If you are looking to buy a home and have cash for a down payment then checking out a foreclosure auction is definitely worth your time.
How do these Auctions work?
Rules for Auctions are different based on your state and the entity that you are buying from.
Most Tax Sales will be held by the city or county sheriff and could be on the site of the home or at your court house.
Sales by the Federal Government when they are the backer of the loan are often placed online and the auction could allow you to place your bid online or will give a location and date for the sale.
Bank foreclosures are often held through a Realtor representing the bank. Homes may be listed for foreclosure sale for an extended time and you will probably need another Realtor to represent you in the sale. Lately Banks have been using Auctions and they may decide to auction hundreds of homes throughout your region on a single day just to write them off their books.
What you will need at your Auction
First you should understand that you will need your financing lined up before you head off to the auction. You can not merely promise to pay for the home later if you can get lending you must have the money ready and pay in full within a number of hours or days if you are the winning bidder.
When arriving you will need to pay a bidders fee. The fee could be nominal or maybe as high as 10% of the starting bid price. Once your fee is paid you are obligated to complete the sale if you are the winner or you will lose your fee. If you do not win then your fee will be refunded. Usually this means they just hand you back your cashiers check.
Expect there to be other bidders. If you are buying a home that is of good value then there will be private investors bidding along side you that have the cash to make the purchase without need for a loan.
If you are bidding on a Tax Sale of a home that has a balance on their mortgage then expect the lender to send someone to the sale.
Also look out for idiots that are there just to push up the price of the home. They could be working for anyone but they are often harder to spot then you think. If you see bidders sharing coffee with the auctioneer … thats a pretty good tip off so don’t get carried away with a bidding war.
Terms of Final Sale
Read the documentation that comes with your auction packet. It will explain what you must assume with the home. If you are buying from a private entity you may be hit with tens of thousands of dollars in back taxes on top of your bid price.
You need to inspect the homes financial condition just as close as you do its physical condition and this may mean hiring a professional.
If the home or building has renters then you will need to process their eviction if necessary. This can take 60 days or more and will require legal fees. It is best to only buy a vacant building unless you want to keep the current tenants.
As mentioned before full payment will be required within the grace period.
The sale will require a cashiers check not a personal check which can be difficult to accomplish the day of the sale since most auctions are held on a Saturday. In this case you may decided to have a number of checks made out to you in increments or work with your bank to allow you to write the value on the check with a set maximum amount printed on the check that you can not go over.
Buying a Foreclosed Property is not for the faint of heart but it can be worth it if you are looking to invest or live in the home. Remember that when you buy a foreclosed home you buy all of the problems that the current owner has and this includes the ability to resell the property.
Most banks and home owners will go through many months before they reach a foreclosure sale meaning your chances for a quick turn around are limited.
Buying a home where there is a lot of hard feelings may leave you in emotional debt. Moving into a home where you just evicted someone may not be the best decision.