subject: All About Foreclosure Auctions [print this page] All About Foreclosure Auctions All About Foreclosure Auctions
The foreclosure auction is a procedure whereby the borrower's properties are auctioned off by the lender when the borrower defaults in paying monthly installments within the time period stipulated in the mortgage agreement. The best part about foreclosure auctions is that you as an investor can bid on the property without going through the hassle of negotiating with the homeowner.
If you buy property at a foreclosure auction, there will not be any other liens on it with the exception of tax liens. However, you need to have ready cash on hand when you set out to bid at a foreclosure auction. This is because you'll have to put down a cash deposit if you place the winning bid. If you're serious about purchasing property at a foreclosure auction, arrange for the money in advance. You can get a mortgage loan but ensure that you do this prior to bidding because you'll have to lay down 5% to 20% as deposit and pay the rest within 5 days or so.
Before the auction, find out as much as you possibly can about the property you're interested in. Gather information related to the market value of the property, the amount owed and other liens on the property if any. The opening bid is fixed taking into account the amount owed on the property and the fees levied as a result of the foreclosure proceedings. It is crucial to get an idea about the opening bid since this will tell you whether you have a bargain on your hands when you compare it with the property's market value.
You then need to figure out how much to bid on the property in question. While making a decision about how much you're willing to spend, take into consideration your financial capacity and the kind of bargain that the property represents. Once you set your limit always be firm and avoid getting caught up in the moment and overbidding. This can defeat the entire purpose of purchasing property at a foreclosure auction. Besides, you would do well to bear in mind that if you aren't able to make good the entire amount of the bid within the specified time limit, your cash deposit will be forfeited. Ideally, you should get your property for around 20% lower than the market value or less if possible. Some other aspects that you should consider while deciding on your bid price include future real estate value appreciation and increase in value after repairs and renovations.
It's also very important to view and inspect the property before the auction. This way you know exactly what you're getting into. Once the auction is over, the properties will not be open for inspection. So do all your inspection, research and investigation work beforehand to save yourself from any unpleasant surprises later on.
It's best to call the trustee a day prior to the auction to determine whether it is still on. If you've never attended or bid at a foreclosure auction, it's common to feel a little nervy. Watch other participants but don't get influenced by how much they're bidding. You may also come across investors who attend several auctions on a monthly basis and who are somewhat wary of competition.
In case you place the winning bid, ensure that you collect all the relevant documents from the auctioneer. Some properties have redemption periods during which the owner can buy back the property from you. So wait until the redemption period is over to conduct any repairs to the property.
With a little foresight, planning and prudence foreclosure auctions may be the best option for a potential investor to get a property a tad lower than market value.
