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Preforeclosure, or the default stage of the foreclosure process has passed. Since the homeowner was unable to
bring currrent the defaulted loan amount, the property is now repossessed by the lender and will be sold to the
highest bidder at a public auction (aka the Trustee's/Sheriff's Sale).
Properties are sold at auction under direction of the court in the county where the property is located.
Typically, buying occurs at the courthouse steps, in a courthouse office or hallway, or at the actual property location.
Advertisements for Auction Sales
Auction sales are usually advertised 4 - 6 weeks in advance. In some states, this information may be available 6 - 8
months or more before the sale. This gives you ample time to research the property, the condition of the loan and the
situation of the homeowner.
One of the major reasons for bidding at the Trustee's/Sheriff's Sale is that profit potential is very high...and
dangerous at the same time. Auction bidders will compete against other investors as well as lenders, and the action
moves very quickly.
Here's a complete course for buying foreclosure homes at auction.
Most often the foreclosing lender (or its attorney) will show up to bid on the property to protect its interest.
There will also be investors, onlookers and curiosity seekers observing the proceedings. Occasionally, a lien holder will
appear trying to salvage what he can from his claim. Rare but certainly possible, the homeowner may show up to bid
on his own property.
Sometimes, due to unforeseen reasons such as severe weather conditions and/or other reasons, you might
find you're the only bidder at the auction, making the property only available to you. About 80% of the time the
successful bidder is the lender, the original mortgage holder.
Consider also online options for Government property auctions.
Before the auction begins...
At this point, the lender has already determined, with the trustee or the courts, the total amount of debt it will try to
recover. This will include the debt's principal amount, past due amount, interest, penalties, court and other legal costs such
as serving defendants, costs of public notifications and/or advertisements.
The foreclosing lender may bid or present its claim to start the bidding process. The highest bidder at the
auction buys the property. The proceeds are distributed to the lender which brought the court action first (filed suit
for loan default) with any other liens or judgments second in order of the date the lien was actually recorded. Any
surplus proceeds go to the property owner.
If the foreclosure sale does not bring enough to cover the total amount of debt,
a lender in states that use the judicial method of foreclosure can file an additional lawsuit for a deficiency judgment
holding the property owner/borrower personally liable for the difference between the amount owed and the amount
received at auction.
Every property is considered unique. Knowing and utilizing the right procedures to arrive at the fair current
market value of the subject property is also crucial to determining your profit potential.
Basic guidelines to a successful Auction Sale purchase:
- First, zero in on promising properties before the sale
- Research properties prior to the sale date
- Determine your potential profit before you attend
- Find out the bid price, deposit requirements and
deadline for the balance
- Pre-arrange your financing requirements
- Never bid at an auction without having a full title
search done first
- Pursue only realistic opportunities
- After you purchase the property, make sure to acquire
title insurance as soon as possible
Biggest advantage to buying properties at the Sheriff's Sale
If there is a large difference between the market value of a property and its
final judgment amount at auction, you can really win big. To be certain though, there are disadvantages as follows:
- Other than a drive-by, the property is not accessible before the actual auction
- Most always you're unable to conduct a proper inspection for termites, a faulty roof or foundation
- At the auction you will be competing against bids from the foreclosing lender as well as many other investors
- The right of redemption (by the homeowner) available in some states may cause you to lose all of
your time and effort
- Auctions are frequently postponed and canceled
- A large cash requirement is necessary - some states require you pay the balance almost immediately
- If you do not deliver the balance amount due by the deadline, you could lose your deposit and the
opportunity for profit
- If you are the highest bidder and buy the property, you may have to deal with the original owner's problems
including liens, judgments, taxes, etc.
Remember, failure to research a property correctly leads many to over-bid. Often properties are purchased
for much more than their value. It's easy to get caught up in the heat of the moment too (auction fever) and over bid.
Always establish your absolute maximum bid and stick with it.
Good luck at the auction sale!
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