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 months.
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
the 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
Most auctions 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.
The bidding 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
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.
The priority 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.
The opening 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 market value.
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.
Determining 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.
A reasonable 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 and improvements.
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 date.
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
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.