at a Foreclosure Auction
Finding and filing properties
Develop a system to keep track of properties that interest you.
A good tracking system is important since most successful auction
buyers pursue several properties sometimes over a period of several
After you find
a property online, it's a good idea to drive by the property to
get a better idea of the property's condition and the type of neighborhood.
For some buyers and investors, driving by the property has also
facilitated a casual meeting with the owner (you may be able to
still work out a last-minute deal before the auction) or yielded
a wealth of unexpected information from a talkative neighbor.
auction status, location and bidding procedure
After a property is scheduled for auction, the owner has a chance
(typically less than a month) to stop the auction by paying the
amount owed to the foreclosing lender. It's also not uncommon for
auctions to be postponed without a new date being published. Although
cancellations and postponements are announced at the time and location
of the originally scheduled auction, you can call the trustee to
find out beforehand.
are at a public place in the same county where the property is located.
In many states, all the auctions in each county are at the same
location. The auction location is usually listed online (e.g. RealtyTrac)
or you can typically get the location from the trustee or the county
clerk. If you call the county clerk, make sure you clarify that
you are looking for the location of mortgage foreclosure auctions,
not tax foreclosure auctions.
procedure varies from state to state, so you should become familiar
with the procedure in your area before bidding at an auction. In
some states, bidders are required to bring the full amount they
want to bid in the form of cash or cashier's check to the auction.
In other states, bidders are required to bring a certain percentage
(10 percent is common) of the bid amount to the auction and pay
the remainder of the amount within a certain timeframe. If you get
a friendly representative when you call the trustee, you might be
able to get information about how the bidding works in your area,
but in most cases you'll need to educate yourself. You could also
contact a local real estate agent or attorney in your area. Of course,
the best education will come from simply observing a local auction.
the potential bargain
You need to find out as much as you can about the estimated market
value of the property, how much is owed on the property and if the
owner has any other liens against the property. If there are outstanding
liens on the property, the winning bidder at the auction may be
responsible to satisfy these liens in some cases, so it's important
to check for any liens and the priority of the liens before you
bid at the auction. A real estate attorney or title company can
check for liens, or you can check directly with county records.
of a lien is usually determined by the date it was placed on the
property. So a first mortgage will usually have the first priority,
and all other liens will be considered junior liens. In most states,
the public auction clears out any junior liens, but there are exceptions
such as tax liens, which typically will continue to be in effect
after the auction.
bid at the auction is based on the total amount owed to the foreclosing
lender and may include fees incurred because of the foreclosure
proceedings. If no one bids above that amount, the foreclosing lender
will take possession of the property. It's important to know this
amount so you can determine if the auction represents a potential
bargain purchase when the opening bid is compared to the property's
Based on all the factors used to determine the potential bargain
- and your financial capability - you'll need to determine how much
you can and should bid at the auction.
your bid amount is more important in states where bidders are required
to bring the full amount in cash or cashier's check to the auction.
You won't even be qualified to bid if you don't meet that requirement.
If you don't have that type of cash lying around, you have a couple
options. If you own a home, you might be able to take out a home
equity line of credit, which is a cash loan. If you can't secure
a cash loan, you may consider buying a pre-foreclosure or bank-owned
property, which usually require only a regular mortgage loan secured
by the property being purchased.
It's also important
to determine the bid amount even in states where you don't need
to bring the full amount to the auction. By setting a firm ceiling
for your bid, you'll avoid getting caught up in the heady auction
atmosphere and overbidding, which can result in little or no bargain
for you. Also, if you're not able to pay the remainder of the bid
within the time frame stipulated by state law, the deposit you paid
at the auction is often nonrefundable.
purchase amount at auction is at least 20 percent below full market
value, and much better deals are often possible. Other factors to
consider are the rate of real estate appreciation in the area and
the potential for increasing the property's value by making repairs
Bidding at the
Call the trustee the day before or the day of the auction to check
one last time if the auction has been canceled or postponed. If
an auction is postponed, the trustee should provide the new auction
Arrive at the
auction location early and locate the auctioneer as quickly as possible.
Bidding at an auction can be intimidating, especially if you've
never done it before. Take as many cues from the other participants
as you can, but don't let them dictate how much you bid. You may
encounter investors who attend many auctions every month and who
don't necessarily appreciate new competition.
If you are the winning bidder, make sure you get the necessary documents
from the auctioneer to verify that you are the winning bidder. Clarify
with the auctioneer and a real estate attorney what further steps
need to be made before you take ownership and possession of the
property. In some states, ownership can be transferred immediately
or within a few days. In other states, you may need to wait a month
or more for the sale to be confirmed by a court. Some states have
redemption periods for the owner, in which case the owner can buy
the property back from you if they pay the full amount paid at the
auction, plus applicable fees. You should avoid spending money on
repairs or improvements during the redemption period.
If the trustee
does not evict the current owners, you may be responsible to do
this. If eviction is necessary, you can contact a local real estate
attorney or the county sheriff for the proper procedure.