Auction Assignment Risks

Acquiring a property through an auction assignment may seem like an excellent opportunity due to the possibility of obtaining properties at prices below their real market value (although this is not always the case, beware!). However, this acquisition entails significant risks that must be considered in order to avoid legal and financial complications. In fact, the risks are exactly the same as if we had gone to the auction in question and had been awarded the property. The following are the main risks that we assume with the assignment of auction.

In a previous article we already talked about auction assignments, what they are, how they work and who is involved in this type of process. In today's article we are going to talk about the risks involved in acquiring a property through a foreclosure assignment, either to a bank or to the creditor in question.

Subrogation in Prior Charges

The main risk is the subrogation in the charges prior to the auction. This means that the new owner must accept and assume existing mortgages or liens. Although he is not subrogated to the debt itself, he must respond with the acquired property. If these encumbrances are not removed by payment, the new owner may face subsequent lawsuits.

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Hidden Charges and Charges of Doubtful Cancellation

In addition to the explicit registry charges, there are hidden charges such as unpaid taxes or community fees. These debts can be transferred to the new owner, generating unforeseen additional costs. Also, some charges may be difficult to pay, which could complicate the future disposition of the property.

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Third Party Occupants

One of the most serious risks is the existence of unregistered third party occupants, such as tenants with existing leases. These occupants may have legal rights to remain in the property, which may hinder their eviction and affect the new owner's plans for the use of the property. Or even occupants with no rights to remain, but with no intention of voluntarily leaving the property until a judge decides.

Property Ownership

Another important risk is the possible nullity of the auction or mortgage process, especially if it is declared that the auctioned property did not belong to the foreclosed party. This situation may result in the loss of the property by the successful bidder, who may have acted in good faith but still faces the annulment of the sale.

Mortgage Proceeding

In some cases, the mortgage proceeding may be dismissed after the auction but before the launch, if the clause underlying the foreclosure is deemed abusive. This may invalidate the auction, leaving the successful bidder without the property and without the possibility of recovering the investment made.

Precautionary Measures

To mitigate these risks in an auction assignment, it is crucial to conduct as thorough an investigation as if it were an auction. This includes:

1. Reviewing the Property Registry: Make sure you know all the registry charges and their status.
2. Visit the Property: If possible, visit the property to assess its condition and occupancy.
3. Consult with professionals in the field: Obtain legal advice to fully understand the implications of subrogation of encumbrances and other legal risks.

Assignment of auctions can be a profitable opportunity, but it is essential to be well informed and prepared to face the associated risks. Proper due diligence and expert legal advice are key to making a safe investment and avoiding unpleasant surprises.

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