Buying a Foreclosure or Auction Property in NYC

In New York City you can buy a foreclosed home in three main ways: at a court-ordered auction run by a referee, from a bank that already took the property back (bank-owned, or REO), or from a government agency such as HUD. Auctions can be cheaper, but you bid without an inspection, put down 10% on the spot, and usually must close in about a month, often in cash.

This guide explains how each route works, where the real risks hide, and what to check before you raise your hand. It is general information, not legal advice. A foreclosure purchase is one of the clearest cases for hiring a real estate attorney before you bid.

How a New York foreclosure gets to auction

New York uses judicial foreclosure. The lender has to sue, the owner has the chance to answer and attend settlement conferences, and only after the court signs a judgment of foreclosure and sale can the property be sold. The NYS Department of Financial Services describes the steps: a pre-foreclosure notice at least 90 days before the suit, the summons and complaint, mandatory settlement conferences, then the judgment. That process often takes a long time, which is why a property may sit empty or neglected for years before it reaches the auction block.

The judgment appoints a referee, usually a lawyer, to sell the property. Under RPAPL § 231 the sale must be a public auction to the highest bidder, and the notice of sale must be published in a local newspaper either once a week for four weeks or twice a week for three weeks before the sale date. The notice gives the time, place and a description of the property.

Auction day: the rules that catch first-timers

Each court sets its own auction rules and each case has its own written terms of sale. Kings County (Brooklyn) Supreme Court's posted rules are a good example of how strict they are:

• Bring the full 10% deposit. The winning bidder must have 10% of the bid in hand at the time of the bid, in cash or a certified or bank check made payable to the referee. Double-endorsed checks are not accepted.
• Sign immediately. The sale is not final until the deposit is paid and the contract (the terms of sale) is signed at the courthouse right after the sale. If the winner cannot do that, the property goes straight back up for auction.
• Close on time. Closing is set for about 30 days after the auction. Missing it can cost you the deposit, and adjourning a closing beyond 90 days needs the court's consent.
• No flipping the bid. Assignment of bids is prohibited.

Rules differ between boroughs and judges, and the judgment in your case controls. Read the terms of sale for the specific property before the auction, not after.

Bank-owned (REO) and government-owned homes

If nobody outbids the lender at auction, the lender often takes the property itself, and it becomes REO (real estate owned). REO homes are then listed for sale, often with brokers, and the buying process looks much more like a normal purchase: you can usually view the property, make an offer and use a mortgage. Expect the seller's own contract addendum, which usually sells the property as-is and limits what the bank promises about it.

Federal agencies also sell homes. HUD lists the single-family homes it acquired after FHA-insured loans were foreclosed on the HUD Home Store, and its Homes for Sale page links to properties from the VA, FDIC, IRS, U.S. Marshals, USDA, Fannie Mae and Freddie Mac. Two HUD-specific points:

• You must submit a bid on a HUD home through a HUD-registered selling broker.
• Through the Good Neighbor Next Door program, law enforcement officers, firefighters, EMTs and teachers can get a 50% discount off the list price on eligible homes in revitalization areas if they live there for three years.

The risks you are pricing in

Title: what survives the sale

A foreclosure sale transfers the interest that was foreclosed. Whether other debts and claims on the property are wiped out depends on who was named in the lawsuit and on the order of the liens. The terms of sale list what the buyer takes the property subject to. Have a title company run a full search before you bid, and read the result with your attorney. You can do a first pass yourself: search the address on ACRIS to see recorded mortgages, assignments and satisfactions (see how to search ACRIS and reading ACRIS mortgages and liens), and check city charges such as property taxes and water bills. Then look for open building violations on the property's Roofy building page. Open violations and illegal work stay with the building, so correcting them becomes your job.

Condition: you are buying blind

At a referee sale you usually cannot get inside. Homes in long foreclosures may have been vacant for years, poorly winterized or stripped. Budget for a worst case: roof, boiler, plumbing and electrical. Price your maximum bid from that number, not from the comps on the block.

Occupancy: tenants and former owners

New York protects tenants of foreclosed homes. Under RPAPL § 1305, a new owner must give written notice to all tenants, and tenants of units that are not rent controlled or stabilized can stay for the longest of 90 days from the notice, the rest of their lease, or (for good-faith leases signed after the foreclosure began) up to three years. Rent-regulated tenants keep all their regulatory rights on top of that. One narrow exception: a successor who will live in one unit as a primary residence can limit that unit's unsubsidized tenant to 90 days.

If the former owner is still living there, you cannot simply change the locks. RPAPL § 713(5) lets the buyer bring a summary proceeding in Housing Court after the property is sold in foreclosure and the deed (or a certified copy) has been shown to the occupant, following a 10-day notice to quit. That takes time and legal fees, and you carry the property while it runs. See the NYC eviction process timeline and how tenancies carry over.

Financing: why auctions are mostly cash

A lender needs an appraisal, an inspection of the collateral and clear title, and most cannot close in 30 days on a property nobody has seen inside. That is why auction buyers usually pay cash or use short-term private loans, and refinance later. Co-op apartments are different again: you are buying shares and a proprietary lease, not real property, so the sale follows the share loan and the co-op's own rules. Read the co-op loans guide and ask the co-op what approval a buyer needs.

A checklist before you bid

1. 1

   Get the paperwork

   Read the notice of sale, the judgment of foreclosure and sale, and the terms of sale. Note the deposit, the closing date and everything the property is sold subject to.
2. 2

   Order a title search

   Find out which mortgages, liens, judgments and charges survive. Ask your title company whether it will insure the title after the sale.
3. 3

   Check the building record

   Look up open HPD and DOB violations, ECB penalties, the certificate of occupancy and the legal unit count. A two-family used as three is a problem you buy.
4. 4

   Find out who lives there

   Drive by, talk to neighbors, and assume occupants until proven otherwise. Price in the time and legal cost of a Housing Court case.
5. 5

   Set a hard maximum

   Start from after-repair value, subtract repairs, carrying costs, closing costs, transfer taxes and a margin for surprises. Do not exceed it in the room.
6. 6

   Line up the money

   Have the 10% deposit in the form the referee accepts and proof you can close the balance within the deadline.

Is it worth it?

For an experienced cash buyer with a contractor and an attorney on call, a referee sale can be a way to buy below market. For a first-time buyer who needs a mortgage, an REO or HUD listing, or simply a regular sale, is usually the safer path. Either way, run the full cost before you commit: try the house flipping calculator for a renovation budget and the NYC closing cost calculator for transaction costs.