lenderwill foreclose on your new property.

(There are reasons a second mortgage-holder may foreclose even on an upside-down property. Trust me; you don’t want to be the one to bid them up over their walk-away price.)

• Forgetting to check back property taxes and finding a large amount is outstanding. You must settle it, probably with penalties and interest, or the tax authority can foreclose on your new property.

• Not realizing you are responsible for a specific lien on the property. What? Doesn’t a first mortgage foreclosure remove all other liens (even if the borrower stills owes them unsecured)? If the foreclosure was done by a junior lienholder such as a Homeowner’s Association, you could end up in a sticky situation with all the lienholders ahead of the HOA, including the first mortgage lender. Or, in rare cases, there could be a mechanic’s lien left over from the initial construction that pre-dates the first mortgage and has to be settled to prevent another possible foreclosure. And, of course, IRS tax liens must be settled.

• Not doing a thorough enough job of inspecting the property and finding massive problems. This speaks for itself and can’t be minimized. Properties have been bought at auction with structures so rickety they were condemned and demolished by the city, and then the new owner got the bill!

• Forgetting to insure the property later to find that there has been theft and vandalism by the former owner. I am sorry to say that a foreclosure puts some owners in such a bad mood that they will rip out cabinets and plumbing, steal the shrubbery leaving dirt holes in the yard, and even leave faucets running.

I mention these events because, unfortunately, they are not that uncommon in auction sales. No one intends to put themselves in such situations, but they do tend to occur more often to the less experienced buyers. When it comes to auction buying, buyer beware!

What is on your due diligence checklist before you will bid on a property at auction?

You can create lasting, generational wealth in real estate – if you know how! Download my FREE ebook “How to Find Underpriced Properties: Secrets for Creating Wealth with Real Estate in ANY Economy” from Andy Werner at StreetWise Property Investing.