An Essential Guide To Finding Foreclosure Auctions In Your State
A foreclosure begins 120 days after a homeowner falls behind their mortgage payments. If they can’t pay their dues, they’re promptly evicted, and the property goes to auction. Not all are sold via auction, but it’s a commonly used method to sell foreclosed properties.
Foreclosure home auctions work like any other auction: The auction features the property, bids are made, and the highest bid wins. While homebuyers aren’t uncommon, a foreclosure auction’s audience mainly consists of investors. However, as the lender’s concern is to recover some of the losses from the defaulted mortgage, auctioned properties usually sell for less than market value.
However, it’s worth noting that foreclosure auctions differ from typical house buying. Without due diligence, an auction purchase can snowball into the worst investment you’ve made in your life. Here’s a guide to finding such auctions in your state and making the best of them.
Public foreclosure auctions are governed by Title 12, Section 3710 of the U.S. Code, specified as “foreclosure sale.” Subsection (a) defines the time and venue, which is:
- Thirty (30) days after the earliest installment not paid in full
- Any day except Sundays and holidays from 9:00 a.m. to 4:00 p.m.
- A courthouse or the exact property being auctioned
- Any place where auctions are commonly held (e.g., events venue)
The first point is crucial because it means pre-foreclosure properties can also be eligible for sale in this manner. However, auctions generally don’t put these properties up for auction yet because they haven’t ruled out the possibility of the homeowner catching up with their dues or agreeing to an amicable arrangement with their lender.
Winning a foreclosure auction depends on the system in place. Aside from winning by having the highest bid (known as an absolute auction), there’s the reserve or lender confirmation auction, where the lender must approve the bid before finalizing the sale. In this type of auction, the highest bid isn’t necessarily the winner.
Foreclosure auctions can either be live or online, both of which you can find on websites, such as Housing Auctions USA and others. Some of these sites categorize the auctions by state for ease. Note that online auctions occur over a span of days or weeks.
You can also inquire at your local government about any public foreclosure auctions in the area. These auctions generally happen at the county level, as specified by Section 3710, but there are also state or federal auctions like GovDeals.com (government-owned properties only).
As mentioned earlier, foreclosure auctions are a great way to score homes for far less than their market value. However, industry experts say that buying a foreclosed home in an auction carries more risks than doing so the traditional way.
First is the lack of an “eyeball test,” a non-negotiable essential in buying real estate. While a few foreclosure auctions allow bidders to inspect the property, most don’t. Foreclosed properties are auctioned off as is, complete with any faults and damage, visible or otherwise. Cases of previous homeowners deliberately damaging the property out of spite for their lenders aren’t uncommon.
Another risk is that most auctions only accept cash as payment, either right away or within 24 hours of winning the bid. They don’t accept mortgages, which can be risky when knowing the property’s current state is impossible. If the property has no bidders, it moves to “real estate owned” status, where buyers can use financing to purchase it.
More importantly, without knowing its market value, buying a foreclosed property in an auction can end up being more expensive than through a real estate agent. Even if you manage to buy it for below market value, some auctions aren’t obligated to provide clean titles. The property may still carry tax liens, which will now be the winning bidder’s responsibility.
Given these risks, it stands to reason that utmost caution is necessary when buying properties this way. To be accurate, caution is a staple in real estate investment, but foreclosed auctions require more caution than usual.
If an auction doesn’t allow a closer look, your best bet is to consider the property at face value. A poorly maintained front and back yard is probably enough indication that the house itself is also as much of a mess. Data from government records and real estate agents can help immensely.
As for payment, cash isn’t the only mode that foreclosure auctions accept. Other viable methods include money orders and cashier’s checks. These are more secure than paying in cash because they’re certified by banks (for money orders, post offices and convenience stores also sell them).
To get a foreclosed property’s market value, experts advise asking a real estate agent to perform a broker’s price opinion (BPO) analysis. A BPO isn’t an exact figure but tells how much similar properties in the area have sold for. Set this figure as your ceiling when bidding to have enough money for necessary repairs.
Foreclosure auctions can be an excellent way to save money on homes, but only if you know how they work. Unlike traditional house buying, they don’t allow closer inspections, pay via financing, and provide more specific details. That said, it’s possible to work around these downsides and make such auctions work to your benefit.