It is a normal occurrence to find that well-intentioned people buy houses only to find themselves unable to make payments due to financial hardship, or reluctance to pay when the house value plummets much below the purchase price.
A record number of people get default notices all the time and their houses get repossessed and auctioned off. While this is bad news for such homeowners, there is a silver lining for prospective buyers. However, before purchasing a home at a foreclosure auction, take your time to consider some factors that are discussed below.
Seek the advice of a real estate agent
Due to the complexities of purchasing property at auction, you may wish to seek assistance from a real estate agent. An agent can assist you in determining the property’s value because he has access to recent sales in the area. Any legal issues, like liens, might also be investigated by the agent.
Another advantage of hiring an agent is that, if he’s been in the industry long enough, he may already be familiar with the condition of the home’s interior. If not, he can learn about it through other agents, as the house may have been on the market at one point.
The best places to look for foreclosures
Start your search for residences that are soon to be foreclosed in newspapers, because legal notifications are frequently used to advertise auctions. Some cities publish foreclosure listings in dedicated periodicals.
You can also sign up for paid subscriptions to services that regularly provide foreclosure news from companies that specialize in handling auctions for financial institutions. You can get on their mailing lists or sign up for paid subscriptions to services that regularly provide foreclosure news.
Stages of foreclosure auction
Foreclosure auction, bank-owned properties, often known as real estate owned (REO), and pre-foreclosure are the three stages of the foreclosure process.
The foreclosure auction is the type of auction whereby people show up at a scheduled time, generally in a public place, and compete for a property. Anyone is welcome to attend, and officials from the financial institution owed money by the defaulting owner are usually in attendance to guarantee that bidding begins at a level that will allow them to recoup their costs. The highest bidder wins at foreclosure auctions.
Examining the house
Foreclosure auctions offer up an entirely new perspective to the term “as is,” considering you can’t always get inside to view the property. You can see what you’re getting from the outside, but you have no means of knowing what’s going on inside.
The issue with purchasing a mystery box is that if the homeowner fails to make payments, the house may fall into disarray. The damage could be considerable if the house has been vacant for a long time.
Therefore if you get lucky with the bank and they decide to show you the great property, but if you can’t get a look at the inside, factor in potential repair cost.
Furnish yourself with information
Find out what you’re obligated to do before you decide to bid, like investigating the title to check whether there are any existing liens or other legal obligations. If you win an auction bid on a home with such a lien, you may be liable for the entire sum.
Also, banks that lent the homeowner previous mortgages can potentially surprise you. If the auction is conducted by the third mortgage lender, but there are still first and second mortgages owing, you’ll almost certainly have to pay those senior lien holders in addition to the amount you pay for the house. Before attending an auction, always double-check the title. You might also be in charge of backup utilities.
The foreclosure auction is not for the faint of heart which is why experts advise that you watch a lot of auctions before attending one where you intend to bid. This will allow you to become acclimated to the surroundings as well as get to know seasoned foreclosure investors and learn a few tricks from them by watching or talking to them.
Once you have chosen a property, completed your evaluation, and set your maximum price, join the foray by locating the auction site which is most often held in public locations, such as the steps of a courthouse or the land itself. Also make sure you arrive early, because you may miss the whole show as it most often lasts a few minutes.
Although the procedure varies by state, the core concept remains the same, that is the property is sold to the highest bidder at a live auction supervised by a sheriff, deputy, or court-appointed referee. A representative of the foreclosing lender will normally make the first bid to ensure that a minimal amount owing to him can be collected.
Note that this bid may not reflect the true value of the property. The lender’s proposal, for example, does not account for major damage to the residence. So be cautious about altering your assessment based on the bid amounts.
Before attending an auction, you must register and obtain a certain amount of money, so make sure you notify the organization ahead of time to ensure you have all of the necessary documentation on hand. Reach the auction authority such as the trustee, an attorney, or a sheriff ahead of time to find out how much money you’ll need on hand if your offer is accepted.
In some states, you may be required to pay the total balance owed on the auction day. In other situations, certified checks covering a portion of your winning offer, such as 10%, maybe requested, while the remaining amount would be due in weeks.
Have an idea of the property’s value
There is quite a lot of research to be done before going to an auction. You must assess the market value of the property so that you do not overpay, which defeats the point of buying at an auction to get a good deal. Also, note that your bid is final; you won’t be able to change your mind or renegotiate the price afterward.
The first step is to look around the neighborhood for price. Get a copy of the area’s sales history to discover how many properties were sold in the last year. You might also want to attend some open houses to get a sense of the market worth of various properties currently on the market.
The next step is to figure out what you’re going to do with the property. Some people restore them and resell them, while others simply sell them as is. Others will dwell in the house as a source of income, while others will rent it out.