How To Finance A Connecticut Foreclosure Auction Purchase

The listing is on the Judicial Branch website. A two-family in Middletown, a ranch outside New London, a three-family in New Haven. The notice gives a docket number, a deposit amount, a date, and a time: noon, on the property itself. It reads like an open invitation to bid.

What it does not spell out is that the bid you win is a contract with no financing contingency, backed by a deposit you can lose if you fail to close, on a deadline the court sets rather than your lender. That changes the order in which everything has to happen.

How A Connecticut Foreclosure Auction Works

Every Connecticut foreclosure goes through the Superior Court, and it ends in one of two ways, strict foreclosure or foreclosure by sale. Only the second produces an auction. When the court orders one, it appoints a committee, an attorney drawn from an approved list, to conduct the sale, and a disinterested appraiser to value the property under oath. That is why investors here talk about a "committee sale" rather than a sheriff's sale.

Unless the court orders otherwise in a particular case, the Judicial Branch's uniform standing orders set the ground rules:

• Where and when. The sale is held at noon, on the premises. The court's notice to bidders is drafted for a Saturday.
• Inspection. From 10:00 a.m. to noon on the day of the sale, if the property can be entered at all.
• Notice. The sale is posted under Foreclosure Sales on the Judicial Branch website, starting about five weeks before the sale date. A sign usually goes up on the property 20 to 30 days out, though not on most condominium units.
• The appraisal. The court-appointed appraiser's report is filed with the clerk at least ten days before the sale.
• Registration. Bidders register with the committee before the auction and hand over the deposit check in exchange for a bidder number.

The foreclosing plaintiff can bid too, without posting a deposit. If it sends a written bid in advance, the committee announces it as the opening bid. When the bidding closes, the high bidder signs the court's standard sales agreement on the spot, and the committee asks the court to approve the sale.

The Terms You Accept When You Bid

None of these terms is negotiated. They come from three court forms: the standing orders, the fact sheet the committee hands out on the morning of the sale, and the sales agreement you sign at the end of it. Every bidder accepts the same ones.

Read the last four rows together and the shape of the problem is plain. The price you bid is not the cost of the property, and the date you close is not one you choose.

Why The Loan Has To Exist Before The Auction

On an ordinary purchase, a mortgage contingency gives you a period to get the loan approved. If the lender says no, you walk away with your deposit. A committee sale has no such clause. Once the court approves the sale, you have 30 days from the notice of approval to deliver the balance, and that deadline does not move because a lender needs another week.

So the financing work moves forward. Almost everything a lender needs can be gathered as soon as the sale is posted: the address, a view on value, a title search, the entity that will take title, and an insurance quote. The weeks before the auction are the financing period. The 30 days after approval are only the closing period.

At a committee sale you arrange the loan before you bid. The month after approval is for closing it.

Short-term bridge financing is built for that kind of deadline. Our own fix and flip bridge loans cover an auction buy with a hard settlement date on the same short-term, interest-only structure as a renovation loan, with or without a rehab budget funded in draws as the work gets done. They are underwritten to the property and the plan rather than to your personal income, so there are no tax returns to reconcile while the clock runs.

The deposit is the exception. It has to be in your hand as a certified or bank check when you register, before anyone knows who will win, so plan for it to come from your own funds. It does count toward the purchase price.

Underwriting A House You May Not See Inside

Two hours on the morning of the sale is the only inspection the standing orders provide, and it depends on access. The committee is instructed never to force entry into a property against the will of the person in possession. If the house is occupied and the occupant says no, you are bidding on the outside of it.

A lender in that position values what can be seen and checked: the exterior, the public record, comparable sales, and the court's appraisal, which you can read in the case file once it has been filed. Treat that appraisal as one input, not the answer. It was prepared for the court, and your lender will form its own view. On our bridge loans we establish the as-is value and the after-repair value in house.

The renovation budget needs the same caution. The fact sheet says the property is sold as is, that no adjustments are made for defects discovered after the sale, and that no representations are made about its environmental condition. In a state with as much older housing as Connecticut, that covers more than cosmetics. Price the scope for the condition you cannot see, including the systems, the roof, and the chance of an old heating oil tank, and carry a contingency line large enough to matter.

The Costs That Sit On Top Of Your Bid

The winning bid is the number everyone remembers. It is rarely the whole cost.

Taxes, water and sewer

The sales agreement has the buyer assume all outstanding taxes, water and sewer charges and assessments owed to the town, with no adjustment to the price. The fact sheet lists the balances the tax collector and the water and sewer authorities reported to the committee, plus accruing interest, and states that the committee makes no representation as to their accuracy. Call the tax collector yourself. Expect your lender and your title insurer to want those charges brought current at closing, which makes them part of your cash to close.

Liens that survive the sale

The sale clears the lien being foreclosed and the interests behind it. It does not clear anything ahead of it. The standing orders say so directly: the sale is subject to all liens prior in right to the one being foreclosed. If the plaintiff holds a second mortgage, the first mortgage is still on the property after you buy it. Check who the plaintiff is and what it holds, and order your own title search before the auction. The fact sheet also reserves any right the United States has to redeem the property under federal law, which matters where a federal lien appears in the title.

Occupants

The property is sold subject to the rights of anyone in possession who was not made a party to the foreclosure. Until closing, the committee is responsible for securing the premises. After closing, possession is yours to resolve. If someone is living there, removing them goes through the court and takes time, and your attorney can tell you what applies. On a bridge loan, every week of that is a week of interest before the renovation starts.

Your own attorney

The committee is an attorney, but it conducts the sale for the court and does not represent you. Because of the Connecticut attorney closing requirement, you still need your own Connecticut-admitted lawyer for the title work and the loan closing. Engage one before you bid, not after you win.

Between The Auction And The Closing

The sale is not finished when the bidding stops. Under the court's procedures, the steps after it run like this:

1. Auction day. You sign the sales agreement and endorse the deposit check to the Clerk of the Superior Court.
2. The following week. The committee reports the result to the plaintiff by noon on Monday and files its motion for approval of the sale, normally by Wednesday.
3. Court approval. The court rules on the sale. If it does not approve it, the sales agreement is void and the deposit comes back.
4. Notice of approval. Your closing window opens. You close no sooner than 21 days and no later than 30 days after the notice. If the approval is appealed, the transfer runs from the final determination of the appeal instead.
5. Closing. You deliver the balance as a certified or bank check payable to the Clerk of the Superior Court, and the committee deed is delivered to you.
6. Within 30 days of closing. You record the committee deed.

Two things follow for the loan. First, the closing has to fund in a form that can become a certified or bank check payable to the Clerk, so settle the mechanics with your lender and your attorney well before the date. Second, a sale can fall away before approval. The standing orders include a procedure for sales cancelled after they have been advertised, down to a notice posted on the property on the day, and the court file can show filings that stay the process. Some of what you pay for before an auction, such as a title search or a valuation, is spent whether or not the sale happens. That is the cost of being ready, and it is smaller than the cost of a forfeited deposit.

A Pre-Auction Checklist

Most of what decides whether a committee sale goes well happens before the committee arrives.

1. Read the case file. The docket number is on the notice. Look at who the plaintiff is, which lien is being foreclosed, the court's appraisal, and any recent filings.
2. Order a title search. Find out what survives the sale.
3. Call the tax collector and the water and sewer authority. Get current balances, including interest.
4. Drive the property. Note the exterior condition, the street, and whether anyone appears to be living there.
5. Price the rehab for what you cannot see. Carry a real contingency.
6. Get the entity ready. If you will take title in an LLC, its paperwork has lead times of its own, the same ones that slow down any investment property closing in an LLC.
7. Get priced terms before you register. Give your lender the address and your highest bid.
8. Bring the deposit as a certified or bank check in the amount stated on the notice.
9. Set your ceiling and keep to it. Work it back from the after-repair value, less the rehab, the town charges, any surviving liens, the holding cost of an occupied property, and your costs on the way out.

If you are looking at a committee sale, send us the docket number and the address before you register. We will tell you what we can lend against the property and what the file needs. If the deal does not work for us, we will say so and give you the reason. There is no credit pull to get a number.

This article is a general description of how foreclosure by sale works under the Connecticut Judicial Branch's uniform standing orders and court forms as revised when it was written. It is not legal advice. The court can order different terms in any case, and the forms and procedures change, so read the notice for the specific sale, check the court file, and take legal questions to your own Connecticut attorney. Nothing here is an offer, a quote, or a commitment to lend; any loan is subject to underwriting, valuation, title review and credit approval. Riva Lending originates business-purpose loans secured by non-owner-occupied real estate; we are not a consumer lender and we do not originate loans on primary residences or second homes.