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The Ins and Outs of Bidding and Paying at a Public Foreclosure Auction

The Ins and Outs of Bidding and Paying at a Public Foreclosure Auction

Rick Sharga, Vice President of Marketing for RealtyTrac

In the fast-paced foreclosures market, many sales are made at public auctions. While attending auctions can be a great way to purchase a property well below its market value, the process moves rapidly and can sometimes seem like a dizzying blur to the prospective buyer.

These events are often frequented by more seasoned buyers and investors who understand the ins and outs of the process, so you need to be prepared if you plan to attend an auction. That means understanding the auction process before you arrive, including how to make a bid and actually pay for the property if you bid successfully.

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Real estate investment trainer and author T.J. Marrs says he rarely frequents auctions and prefers to buy during the pre-foreclosure period whenever possible, simply because of the growing number of bidders driving up the prices at auctions. However, he advises those who do plan to buy at auctions to “get to know the property by either personal inspection, professional inspection or by getting as much background information on the property as possible.”

Those who heed that advice and take time to understand the foreclosure auction process have a better chance of achieving a successful outcome.

First things first: Know when and where, make time to prepare
While the details concerning public auctions differ from state to state, and whether the sale is judicial or non-judicial, usually foreclosure properties are auctioned off at the site of the property or at the courthouse in the county where the property is located. The date of a scheduled auction is typically posted at the courthouse, at the actual property and in a local newspaper.

Thanks to online data services like RealtyTrac, buyers and investors can use the Internet to locate auction property nationwide. RealtyTrac maintains a daily updated list of sale notices nationwide along with property research tools, giving buyers the information they need to prepare for an auction. Buyers can find the street address, which gives them a chance to view the property (at least from the outside), evaluate the neighborhood to determine what the property is worth, and plan a reasonable amount they would be willing to bid for the property at the upcoming auction.

Most likely, you’ll be bidding on a property without really knowing its condition on the inside, so it’s important to do any research you can in advance in order to minimize the risk of over-bidding and increase your return on investment. It’s also a good idea to research the title on the house and to find out what you’re actually bidding on at the auction, such as whether it’s the first mortgage or second mortgage. This information is crucial to bidders because it affects whether liens will remain on the property or dissolve as a result of the foreclosure auction.

“You have to know the property inside and out and know the party that is auctioning the property is, in fact, in the first lien position,” advises Marrs, noting that if you buy from a party that is in a secondary lien position, you could be responsible to pay for the first lien in addition to the auction price.

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