Buying properties at auction is probably one of the most popular methods real estate investors are familiar with. The foreclosure auction occurs after a homeowner has defaulted on their loan and the bank has taken legal action to repossess the property. The foreclosure auction is advertised publicly, usually in the legal section of your newspaper. Foreclosure sales can occur in as little as 3 weeks and as long as four months. State laws vary; therefore, the process will be different from state to state.
Buying at the auction is definitely not for new investors with limited funds because in foreclosure sales, you are expected to get a minimum of 20% down with the remainder due within 24 hours. So if you plan to buy into foreclosure sales, then you need a lot of cash, a working line of credit, or access to cash from a money partner.
Before you get your hopes up, foreclosure sales rarely produce good deals. With most of these auctions, if there is any equity in the deal, then there will be a large crowd bidding on the property until there is no room for anyone to make money on the deal. Often times, those who have access to a large amount of cash buy in, become emotionally invested in the bidding, and bid the price of the property up to where they are paying near the best price for the property. So be careful not to get caught up in the bidding war, because once you’ve made an offer, it’s too late to back out.
Now, before you hit the foreclosure sales trot with the intent to buy a property, there are some basic, often overlooked facts you should know. First, you need to have a clear value of what the property is worth in its “as is” condition. You can get this figure by comparing the property to other houses in the same area with common similarities. You should have your real estate agent obtain a list of comparable sales, then drive by the houses to take note of the differences in the property being foreclosed on and properties that have sold previously.
If the property is vacant, then by all means get out of the vehicle and look around the property, and inside if possible. If someone lives there, there’s obviously no way to look at the property without approaching the owner. If you find that the owner is still there, consider approaching the owner to see if he wants to sell the property. This will not only let you see the deal before it hits the foreclosure sale, but it will also give you a chance to take a look inside.
Next, you need to do a title search to see how many links are attached to the particular property. Also, before you bid you should know if the foreclosure bank is a first mortgage, a second mortgage, or a lienholder. I once attended a foreclosure sale where there were people bidding and the bidders didn’t know if the foreclosure bank was first or second. If the foreclosure bank is a minor lien (ie second, third mortgages, etc.), then you will be required to pay the principal liens before you can sell the property.
Lastly, punctuality is important. If you’re just two minutes late, the auction could end. So make sure you get there a bit early if you plan to bid. Be sure to call the day before and the day of the sale to make sure the attorney is still planning to put the property up for auction. Many times, sales will be canceled at the last minute due to a seller falling behind or going bankrupt. Remember, you will rarely find any bids at these foreclosure auctions, but I still recommend that you attend. You can simply go meet the other bidders to find buyers to trade their houses to.
