Final answer:
Purchasing a property at a mortgagee auction entails the risks of buying a property that has a lower market value than expected and potentially inheriting unresolved debts or legal issues.
Step-by-step explanation:
Two common risks associated with purchasing a property at a mortgagee auction are the potential for the property to have a lower market value than expected and the possibility of inheriting unresolved debts or legal issues attached to the property.
Mortgagee auctions may present properties that have been foreclosed due to a borrower's default on the mortgage. Purchasing such properties can involve significant risks. Firstly, the property might have depreciated in value, particularly if the area has experienced a downturn in the real estate market. This risk is compounded by the fact that buyers may have limited access to inspect the property thoroughly before bidding. Without a comprehensive inspection, buyers could not only inherit structural problems but also find the property's value to be less than the amount of the mortgage, a situation referred to as being 'underwater'.
Secondly, properties sold at mortgagee auctions can sometimes come with liens or other legal encumbrances. This means that the new owner could be responsible for settling any outstanding debts or issues related to the property which could include unpaid property taxes, homeowner association fees, or other creditor claims. Additionally, the purchase process itself can be complex, and without due diligence, buyers might overlook important legal or financial details.