Foreclosure Auction Rules
The allure of saving thousands of money at a foreclosure auction can be quickly overcome by the rush of bidding to win a property. According to the Federal Deposit Insurance Corporation (FDIC), one in every 200 homes will go through the foreclosure process. By following the basic auction rules, you can take ownership of one of these foreclosed homes at a fraction of its value.
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Opening Bid
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The starting price for foreclosure auctions is the amount currently owed on the property. Mortgages, taxes and construction liens are part of the opening bid price. The opening bid could be as little as one year of back taxes or as much as an inflated mortgage loan. If no one offers the opening bid price, an agent for the mortgage company will purchase the property. The term Real Estate Owned, or REO, describes foreclosure properties a mortgage company owns.
Bidding Process
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Once an opening bid is made, bidding continues in incremental amounts. Typical bid increments include $100, $500, $1,000 and $5,000. Smaller auctions only require you to hold up your hand if you would like to bid. For larger auctions, bidders receive a numbered paddle to raise when they would like to bid on a property. A secretary records every bid. If the winning bidder is not able to finance his purchase the next highest bidder can purchase the property.
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Financing
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The two main types of financing for foreclosure auctions are cash and pre-approved bank financing. For smaller sale prices, cash is the preferred payment method. Cash purchases include using cash, a money order or certified bank check. Using cash to finance a foreclosure sale is the quickest way to close the real estate transaction. Buyers with high credit ratings may be able to secure pre-approved bank financing for foreclosure purchases. Banks who have substantial experience with a real estate investor offer this service to keep the investor at their bank. If you do not have a long history of borrowing from a specific bank it is difficult to secure pre-approved financing for foreclosure properties.
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References
- Photo Credit gavel image by Cora Reed from Fotolia.com
