REO Auction Vs. Courthouse Foreclosures
Investors buy houses at auction with the expectation of paying less than market price. REO auctions and courthouse foreclosures offer property at auction. Both auctions sell foreclosure property, but at different times in the foreclosure process. Courthouse foreclosure auctions are scheduled first. Significant differences exist between the two types of auctions.
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Courthouse Foreclosures
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When a homeowner does not make his mortgage payments, his lender initiates the foreclosure process. A notice of sale is posted on the property and recorded in the county recorder's office. The local newspaper's legal section includes the notice of the trustee's sale approximately three weeks before the sale date. The auction is held on the steps of the county courthouse. The minimum bid is set by the lender and usually is the amount owed on the mortgage, plus fees.
Buying Courthouse Foreclosures
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The trustee's auction is a live auction requiring the investor or a representative to attend. The county sets the payment requirement, but usually the successful bidder must pay in full with cash or a cashier's check immediately following the auction. The property may still have liens or encumbrances requiring payment. People may reside in the house, so the buyer must evict the tenants. A complete house inspection usually is not possible prior to the auction.
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REO Property
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If the minimum bid is not reached at the trustee's auction, ownership of the house reverts to the mortgage lender. The house is classified as real estate owned, or REO, property. Banks often want to sell the property quickly. They may contract with an auction company to offer the house at an on-site or online auction. Houses sold at auctions are "as-is" with no warranties. But they usually have a clean title and are not occupied. Banks may make house repairs prior to the auction or indicate the repairs that are scheduled.
Buying at an REO Auction
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The auction company advertises the house auctions online, in newspapers and by mailers. Auction signs are posted near and at the property. An inspection period is scheduled prior to the auction. Prospective bidders register with the auction company. REO auctions sell the houses to the highest bidder, upon lender approval. The auction company describes the necessary payment. A down payment at the end of the auction is required, but full payment is often not required until escrow closes. Auction companies may charge a buyer's premium, usually a percentage of the final purchase price.
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References
- BiggerPockets: The Foreclosure Process: Understanding How Foreclosures Work
- REO Properties -- Bank Owned, FHA Foreclosures -- HUD Property: Are You Looking for HUD/REO Properties?
- Williams & Williams: The Auction Process
- Real Estate ABC.com; Buying Bank Owned Properties (REO); Walt Harvey
- Cornell University Law School Legal Information Institute: Foreclosure; August 2010
- Photo Credit country house image by Vaida from Fotolia.com
