Buying a house at a foreclosure auction and upgrading questions.

[Giro]

So multi-faced question.

1.  I would like to upgrade our home for an additional 1000 sq ft of living space.  Is it worth it?  The taxes would be +1000 annually.  The insurance would be about +100 annually.  We would take the proceeds from current home to buy new home so that's basically a wash.  I want more space.  I know I can get rid of more stuff, but I'd love another bedroom in the home.  I have a 10 year old child.  I also currently have my older daughter still occupying a bedroom with her things until she gets her own place.  She graduates college in the Spring and will probably be out by end of year. 

2.  I found a home in a very similar neighborhood that is in foreclosure and scheduled to be auctioned off in 2 weeks.  Assuming the auction happens, I was planning to potentially buy it there.  Same city, same amenities, similar proximity to work (about 3 miles closer), etc. 

Does this make any sense at all?  How important is an extra 1000 sq ft? 

anyone have experience buying homes at a courthouse auction? 

[ShoulderThingThatGoesUp]

Are homes sold free and clear of all liens at foreclosure auction in your state? You need to do a title search before buying a property there.

[Giro]

Are homes sold free and clear of all liens at foreclosure auction in your state? You need to do a title search before buying a property there.

Yes, the home will be free of all liens at the sale.  I will do a title search for sure.  The former owners are gone from the property and an inspection was done at the time the home was winterized by the bank.

[Fishindude]

Most foreclosures have not been taken very good care of and will need significant work to make them habitable.
If you are handy or have the ability to pay someone to do the repairs, I wouldn't shy away from one.  There are some bargains to be had.

I bought one several years ago and sold it, and my bother has done the same.  Both were in rough shape, but the both of us are construction guys and things that look pretty overwhelming to some, we didn't consider too tough.

[neo von retorch]

For Question #1, how large is your current home? Number of rooms? How will the transaction costs of selling your current home and purchasing the foreclosure affect your financial picture? Are you pursuing FIRE, and if so, how will this affect the date? Do you need a full 1000 square feet in addition to what you have now?

[ooeei]

Does this make any sense at all?  How important is an extra 1000 sq ft? 

Why do you want the extra 1000 sq ft?  It sounds like you're going to have your daughter moving out soon, so that space will be vacant. It's hard to know if it's "worth it" when we don't know why you want it.

How big is your home now?  If it's 800 sq ft, an extra 1000 is a huge change and may be worth it.  If it's 5000 sq ft an extra 1000 isn't much.

Don't forget transaction costs.  Assuming your current house and the new one you buy are worth the same amount (Why would a house with 1000 more square feet be worth the same as yours? I'm sure there's a reason.), you'll be on the hook for transaction costs, inspections, moving, etc etc. 

[Giro]

Very good questions, thank you.

Current home is 1900 sq ft and a finished basement.  But, my husband uses nearly the entire basement for his side business so we don't really have storage area.  I am a minimalist and he is SO not a minimalist.  I have been getting rid of things for quite awhile but still struggling with space.  We currently only have 3 bedrooms.

I would want the new home to be paid for by the sell of the old home after transactions costs.  I realize they can be fairly steep.  There should be enough cushion in the value of the old home to cover new home + transactions costs + a bit of repair/upgrade. The new home is in great condition for a foreclosure and I saw the inspection report from a sell that didn't happen a few months ago.  The buyer couldn't get financed. 

This will not affect my FIRE date.  I plan to FIRE in 2 years.  DH plans to FIRE in 5 years or so. 

[Giro]

I do have a bit of anxiety about the increase in property taxes.  I believe we pay too much now and the new home would be an additional $1000 per  year.  :/

[ooeei]

Very good questions, thank you.

Current home is 1900 sq ft and a finished basement.  But, my husband uses nearly the entire basement for his side business so we don't really have storage area.  I am a minimalist and he is SO not a minimalist.  I have been getting rid of things for quite awhile but still struggling with space.  We currently only have 3 bedrooms.

I would want the new home to be paid for by the sell of the old home after transactions costs.  I realize they can be fairly steep.  There should be enough cushion in the value of the old home to cover new home + transactions costs + a bit of repair/upgrade. The new home is in great condition for a foreclosure and I saw the inspection report from a sell that didn't happen a few months ago.  The buyer couldn't get financed. 

This will not affect my FIRE date.  I plan to FIRE in 2 years.  DH plans to FIRE in 5 years or so.

So the financials sound like they work out, that's good. 

You still haven't answered why you want the extra space, other than "struggling with space."  Your daughter is moving out soon, so you'll have an entire extra bedroom available for whatever stuff you want.  Consider getting more creative with storage? What exactly will the benefit be you receive from the new space?  I'm getting a vibe that you want to move and renovate the new house as a project, and are trying to use the space as a justification to move.  There's nothing wrong with that, but before moving houses you should really know your concrete reasons for wanting to go.

Also, does the new house have a finished basement, or place for your husband's side business?  If it doesn't, that extra 1000 sq ft could be eaten up due to him having to take over some of it for the side job.  Your basement right now probably isn't included in your sq ft measurement, so they may be more comparable in size than you think.

[Giro]

Very good questions, thank you.

Current home is 1900 sq ft and a finished basement.  But, my husband uses nearly the entire basement for his side business so we don't really have storage area.  I am a minimalist and he is SO not a minimalist.  I have been getting rid of things for quite awhile but still struggling with space.  We currently only have 3 bedrooms.

I would want the new home to be paid for by the sell of the old home after transactions costs.  I realize they can be fairly steep.  There should be enough cushion in the value of the old home to cover new home + transactions costs + a bit of repair/upgrade. The new home is in great condition for a foreclosure and I saw the inspection report from a sell that didn't happen a few months ago.  The buyer couldn't get financed. 

This will not affect my FIRE date.  I plan to FIRE in 2 years.  DH plans to FIRE in 5 years or so.

So the financials sound like they work out, that's good. 

You still haven't answered why you want the extra space, other than "struggling with space."  Your daughter is moving out soon, so you'll have an entire extra bedroom available for whatever stuff you want.  Consider getting more creative with storage? What exactly will the benefit be you receive from the new space?  I'm getting a vibe that you want to move and renovate the new house as a project, and are trying to use the space as a justification to move.  There's nothing wrong with that, but before moving houses you should really know your concrete reasons for wanting to go.

Also, does the new house have a finished basement, or place for your husband's side business?  If it doesn't, that extra 1000 sq ft could be eaten up due to him having to take over some of it for the side job.  Your basement right now probably isn't included in your sq ft measurement, so they may be more comparable in size than you think.

Thank you so much for the response.  The new place has a full basement as well. 

It might be a bit of I want a new house.  I need to think about that for awhile.  I want more space for storage, like seasonal clothing, paperwork (taxes, etc), linens, etc.  You are right that I will have an extra bedroom when the older daughter gets her own place.  perhaps I should wait it out. 

[Villanelle]

Don't forget the significant increase in utilities for adding 50% more house. 

I would wait until daughter leaves and see how the current house suits you then.  I'd also ask her to box up everything so it take up less space now.  You can shove it in a corner somewhere and reclaim at least some of her room.  But really 1900 sqft plus a large basement is a lot of space for 3 people. 

During the time you are waiting, you can look at your current house and see if there are ways to better use the space.  Organize the basement and see if you can reclaim enough space so that a small area is available for storage.  Add shelving to closets so the you can use the space up by the ceiling for things like seasonal items.  Use daughter's closet, and put in shelving if necessary, in both the closet and perhaps one wall of the room. Same thing in the garage (if you have one)--shelving, and sme of those shelves that hang from the ceiling so you can use the space above the cars.    And purge like hell, as it seems you have a ton of Stuff. 

[bobechs]

I don't know how much experience you have with the foreclosure process, and I certainly don't know the details of the exact foreclosure sale you are anticipating--

BUT--- be aware that the foreclosing lender will almost certainly bid the full amount they are owed by the defaulting borrower and that is way more than the remaining principal on the loan.  The whys of that are multiple and no need to go into it in detail. Also, that amount is almost never less than the fair market value of the house on that day.

Of course, if two outside  bidders care enough to run the auction price up from there, the lender doesn't have much incentive to follow, but ask yourself this-- if the house is worth so much more than the foreclosure judgment then why wasn't it sold before?

What I'm saying is, find out how much the judgment is before the sale and determine if you are willing to pay more (and how much more) than that  to have the house. 

Do it  before you make elaborate plans for what you will do after you own the thing.

[ShoulderThingThatGoesUp]

I don't know how much experience you have with the foreclosure process, and I certainly don't know the details of the exact foreclosure sale you are anticipating--

BUT--- be aware that the foreclosing lender will almost certainly bid the full amount they are owed by the defaulting borrower and that is way more than the remaining principal on the loan.  The whys of that are multiple and no need to go into it in detail. Also, that amount is almost never less than the fair market value of the house on that day.

At least in Pennsylvania this appears to commonly not be the case. I pay attention to foreclosure sales because I think it's fun (I'm a weird dude), and take a look at this link, then sort by "Disposition" and search for "3rd party". You'll see a non-negligible portion of properties are sold for less than the balance. Not tons, but it does happen.

[bobechs]

I don't know how much experience you have with the foreclosure process, and I certainly don't know the details of the exact foreclosure sale you are anticipating--

BUT--- be aware that the foreclosing lender will almost certainly bid the full amount they are owed by the defaulting borrower and that is way more than the remaining principal on the loan.  The whys of that are multiple and no need to go into it in detail. Also, that amount is almost never less than the fair market value of the house on that day.

At least in Pennsylvania this appears to commonly not be the case. I pay attention to foreclosure sales because I think it's fun (I'm a weird dude), and take a look at this link, then sort by "Disposition" and search for "3rd party". You'll see a non-negligible portion of properties are sold for less than the balance. Not tons, but it does happen.

I dunno.. 11 third party sales out 388 cases (~3.5%) is closer to 'almost never' than 'commonly' to me, but they are both squishy phrases, so...

And I admit I don't know Pennsylvania court procedures. Never even got a traffic ticket there.  As a general observation, I'd caution that not all judicial sales are the result of foreclosure by a lending institution so, if I really wanted to know, I'd look over those 11 sales to figure what is going on with them and what, if anything, they have in common.

I have been around the courthouse quite a bit in four or five southwestern states over the years and I'd stick by 'almost always' as a fair description of the times lending institutions protect themselves by bidding the judgement in a foreclosure that goes all the way to sale.  As I hinted, it doesn't bother them if someone wants to bid more but it's the rare foreclosed house that is worth much more, because the ones that are typically sell some other way before the auction.

Not always-- just almost always.

[Another Reader]

During the foreclosure crisis, things sold at the Maricopa County Courthouse (Phoenix area) for far less than the loan amount to third parties every day there was an auction.  I don't understand your statement.

[SeanMC]

There are significant local differences between how foreclosure sales work and the incentives/attitude of lender. Someone asking on the internet if anyone has experience with auctions and if it's a good idea for an extra 1000 sq has a lot of homework to do before figuring out if this makes any sense at all.

[Jeremy E.]

at the county auctions where I live, you must have cash on hand, and you buy as is. However they also have bank foreclosures that I don't know a lot about, but I know that you generally pay under market value and the process takes a lot longer than normal

[pk_aeryn]

Ask yourself: are extra linens worth $1000 per year? Are tons of seasonal clothes worth $1000 per year EVERY year?  For that much, you could buy a whole winter wardrobe and throw it away every spring!  (Obviously I'm not recommending that)
Think of what 1000 can compound to-- are extra sheets really worth that?

And as for the papers, buy a feed scanner and digitize eveything.  Keep only the very most important papers, scan and shred the rest.  Just have a redundant data backup system in case your computer crashes.

[Goldielocks]

You know, an 8x6ft closet will likely store the complete list that you mention...

Could you build that space in the basement?  Perhaps under the stairs where the space is not that great?   As you would not need to access it often, that could work.   Or fit out part of your garage for it, etc.  Then when your daughter moves out, you have upstairs room for yourself / spare room, plus a bit of long term storage.

[Giro]

great advice, thanks all!!

I'm currently trying to figure out why this house was never on the market.  I'm at the point now of possibly dropping by and speaking to neighbors.  I cannot find the former owner and the management company is really very little help!!