If you are an investor that would like to get into buying foreclosed houses for personal use or just to flip the property or if you are having your home foreclosed on, you should understand what to expect at auction for foreclosure. Of course, the actual steps that will be taken can vary a bit from state to state and from house to house, but it’s good to know what you will be getting into when you go to a foreclosure auction. Foreclosure auctions can be interesting, even entertaining, however knowing what to expect will assist you to make the most of the experience, in case you are a homeowner or an investor that is trying to get your house back.
Before the Auction
You’ll likely find out about the foreclosure auction in a local newspaper and on the flier may be information to pre-qualify for bidding. This will allow you to put down a deposit so that the auctioneer knows that you are a serious bidder and can fulfill your bid if you are the winning bidder. Being pre-qualified just sort of speeds up the process so that you don’t have to mess around with the deposit on the day of the auction.
During this time you should also do some research on the house by looking into any liens that may be against the property, how much the property is worth, how much it has appreciated in the last few years, as well as property values in the area. If the home looks as though it will need some repairs, you should consider this as well when trying to come up with how much you will be willing to pay for the house. Without this research, no amount of knowledge about what goes on at a foreclosure option will help you because you won’t know where to start when it comes to actually making a good bid.
What Happens At the Auction?
The auction will typically start with the auctioneer reading legal notices as well as a legal description of the property. The auctioneer will usually then begins taking bids on the property. If the auctioneer has pre-qualified bidders the process is more simplified, if not, each time a bid is made the auctioneer will then ask for the bidder's deposit check, which is usually right around $5,000 for residential auctions.
After each bid, the auctioneer will try to solicit bids for higher amounts. Each auction is different, but the auction increments usually are set by the auctioneer and may be by $100, $500, or $1,000 per bid. The auctioneer will continue to solicit bids by this increment until it is clear that the highest bid has been reached. Then, the auctioneer will broadcast, “Going once, going twice, three times, then sold!” showing that the auction has ended and the property has been sold to the highest bidder.
Once the bidding has ended a foreclosure a purchase and deed papers will be drawn up and legalized by the new owner or purchaser and the mortgage holder. A grace will likely be given to allow the purchaser to find financing or to come up with the funds to cover the full amount of the bid. This grace period is usually 30 days unless the purchaser and the mortgage holder agree to other terms. After the grace period has elapsed a closing will take place so that the new owner can officially take the title of the property.
What Happens, Now?
The purchaser can do what he or she intended to do with the property, whether it is to move into the home or to sell it for full g value. The money paid by the purchaser will be distributed in order of priority, first of which would be taxed. After taxes, money will be paid on the mortgage, then the second and third mortgage if applicable. If there is still money after paying these debts, remaining money will be paid to lien holders and creditors. There is a very slim chance that there will be money left over after all of the debts are paid, if this is the case then the monies will be paid to the former homeowner.
What about the Original Owner?
The original owner will often be at the auction so that they can bid on their home, and this is legal as long as they have the deposit required. If the owner of the home that has been foreclosed does bid on the home they must remember that the deposit is not refundable and the deposit assumes that they will be able to finance the home within the grace period. Owners must also remember that if they buy the property back old debts may merge and become reinstated such as second and third mortgages that became void when the first mortgage foreclosed on the property unless one has filed bankruptcy and is truly free and clear of these debts. Owners will often drum up the funds to make the deposit so that they can have another 30 days to try to save their home. Owners may not or may be successful in their efforts to save their home at a foreclosure auction.
As you can see, there are many things that go into a foreclosure auction, but none of them are all that hard to comprehend, but understanding them makes the auction more fun. The auction itself is not all that complicated, but it can be very fast paced. At some foreclosure auctions, there are a lot of people, at others, there are only a few because of the location or just the debts attached to the property, or even the state of the property.
If you are serious about the property you should pay close attention when bidding starts so that you are sure that you can get your bid in when you feel it’s time so that you have the best chance of being the top bidder.