How do foreclosure Auctions work

How Do Foreclosure Auctions Work

Learn how to verify foreclosure auctions and laws, make bids and take ownership of properties.

The Foreclosure Process

Normally, a property which is delinquent in payments for 90 days or more can be started through the foreclosure process by the lending institution

A legal notice of foreclosure, Demand Letter, is sent to the owner

If no response, the property is submitted to court for formal foreclosure proceedings

Scheduling & Advertising Property and home auctions must first be advertised

An auction date is set after a period of advertising time which varies from state to state

A Notice of Foreclosure is placed on the property & the owner has until the auction date to settle the delinquent loan amount to stop the auction

Auction Formats

Minimum Bid

Absolute Auction

Auction with Reservation

Bidder Verification

A bidder must provide proof of funds that they can pay for the property before the auction begins

Cashier’s check for a deposit

Pre-approved loan paperwork

Who Can Bid On Foreclosure Properties

Most home foreclosure auctions are public

Everyone approved by the trustee can bid

Some auctions allow internet bids

Some auctions only accept sealed bids

Check county foreclosure auction by-laws for correct bid format

Right of Redemption

A period of time after the property sells at auction in which the seller can reclaim the property

Seller reimburses the amount of the purchase, plus associated fees

Right of Redemption period varies from state to state

Preparing for Foreclosure Auctions

Acquire current auction information Personally visit and inspect properties in which you are interested Develop a system to track foreclosures of interest

Acquire Property Information

What is the estimated market value? Include repair or improvement costs Stop bidding when the property ceases to be a bargain

Acquire Property Information

How much is owed?

Opening bid is based on the amount owed to the foreclosing lender

Properties can quickly cease to be a bargain once bidding begins

Acquire Property Information

Are there other liens? In many cases, the winning bidder is responsible for paying off any liens on the acquired property Check for liens through a real estate attorney, title company, or personally check county records

Confirm Auction Status

Confirm the current status of foreclosed homes Verify that the owner has not paid the amount in arrears Auctions are often postponed or cancelled without publishing new information

Confirm Auction Location

Is the auction at the property site?

Is the auction at a common site where multiple properties are being auctioned?

Check with a foreclosure listing service, county clerk, or property trustee

Confirm Auction and Bidding Format

Find out what auction format is being used

Confirm options for bidder verification

Confirm the bidding procedure

Determine Bid Cap Access what is considered a bargain price

Reasonable auction purchase amounts are 20% or more below the full market value

Consider repair and improvement costs

Consider the area’s rate of real estate appreciation

Determine Bid Cap

Figure in available financial capital

Equity line of credit on an owned home

Approach the bank for a loan against a Real Estate Owned (REO) property

Bidding on Auction Homes

Confirm the property status and auction date again the day before

Arrive early

Locate the auctioneer as soon as possible to ensure validation

Watch your competition

Stick with the bid cap!

Winning Bidder Secure all necessary documents from the auctioneer

Clarify next steps with the auctioneer and real estate attorney

Check on ownership transfer and redemption periods

Do not make repairs or improvements until the home has been legally transferred

Bank Foreclosures Versus Government Foreclosures The main difference is that the government often forecloses due to missed tax payments

Auction winner must pay delinquent taxes as well as other fees

Both offer lucrative investment opportunities

Verify government auction format and bidding procedures

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