A Foreclosure auction occurs when the owner of a mortgaged property defaults on the loan and the property is sold to the highest bidder. The amount of the sale is disbursed to the lender. Here is a step by step description of how a Foreclosure Auction of a Home takes place.
Find a Property and Prepare for Auction:
Any person with interest in buying a home at a Foreclosure Auction must be up-to-date on the information and act on it as quickly as possible. Once you find a property, you must collect as much information as you can about it. You must also determine whether there are any liens or judgments against the property. These can include unpaid personal property taxes, civil lawsuit judgments and state or federal tax liens.
Financial arrangements have to be made to bid at the auction. In some states, the entire amount must be given at once. In others, only a percentage of the amount must be given at the auction and the rest must be paid in a set amount of days.
It is a good idea to have some experience with such auctions prior to making your first official bid. You will feel much comfortable while bidding and you will have an idea of how the auction is going to proceed and you can decide accordingly.
Confirm Details of Auction:
There is always the possibility of the owner stopping the auction by paying off the amount owed to the lender. A scheduled auction can also be postponed or cancelled. 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. Since the bidding procedure is different in every state, you should familiarize yourself with your state laws on cancellations and postponements.
Prepare for Potential bargain
Before your first bid you need to have information about the market value of the property, liens against the property, and the amount left in the mortgage to be paid off to the lender. Usually the opening bid amount will be the total amount to be paid off to the lender along with the expenses to meet the foreclosure auction. If no one bids over that amount the possession of the property will be taken over by the foreclosing lender. It is very important to know all of the liens against the property and their priority before you bid, because if you are the highest bidder then you are responsible to pay off them.
Decide on the bid amount
After taking into consideration the above factors as well as your financial capability, you have to decide on the amount you can will bid on the auction. In states where the full amount must be disbursed at once, your bid will not be considered if you do not have the required amount ready with you. Even in states where you do not have to give the full amount at once, you might get caught up in the heady auction atmosphere and overbid – leaving you stuck in a bad deal. Also, if you are not able to pay the full amount before the prescribed date, the deposited amount will not be refundable. Other factors to consider when deciding on a bid amount are the rate of real estate appreciation in the area and the potential for increasing the property’s value by making repairs and improvements.
Bid at the Auction
Recheck with the trustee to find out whether there have been any changes to the schedule of the auction. Arrive at the location early and get a good idea of the environment. The auctioneer will collect the name and amount possessed from each bidder. No one is allowed to bid above the amount they possess. Prior to the opening bid, the trustee will read aloud the legal description and terms of sale for each property.
Take Ownership
If you are the winning bidder, you will collect the necessary documents and enquire about further formalities involved in the sale. You should have a clear plan for when the transfer of ownership will be completed. Be sure to maintain a proper and regular follow-up. In the redemption period, the owner of the property can pay you back the full amount paid at the auction and retain the property. Therefore, it is wise not to do any reformation work on the property until you have redeemed the ownership of the property.
There is no doubt that foreclosure auctions can present some of the most attractive real estate buying opportunities available. This is due to the fact that the opening bid is based primarily on the mortgage balance and not on the market value.