When I first met Bob, a new investor in the area, he was interested to learn how foreclosure auctions in Chicago worked. This isn’t an unusual curiosity among new investors. Leads on distressed properties can be hard to come by, so auctions can seem like low-hanging fruit. But, I had to break it to Bob: it’s not as simple as it appears. There are a lot of complexities in buying an auction property that you should be aware of before getting your heart set on leveraging them to grow your real estate investing business. And, I’ve been investing long enough to see that it’s only gotten more complicated in the last couple of decades.
In 1987, something happened that would forever change how a foreclosure auction works in Chicago. With the passing of the Illinois Mortgage Foreclosure Law, the lender and their attorney could appoint their own third party to conduct the foreclosure auction instead of it being handled by a judge or sheriff. That’s how companies like The Judicial Sales Corporation (TJSC) got into the foreclosure auction business. When a judge orders the sale of a particular property, TJSC is able to offer their auction services to plaintiffs whose homes are being foreclosed. Generally speaking, their rules are similar to government auctions. But you’ll need to know the ins and outs before attempting to buy a foreclosed property at any foreclosure auction in Chicago. Let me share what I know.
Chicago Foreclosure Auctions: How It Works
Most auctions in Chicago, whether public or private, follow a similar process. TJSC, for instance, starts their auction every weekday at 10:30 in the morning. After registering and paying a down payment with a certified check, you are able to bid on available properties. Once you receive your bidding paddle and credentials you are ready to get started. Sounds pretty straightforward, right?
While this can be the case, you are likely to come across some problems along the way. That’s why it’s important to consider some of the risks involved with purchasing a foreclosed property in Chicago. Let’s take a closer look at some of the problems that you may encounter.
- Time loss. The time it takes to find a potential deal on an auction list is just the beginning of what you will spend. Sure, you’ll have to analyze a lot of properties—and their after repair comps—before feeling any sort of comfort in putting in a bid on one that you feel has enough upside potential. If you are lucky enough to win the bid, you may have to spend more time waiting for the property to legally become yours. With TJSC, for example, the auction sale still has to be approved by a judge—which could take weeks or months. If you were to use that same amount of time getting leads on houses before they are foreclosed on, you may find an even better deal with less overall risk.
- Coming away empty-handed. Like many other auctions, the properties are listed on the TJSC website prior to auction day, but that doesn’t mean it will be available when you are ready to bid. A foreclosed property can be removed from the TJSC site at the last minute due to redemptions, adjournments, settlements, or bankruptcies. So you could find yourself empty-handed before the auction even starts. This may not happen at all, but the risk is certainly enough to make you think twice.
- Surprise taxes and liens. You’ll want to make sure there are no outstanding taxes or liens on a property that you are interested in. TJSC, for instance, doesn’t guarantee the titles of auctioned properties and recommends that you perform your own due diligence. Buying a property without this knowledge could make you end up being responsible for everything owed—which cuts into your potential profit margin or could even put you upside down in the deal.
- Paying more than the property is worth. Financial institutions that carry a loan on the foreclosed property have an upset price, which is the minimum price that they’re willing to sell the property for. The problem is that the banks don’t necessarily disclose the actual upset price to bidders. So you won’t know if you bid more than you need to and end up overpaying or underbid and lose the deal altogether. Also, chances are that property was also at the top of other bidders’ lists, so the potential for more bidding competition and, subsequently, prices increase. I’ve seen this happen to investors who flock to TJSC and many other foreclosure auctions as well.
- Unexpected repair costs. More often than not, you won’t be able to check out the interior of the home until you actually purchase the property, so you could be in for a surprise. Unfortunately, during a foreclosure, homeowners tend to let things go and even cause damage before being evicted. If you have aspirations of purchasing a property and flipping it for a quick profit, it could be difficult to accomplish with a foreclosure property because you may have a significant—and unplanned—rehab on your hands. The limited amount of information prior to bidding won’t allow you to adequately assess whether or not a property will be profitable, so be prepared.
There are significant risks that come with purchasing at auction in Chicago. But, with real estate investing, the key isn’t to simply avoid risk. You’ll want to know how to manage it.
A Better Option for Buying Distressed Chicago Properties
When Bob heard all this, he decided that while buying a property at a Chicago foreclosure auction is one way to build your property portfolio, pinpointing a property before it gets caught up in legal red tape carries less risk and offers higher potential returns. But I had even more news for him—and you as well. When you become an independently owned and operated HomeVestors® franchisee, homeowners who need to find a way out of an “ugly” situation know to call you before anyone else. The nationally-known and trusted “We Buy Ugly Houses®” marketing campaign brings leads to HomeVestors® franchisees every day. Discount and Chicago real estate rarely go together, which is why it didn’t take long for Bob to get in touch with HomeVestors to find out more.
If you are looking for more ways to generate solid real estate leads in the Chicago area, give HomeVestors a call today.
Each franchise office is independently owned and operated.