Whether you're an investor looking to acquire foreclosed properties for personal use or to resell, or you're having your house foreclosed on, you should be aware of what to expect at a foreclosure auction. Of course, the methods performed will differ slightly from state to state and from house to house, but it's good to know what you're getting yourself into before attending a foreclosure auction. Auctions for foreclosures can be exciting, even entertaining, but understanding what to expect can help you get the most out of the experience, whether you're an investor or a homeowner attempting to reclaim your home.
Ahead of the Auction
The foreclosure auction will most likely be advertised in a local newspaper, and the leaflet may include information on how to pre-qualify for bidding. This will allow you to put down a deposit, indicating that you are a serious bidder who will be able to fulfill your bid if you are the winning bidder. Being pre-qualified just expedites the procedure by eliminating the need to deal with the deposit on the day of the auction. You should also do some research on the house at this period, checking into any liens that may be against it, how much it is worth, how much it has appreciated in the last few years, and local property prices.
If the house appears to be in need of some repairs, you should factor that into your calculations when determining how much you are willing to pay for it. No amount of understanding about what happens at a foreclosure option will help you if you don't do this study since you won't know where to begin when it comes to actually make a strong bid.
What Takes Place During the Auction
Typically, the auctioneer will begin the sale by reciting legal notices and a legal description of the property. The auctioneer will normally start taking bids on the property at this point. The process is more expedited if the auctioneer has pre-qualified bidders; if not, the auctioneer will ask for the bidder's deposit check, which is normally around $5,000 for residential auctions. The auctioneer will attempt to solicit bids for bigger amounts after each bid. Each auction is unique, although the auctioneer normally sets the auction increments, which can be $100, $500, or $1,000 per bid. Until it is evident that the highest bid has been reached, the auctioneer will continue to solicit offers by this increment. The auctioneer will then proclaim, "Going once, twice, three times, sold!" The auction has ended, and the property has been sold to the highest bidder.
A foreclosure deed and purchase paperwork will be written up and validated by the new owner or purchaser and the mortgage holder once the bidding has been completed. A grace period will most likely be granted to allow the buyer to secure financing or raise the finances necessary to cover the full sum of the bid. Unless the buyer and the mortgage holder agree to other conditions, the grace period is normally 30 days. Following the grace period, the new owner will be able to formally take possession of the property through closing.
So, what's going to happen now?
The buyer is free to do whatever he or she wants with the property, including moving in or selling it for full market value. The money paid by the buyer will be dispersed in a priority sequence, with taxes coming first. Money will be paid to the mortgage after taxes, followed by the second and third mortgages, if appropriate. If there is money left over after paying these bills, it will be distributed to lien holders and creditors. There is a very slight chance that money will be left over after all of the bills have been paid; if this is the case, the funds will be paid to the previous house owner.
So, who was the original owner?
The original owner will frequently attend the auction in order to bid for their home, which is lawful as long as they have the required deposit. If the owner of a foreclosed home bids on it, they must keep in mind that the deposit is non-refundable and that the deposit presupposes they will be able to finance the home during the grace period. Old debts, such as second and third mortgages that became void when the original mortgage foreclosed on the property, may combine and become reinstated if the property is bought again, provided the owner has declared bankruptcy and is actually free and clear of these debts. Owners will frequently scrape together the means to make the deposit so that they can try to keep their house for another 30 days. Owners' attempts to save their homes at a foreclosure auction may or may not be effective.
As you can see, there are a lot of factors that go into a foreclosure auction, but none of them are very difficult to comprehend; rather, understanding them makes the auction more pleasurable. The auction itself isn't very sophisticated, but it may move at a breakneck pace. Because of the location or the debts tied to the property, or even the status of the property, certain foreclosure auctions attract a large number of people, while others attract a small number. If you are serious about the property, you should pay close attention when bidding begins to ensure that you may place your bid when you feel it is appropriate, giving you the best opportunity of being the highest bidder.
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