Foreclosure Auction Procedures
If you want to invest in property, buying up foreclosed properties through public auctions is one approach. It's wise to learn as much as possible about the property before the auction. Driving by the neighborhood and speaking with the current (and soon to be former) owner or a neighbor may tell you whether you should consider buying the property and how much you should bid. Foreclosure auction procedures vary from state to state, but some apply no matter which state you are in. You should find out what the procedure is for your state or observe a local foreclosure auction. Does this Spark an idea?
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Opening Bid
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The opening bid of any real estate foreclosure auction is based on the total amount owed to the lender and may also include fees that have accumulated to finance the foreclosure process. If you know this information beforehand as well as the estimated real estate value, you may be able to determine what the maximum bid should be. According to Realtytrac.com, if you can buy the house at 20% below the market value, it is well worth the investment. If no one is willing to bid the opening amount, then the foreclosing lender, often a bank, will take possession of the property.
Payment Procedures
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Payment procedures differ from state to state. Some states require the full payment of the auction price, while others only require a percentage. With the latter, the rate is usually set at 10%. Check beforehand so you are aware of the method of payment. Some states only accept cash or cashier's checks. Each state will also have a regulation that gives the time frame for paying the remainder of the bid. Some states may allow you to use a traditional mortgage loan, while others may have stipulations requiring you to pay upfront. If you cannot make the payment in time, you can lose the property as well as your down payment.
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Paying Off Liens
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If there are liens against the property, such as taxes owed from previous years or outstanding bills for work done, you may be required to pay them. Check your state's foreclosure procedures to see if previous liens and owed taxes are included in the opening bid or if they must be paid after winning an auction. Knowing ahead of time what the final cost will be after the auction will help you determine if you're getting a true bargain.
Auction Day
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If there is a specific property you wish to bid on, check with its trustee on the day of the auction. Sometimes auctions are postponed or canceled at the last minute. If you win the auction, get the documents from the auctioneer or the trustee to prove yours was the winning bid. Consult with a real estate attorney as well as the auctioneer for any additional steps that need to be taken to legally transfer ownership of the property. Some states have procedures where transfer of ownership takes place immediately or within a few days of the auction. Other states require a month's wait, court confirmation or a redemption period, where the former owner can buy the property back from you.
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References
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