Foreclosure Auctions

Foreclosure Auctions

Definition

Auctions at which foreclosure homes from a variety of sources are sold to the highest bidder. Most are conducted at the county level, although the federal/state government also holds them.

What is a Foreclosure Auction?

Foreclosure real estate auction

When people get behind on their mortgage payments, a series of events starts to take place. First, the person may only be a month or two behind and still able to work with their mortgage lender on some kind of a plan to get caught up. Lenders have various departments that will work with a homeowner to do the best that they can to cure the arrears. After a few months of not paying, the foreclosure process will start to take place. Each state has different laws and regulations as it relates to foreclosures.

Some states do what is called a judicial foreclosure which means that the actions must take place through the court systems. Other states use non judicial foreclosure which means that the bank can foreclose on the property without taking homeowner to court. No matter what, every state requires that the lender gives the homeowner plenty of time to cure the default by sending letters and advertising the property in the legal newspaper for several weeks. During all of this time, a homeowner has a chance to sell their property or borrow money to get their payments caught up. If they don't do that, the next action will be the foreclosure itself.

A foreclosure auction is when the bank tries to sell off this past-due asset to a home buyer or investor. This often happens on the courthouse steps in many states. Sometimes, the house still doesn't sell for enough money at a foreclosure auction, so the bank ends up taking it back into their inventory where they will later list it with a real estate agent.

How Do Foreclosure Auctions Work?

In order to understand the foreclosure auction process and learn how to make it a success for you, you must first start with research. Research is not always a lot of fun, but buying a house at the right price in the first place is critical to making a profit in the end.

Organize Yourself

Researching foreclosure auctions involves gathering up all of the information for the up and coming auctions in your area. There are databases online that will tell you which properties are coming up so that you can check them out before bidding. Most areas will not allow you to see the inside of the home prior to the foreclosure auction, but that doesn't mean that you can't drive by, check out the outside and look around the immediate area.

You should organize the properties that you're interested in, and you might want to create a spreadsheet so that you can compare them. If you have access to comparable sales information or an experienced real estate agent, it makes sense to get an idea as to each home's value so that you will know what price is your maximum at the auction. Sometimes, you may find a property that is coming up for auction and the homeowner is still living in it. This allows you to speak with them to see if there is any last-minute transaction you can create between you and the homeowner. If you are able to save a person from foreclosure, it makes sense to do so.

Understanding the Bidding Process

The next thing you want to do is to confirm that the auction will still be taking place. You also want to make sure you know where it is happening and how the bidding procedure works. Sometimes, homeowners may be able to get their payments caught up before the auction date which means houses can be removed at the last minute. If you are only going to be auction to bid on one particular property, you need to know in advance if it's been removed from the list.

Understanding the bidding procedure is critical because it varies quite a bit from area to area. Some places require that the bidder brings the entire amount due on the home in the form of a cashier's check or cash. Other states allow you to bring a certain percentage upfront and then pay the remainder within a specific period of time. You need to know this before bidding!

Part of the research that you do on the home should also include checking the title and the amount owed against the property. The last thing you want to find out is that you've purchased a property which has other liens against it or title problems that you're unaware of. Some liens can become the new buyer's problem, and that is a surprise you don't want to get.

You should also decide what your maximum bid amount will be on the property before you go. It's very easy to get caught up in the excitement at an auction, so sticking with your top number is imperative. The bidding procedures will also affect how much you can bid on a property, especially if your cash is limited. There many different equations recommended, so you have to find the right balance for yourself. Keep in mind things such as how much other properties in the area are worth and whether or not the subject property needs repairs. You should also be thinking about your exit strategy so that you can figure your top bid.

Before going to the auction, make sure to check again to see that your subject property is still on the list. Once you have won a property at auction, speak with a real estate attorney or the auctioneer to find out what you need to do in order to take ownership of your new property. There may be certain court documents that need to be filed as well as specific fees.

Trustee/Courthouse Auctions

You will sometimes hear foreclosure auctions referred to as trustee or courthouse options. This simply means that the sale is a public auction where any bidder can come and try to purchase the property. The bank usually sets a minimum bid, often whatever the mortgage payoff is. If someone can meet that criteria, they can own the property. The trustee is a person who has been appointed to direct the assets and facilitate a foreclosure process.

How to Find Foreclosure Auctions

Finding foreclosure auctions is easy as long as you know where to locate the most up-to-date information. Foreclosure Deals has thousands of listings of foreclosure auctions all around the country in one easy to navigate location.

What to Know Before Placing a Bid

Before placing a bid at a foreclosure auction, make sure that you understand whether or not there are liens on the property that will be passed on to the new buyer. This can be things like IRS liens, mechanic's liens and even past due taxes on the property. Since you cannot look inside of the home before bidding, at least take a drive around and peek in the windows as long as the homeowner isn't living there anymore.

Understanding the bidding process is one of the most important factors involved with being successful at a foreclosure auction. Doing your research up front will pay big dividends when you get a good deal on a property and you have enough cash to pay for it.

Finally, thoroughly examine the neighborhood to make sure that there aren't tons of other foreclosure properties on the market. This could signal a distressed market place and lower home values. It is yet another reason why you need to do a thorough market analysis before making a bid at a foreclosure auction.

FAQ about Foreclosure Auctions


  • General Questions

    • A bank foreclosure auction is an event at which homes that have been foreclosed on are sold to the highest bidder. These are usually sold by county sheriffs, and bidders are subject to local laws and regulations on who may register and what the process entails.

    • County courts regularly publish schedules of their foreclosed home auctions. Consult these lists to find when these auctions will be held and what requirements there are in order to bid.

    • The initial payment required usually depends on the seller and how much the property is worth. It could be as little as $500.00, or deposit of 10% of your offer amount required by some banks. The deposit must be paid immediately after the auction; and the balance is due within 30 days (depending on the state).

    • The greatest advantage for buying properties at auctions is the money that will be saved. Investors and homebuyers can purchase properties well below market value, which can result in a tremendous return on investment.

    • Two important things to note for foreclosure property auctions:

      • Arrive early and be prepared for quick transactions;
      • You must have cash or a cashiers check to finalize the deal;
  • Auction Process Questions

    • You need to bring cash or a cashier's check to most auctions, or enough for a down payment (usually 10% of the purchase price, but this varies from auction to auction). It also helps to bring a valid form of identification, or a pre-approval for a bank.

    • A cashier's check is required because it basically represents guaranteed funds. A regular check drafts on your checking account and is not guaranteed. Auctions prefer guaranteed funds to ensure that money will be there for earnest money or down payments.

    • No experience is necessary, but it helps to have a good idea of what is going on before you bid. Feel free to ask questions, attend tutorials, and observe proceedings to get a feel for the process.

    • Having a broker or an agent can be incredibly helpful as you go through the process. It makes the process easier and less complicated, and can also result in commissions being paid to your broker/agent for their assistance.

    • Watching is permitted and even encouraged, especially if you are new to the process. You do not have to bid on anything. Space limitations may restrict access to registered bidders only.

    • Auction lengths vary, depending on the speed of the process and how many properties are being sold. Most auctions move pretty rapidly, and usually publish a schedule for you to review before the auction begins. Auctions can last anywhere from an hour to an entire day or even a weekend.

    • Yes. Auctions allow you to purchase multiple properties, but sometimes require that you register beforehand as someone who will be bidding on multiple properties. Check your auction terms and conditions before you register.

    • Earnest money is also called a "good-faith deposit". It shows that you are serious about purchasing the property. This money is held in escrow and is applied to the buyer's costs upon fulfillment of the contract.

    • Most auctions accept cash, cashier's checks, or personal checks (depending on the venue and the jurisdiction). Check with your particular auction before you arrive.

    • This depends on the auction. Most auctions have a set requirement for what is due in earnest money through a cashier's check. If this happens, the difference will be refunded to you.

    • Yes, it does, because you are purchasing multiple properties, which involves a larger capital requirement than just buying one property. The auction needs to know that you are intent on committing yourself to such a large purchase.

    • No, transferring contracts to other entities is not permitted. All entities must be registered at the auction in order to participate in the process.

    • Once a decision has been made and the auction closes, the winning bidder is responsible for paying for the property. No cancellations are allowed, so make sure you definitely want the property before you place a bid and have it win.

    • Auction results themselves are not published due to disclosure laws. However, property transactions do become public record upon completion.

  • Finance Questions

    • You can finance your purchase through a wide variety of major lenders, including banks and lending companies. These auctions offer a selection of pre-selected national lenders who have experience with financing auction purchases and offer competitive rates and fees.

    • You can choose to have your purchase financed by a lender of your choice, but most auctions require you to apply with pre-selected lenders. These lenders are advised because of their experience and the fact that they have been pre-approved by the auction holders.

    • Yes, you may, but be advised that the sale and escrow both are not dependent on financing. If you finance using financing you have obtained yourself, you have to show proof of unconditional approval from the lender at the time of purchase. You may also be subject to additional applications or other disclosures in order to purchase.

    • These properties require the winning buyer to have cash deposits capable of paying for the property, not financing through a bank or mortgage company. Acceptable sources of deposit include checking and savings accounts, stock portfolios, certificates of deposit, 401k accounts, and other related sources.

    • Most auctions do not require you to have the full amount on hand. You have to pay a deposit and be able to pay the remainder through escrow within a month.

    • You will need government-issued ID plus the earnest money deposit. You will also need proof that you can supply the balance of the purchase amount within 30 days. This can be satisfied through legitimate account statements from your bank or investment company, or paystubs for the past month.

    • These are costs that are charged to the buyer by various entities within a particular jurisdiction, due at the time you take possession of the property. These can include lenders insurance fees, title fees, loan and document processing fees, escrow charges, and other costs.

  • Pre Auction Questions

    • The term refers to a bidder giving the seller his or her top bid before the auction occurs, separate from the bidding process for the auction itself. The seller can then accept or deny any of these bids.

    • Pre-auction bids can apply to a multitude of property types – virtually every type, such as single-family homes, condominiums, multi-family homes, and others.

    • Properties up for sale at an auction are owned by lenders, such as banks or mortgage companies, who have had to repossess the properties because the former owners failed to make regular and timely payments on their mortgage loans.

    • Generally, the value is based off of the remaining balance on the defaulted mortgage loan, plus interest, fees, and other amounts, which is typically the asking price. They can also be based off of appraisal values or price assessments. Typically the highest value is used.

    • Yes. Anyone interested in a property at auction should first inspect the property. You should check for needed repairs, the state of the home, the location, plus any legal or financial issues associated with the property.

    • All inspections typically must be accomplished prior to the auction. Each auction has an inspection period that allows interested buyers to examine the property, but no such periods are allowed after the auction closes.

    • Yes, contractors are allowed to go with you when you inspect the property. In many cases it is recommended, particularly if you do not have a lot of experience with inspecting homes.

  • Title Questions

    • The properties being auctioned off are devoid of liens and have been guaranteed by the seller to have clear titles.

    • These properties are owned outright by the bank, and do not have right to redemption. Therefore, previous owners are not allowed to pay off any delinquent debt after the auction has concluded.

    • You will have to use the title company selected by the seller of the property you are purchasing, and may not choose your own.

    • Most properties are closed within one month of the purchase at auction. Any variations depend on the individual circumstances of the transaction and may be subject to delays.

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