Hazards of buying partially built house at auction?

I’m considering buying a house at auction which is partially built. It’s a custom new house which I estimate is 80% completed – foundation, framing, stucco exterior, roof and windows. My question concerns mechanic liens. In a normal world, the general contractor would get paid in draws as construction progress is made, and the GC would then pay his subcontractors. The nightmare scenario would be after I buy the house, a slew of subcontractors and general contractors all file liens claiming they never got paid. Not being the original owner, I would not have receipts to prove that they are billing twice for the same work. How does one deal with this situation?

You should check with an attorney but I believe they would have to file and record their lien in order to have a legitimate claim. That doesn’t mean they can’t sue you - anyone can sue anyone for anything - but my guess is that you would prevail.
Primary things I would look at include;

  1. The status of the building permit, and payment of fees - I looked at a deal once where the county told me they had put a stop to construction because it was non-conforming and that it would need to be torn down and rebuilt. On another deal, they said a new permit would have to be filed because the original expired - and that all fees would need to be repaid.
  2. Careful review of title for unpaid liens.
  3. Contact the general contractor and find out the status directly. Usually asking if they would be interested in completing the work will get them talking - but don’t mention the auction sale, you don’t want to give them any ideas.
  4. A really careful assessment of what it will actually cost to finish.