Foreclosure Auction Process

The entire foreclosure process has run its course – with the final step being the actual public auction of the foreclosed property. In most cases, foreclosed property is auctioned on the steps of the courthouse in the county where the property is located.

Before being allowed to bid, most counties will require that the bidder prove that he or she has the funds necessary to pay for a winning bid in cash. In most cases a bidder will be required to pay a certain amount of the winning bid – in cash – at the close of the auction, with the remainder to be paid – in cash – within a specified time, often 24 hours.

In most cases the winning bidder need only worry about paying off a first mortgage – including any missed interest payments, penalties, fees and attorney fees – as all junior mortgages are wiped clean through the foreclosure. The winning bidder will, however, be obligated to pay any back property taxes owned on the property.

Before making a bid on any foreclosed property, it is incumbent upon the investor to ascertain the property’s actual current value – many properties which go to auction do so because they are “under water,” meaning that the amounts owed on the property are greater than the current value of the property.

The Steps in a Foreclosure Auction

In some locations a property that is set for auction on a specified date – possibly a property which the investor has researched and determined to be a good buy – will be postponed for up to 30 days. These postponements can occur multiple times, which makes it difficult for investors who are interested in only one property or in only a few select properties.

Investors should also be aware that often a discounted price on a property will not be announced prior to the actual auction itself. Lenders typically open the bidding at a price that it either equal to what is owed on the property, or a price which reflects the current market value of the property. If no other bids are made on the property, the lender takes back the property and it becomes what is commonly referred to as an REO (Real Estate Owned) by the lender itself.

But often, especially if a lender already has a large number of REO properties on its books, the opening bid on a property will be considerably lower than the current market value of the property, allowing the investor to pick up what can be a considerable amount of potential equity immediately upon purchasing the property. This, obviously, is the situation in which the investors hopes to find him or herself.

Don’t Get Tripped Up

One of the problems many investors face at a foreclosure auction is the fact that a property that has been vetted is suddenly removed from the auction. In such a case a pumped-up investor may feel almost obliged to purchase…well, something, and, unfortunately, purchasing a different property, one which has not been fully researched, can be the worst possible thing to do. Never bid on any property which you have not personally visited and walked through, and never bid on any property without doing a complete background check on the property, including any taxes or other fees which may be owed.

It is easy to let the excitement of the auction experience cloud your judgment. Know which properties you will bid on before going to the auction and know what your highest bid will be for any of the properties – and then stick to your guns. In a small market it may be that the next foreclosure auction won’t be for quite a while, but in larger markets, such auctions take place on an almost daily basis. The point is, there is ALWAYS a next time.