Mortgage Auctions: How to Bid on a House

Houses that are sold at mortgage auctions are held by a trustee on behalf of a lender, and the bidding takes place at a public location. These houses usually sell for less than their market value as mortgage lenders try to recoup some of their money. With the right preparation and information, mortgage auctions are a great way to obtain a house for occupancy as your primary residence or for a real estate investment.

Things You'll Need

• Government-issued ID
• Cashier's check

Instructions

1. Find out about mortgage auction houses from your local county office. Decide on a house that meets your specifications, which are dependent on how you wish to use the house. Take into consideration whether you will use the property as a rental, a primary residence, or a house that will be renovated and re-sold immediately.

2. Research the value of the house. You should find out the market value of the house that you are going to bid on. Know when it was last sold and how much it sold for. Look at other comparable properties in the immediate neighborhood and find out their value. The listing prices of similar nearby houses for sale or the sale prices of recently sold homes in the neighborhood are good indicators of house values in the area.

3. Determine a bid amount. Based on your research, determine the maximum bid amount you are willing to offer. Keep in mind any repairs or updates you would need to carry out. According to the RealtyTrac website, a reasonable bid amount is at least 20 percent below the full market value.

4. Find out the legal implications of bidding on a house at a mortgage auction. According to an auction bidder cited by MSNBC.com, you should find out if you will be entitled to the house immediately or whether there is a redemption period and, if so, how long the previous owner has to redeem the property.

5. Know the status of the auction including the date, time and terms of the auction. According to RealtyTrac, this information can be obtained from the trustee of the property. Plan to arrive at the auction a few minutes early to get situated and take care of any pre-auction requirements.

6. Have funds ready. Depending on your state laws, auction sales usually require a cashier's check from the winning bidder for a percentage of the purchase price on the day of the auction. Some states, however, require the full amount to be paid on the day of the auction, in the form of cash or cashier's check, according to RealtyTrac.

7. Obtain documentation of the winning bid. If you are the successful bidder at the auction, make sure to get the documentation proving this, as well as the instructions for closing on the property.

Tips & Warnings

• If it is your first time bidding for a house, try to attend a different auction beforehand to get a feel for how they work.

References

• RealtyTrac: How to Buy a Home at Auction
• MSNBC.com: At Foreclosure Auctions, the Hunt Is On
• MSN Money: Bidding Strategies for First-time Homebuyers