Six Steps to Buying at
Going once... Going twice... Sold to bidder 1234!
If you’ve always wanted to buy a property at a Foreclosure Auction here are a few steps for you to follow so continue reading.
Below is the process and how to get in on the buying bonanza.
STEP #1 - Find Upcoming Auctions
It’s extremely important to develop a tracking system to track properties that are of interest to you.
Your success depends on your tracking system since most successful auction buyers follow several properties at sometimes over a period of several months.
Seasoned buyers research, print out property details, and track properties on a spreadsheet for example.
After you find a property online, it’s a good idea to drive by the property to get a good look the property’s condition and the type of neighbourhood it’s located in.
For some buyers and investors, driving by the property has also facilitated a casual meeting with the owner or resident living in the home.
You may be able to still work out a last-minute deal with the owner before the auction or collect a wealth of information about the property from a talkative neighbour giving you an added advantage over other bidders.
STEP #2 - Confirm Auction Status, Location and Bidding Process
Once the property is scheduled for auction, the owner still has a chance to stop the auction by paying the amount owed to the foreclosing lender by finding a suitable buyer.
It’s very common for an auction to be postponed without a new date being published however most cancellations or postponements are announced at the time and location of the originally scheduled auction.
You can call the trustee to find out beforehand if the foreclosure action had been cancelled or postponed and you can find the trustee information for each auction property at most foreclosure law firms or at the counties clerk’s office.
Most foreclosure auctions are held at a public place in the same county where the property is located. In many states, all the auctions in each county are at the same location at the same time every day.
The auction date, time and location are usually listed at the trustee’s office or the county clerk’s office. If you call the county clerk, make sure you clarify specifically which foreclosure auction you are looking for, the location of mortgage foreclosure auctions or the tax foreclosure auctions.
The bidding process may be different from state to state, so you will need to become familiar with the auction process in your area before bidding.
If you plan to bid you are required in most cases to bring the full amount you intend to bid in the form of cash or cashier’s check to the auction. In some states the bidders are required to bring a certain percentage.
Ten percent is the most common bid amount that you will be required to bring to the auction and you will be required to pay the remainder of the amount within a certain timeframe usually 24 hours if you are the highest bidder.
Keep in mind that if you do not pay the balance within 24 hours you may lose the 10% you gave to be able to bid.
Foreclosure auctions have become very common so when you call the trustee representative, you should be able to get information about how the bidding process works in your county.
Keep in mind however valuable the information you receive from the trustee representative or the clerk’s office, you should always educate yourself. You can get started by going to a foreclosure auction in advance to meet the bidder and speak with them about the process.
You can gather information from your states foreclosure laws. You may also want to contact a local real estate agent or attorney in the area. Of course, as always the best education will come from simply observing foreclosure auctions live in person.
STEP #3 - Research Potential Bargain
Now this is the most important part of the foreclosure auction process and the difference between you making money and losing money.
It all rests on your ability to your research.
You must find out as much as you can about the estimated retail market value of the property, how much is owed on the property and if the owner has any other liens registered on title against the property.
This is all public information and you can research it on your own at the county recorder or you can use an attorney to help you with this information.
The opening bid at the auction is based on the total amount owed to the foreclosing lender and may include fees the mortgage company has incurred because of the foreclosure proceedings.
If no one bids above the opening bid the foreclosing lender will take possession of the property and the property will become an REO (Real Estate Owned).
It’s important for you to know the opening bid so you can quickly determine if the auctioned property represents a potential bargain you want to purchase when the opening bid is compared to the property’s retail market value.
To determine the estimated retail market value for properties scheduled for foreclosure auction you can consult with a few local Real Estate agents and they can provide you with a CMA (Comparative Market Analysis).
You can also subscribe to websites that will provide you with all kinds of information for example who the owner is, what he paid for the property, when it was bought, the mortgage balance, estimated fair market value, when it was built, etc. some sites are free others are paid membership based.
STEP #4 - Determine Bid Amount
Based on all your research and armed with all the facts, you can use these factors to determine the potential bargain and calculate your financial capability so you can determine how much you can or should bid at the foreclosure auction.
Determining your maximum bid amount is more obviously important in states where bidders are required to bring the full amount in cash or cashier’s check to theauction.
You must have a cashier’s check with you to even be qualified to bid.
If you don’t meet this requirement you will not be able to bid at the foreclosure auction.
If you don’t have that type of cash lying around you have a few options:- If you own a home and you plan ahead you might be able to take out a home equity line of credit and you can use this money to buy a property at the foreclosure auction.
- If you can’t secure a cash loan, you may consider finding an equity partner to put up all the cash or if you have some cash but not enough to pay for the entire purchase in cash you might consider using a hard money lender who will send you in most instances up to 80% of you maximum bid.
It’s always very important to determine the bid amount by setting a firm ceiling for your bid to avoid getting caught up in the heated and competitive environment and overbidding, which can result in little or no bargain for you.
Always remember if you’re not able to pay the balance of the money within the time frame stipulated by the state law your deposit paid at the foreclosure auction will most likely become non-refundable.
A reasonable expected discounted amount at the foreclosure auction can be at least 20 percent or more below the full retail market value of the property.
Other factors you should consider are the rate of real estate appreciation in your chosen market and the potential for increasing the property’s value by renovating, making repairs and improvements to the property.
STEP #5 - Bid At The Auction
Call the trustee or the county clerk’s office the day before or the day of the auction to check one last time if the auction has been cancelled or postponed.
If an auction is postponed, the trustee should provide you with the new auction date. If the home you have selected will be auctioned that day arrive at the foreclosure auction location early and locate the auctioneer as quickly as possible.
Your first time bidding will be intimidating and scary.
Take as many cues from the other participants as you can however don’t let them dictate how much you’re going to bid.
You may encounter investors who attend many auctions every day or month and who don’t necessarily appreciate new competition from a novice investor. The experienced investors may try to discourage you from bidding by telling you something is wrong with the property.
STEP #6 - Take Ownership
You are the winning bidder.
Now make sure you get all the necessary documents from the auctioneer to verify that you are the winning bidder.
Clarify with the trustee or auctioneer and a real estate attorney what further steps need to be made before you can take ownership and possession of the property.
In some states, ownership can be transferred immediately or within a few days of the foreclosure auction. In other states, you may need to wait a month or more for the sale to be confirmed by a court.
Some states have redemption periods for the owner, in which case the owner can buy the property back from you if they pay the full amount paid at the foreclosure auction plus any applicable fees.
You should avoid spending money renovating or making repairs or improvements the property during the redemption period.
Check with the trustee but in most instances the responsibility of evicting the current owners will fall on you the new property owner.
If evicting the previous owner is necessary you can contact a local real estate attorney or the county sheriff for the proper procedure, however in most cases the previous owner leaves on their own.
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