Red and white “Foreclosure, Home for Sale” sign in front of a stone, wood house that is for sale and is being foreclosed upon by a financial institution. Green grass and bushes indicate the spring or summer season. Front porch and windows in
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Many buyers romanticize foreclosure auctions because they’ve heard that they’re a way to save serious money. While that may be true in some respects, it is certainly not always the case. Not only that, but these auctions can be tricky to navigate if you don’t have real estate experience.
In light of that, I’ve created an overview of the foreclosure auction process. Read it over to give yourself an idea of what to expect. However, be aware that if you want to buy a house using this method, you’ll need to do a lot more research so that you can go into the experience with eyes wide open.
Understand foreclosures – and the foreclosure process in your area
When a homeowner fails to make their mortgage payments, lenders have the option to reclaim the home in a process known as foreclosure. In some states, foreclosure is a court-led process that can take years. In others, it can last just a few months and bypass the courts entirely.
In either case, one way for the bank to recoup their investment in the home is to put it up for auction. These live auctions are typically open for anyone to attend and may take place in the county courthouse, a hotel ballroom, or even on the property itself.
If you’re interested in buying a home through one of these auctions, know that each jurisdiction will have its own rules and regulations to follow. You’ll want to do your research on these stipulations – and probably go see an auction or two for yourself – so that you’re well aware of the process by the time you’re ready to buy.
Search for available foreclosures
The first step to buying a foreclosure is looking through the available possibilities. You can start your search online through sites like RealtyTrac. Though, bear in mind that online information may not always be the most up-to-date. You may also find out information about available auctions through your county courthouse or a third-party foreclosure agent known as a “trustee”.
Most of the time, finding a home that you’re interested in bidding on is a lot like scoping out homes to buy through a traditional sale. You’ll want to evaluate each home based on how well it suits your needs and to gather as much information as possible about the property before making your decision to move forward.
Do your due diligence
Gathering all your information is crucial when it comes to buying a foreclosure. In most cases, these homes are sold without potential buyers being given the chance to see the interior or perform any inspections. Any liens or judgements against the property are also likely to become the buyer’s responsibility, which can be costly to pay off.
At the very least, you’ll want to try to drive by the outside of a property before deciding whether or not to bid on it. Conventional wisdom states that the exterior condition of the property can be an indicator of what the interior condition will be. It’s also in your best interest to also pay a title company or real estate attorney to perform a title search on any properties you’re seriously considering.
You could also consider going to a real estate agent for help. But, be aware that many agents may not be willing to get involved because in-person foreclosure auctions do not allow for agent commissions.
Get your financing in order
Buying a foreclosure at auction requires a lot of cash-on-hand. Most only accept cash, bank money order or cashier’s checks for payment, meaning that you’ll have to investigate flexible financing options rather than simply purchasing this property with a mortgage in the traditional manner.
In most states, if you win the auction, you’ll be expected to pay for the property in full that day. In some states, you may be allowed to pay for a percentage of the property at the auction and the rest within a certain time frame. Many county auctions also require you make an advance deposit on the expected final bid of the property.
On the day of bidding
The first thing you’ll want to do on the day of the auction is to take the time to confirm the auction details. Auctions are often postponed or canceled because the current owner was able to work out payment with the lender or because the property was sold in a short sale.
About an hour before the auction starts, you’ll want to check in so that you can receive your bidder card. From there, it’s about bidding to where you feel comfortable. If you win, you’ll need to complete a certificate of sale or an execution of sale receipt, deed upon sale, and IRS Form 8300, depending on the laws and procedures in your state.
Wait for the certificate of title
While you’ll get the certificate of sale that day, the actual certificate of title – which states that you are the sole owner of the property – may take a few business days to complete. Be aware that, in that time, it is possible for the original owner to file an objection to the sale and pay the amount they owe in order to retain their rights to the property.
It’s in your best interest to wait to do any work on the property or to make any changes until you have the certificate of title in-hand.