Exact Steps Needed to Purchase a Property at Foreclosure Auction

Breaking It Down
Many inspirational real estate books refer to simple phrases such as "buy a foreclosed property at a discount", which contain many processes and intermediate steps with the overall task. I dove into buying foreclosure properties without any mentors who had done it before, so unlocking the steps took some time but eventually became routine.  Here's a quick run-down and brief description of each step.

Choose an Investing Strategy
Come up with an investment strategy and goes, and decide whether you want to buy rental properties or flips, multi-families, single-family, or condos.  Or, you might be open to anything that has a good spread and be opportunistic.  In the beginning, getting *any* property to flip or hold will provide hands-on education in addition to the potential financial gains.

Secure a Financing Source
In order to bid on a property, you must show that you have cashier's checks made out to the specific Trustee who is selling the property on behalf of the foreclosing bank.  This is one of the reasons many buyers use hard money lenders, who bring millions of dollars in cashier's checks to the courthouse auction, prepared to buy the property on your behalf. If you have your own cash, you can bring your own checks.  One drawback to this is that some Trustees require the checks to be made out specifically to them.  So if you're bidding on multiple properties you might not have enough money to bring checks made out to multiple Trustees.  To solve this, some hard money lenders will buy the property for at auction you and allow you pay them back same-day for a small convenience fee.

Choose an Exit Strategy
Do you want to flip (fix-up and sell) or hold (refinance into 30-year mortgage)?  If you want to flip, use a resource such as Redfin to search for recent sales in your area to help determine comparables and hone in your expected sales price.  If you are going to refinance into a long-term mortgage, approach a lender and describe what you want to do.  Get a pre-approval letter demonstrating that you will be able to successfully pay off the hard money loan with your refinance.

Learn What Properties Scheduled for Auction
For this, I signed up for a local auction-specialist company called Vestus.  They provide a website with updated information on the properties going to auction each week, as well as an investor packet on Thursday nights to prepare for the auction.  They charge a 3% of the estimated market value of a property as the fee for their research.  They also run Title Reports on each property to give a heads-up if there is a utility lien, IRS lien, or backed HOA dues on the property.  If you don't want to use a company like I did, you will need to figure out how to gather the foreclosure property schedules directly from the Trustees (I haven't done that myself).

Analyze Properties and Select Bid Prices
Select the properties you want to bid on, and perform an analysis to choose your bid prices.  On a flip, for example, you could start with your estimated final sales price.  Then subtract excise tax, agent fees, escrow fees, renovation costs, hard money loan fees, hard money loan interest, and utilities.  From the number that's left, come up with a bid price that leaves enough room for your desired profit.

Physically Drive by Key Properties
If there is a particular property you are interested in but not sure about, it is worth driving by the property, even if you work with an agency (as I did) that drives by all the scheduled properties and provides reports for you.  Sometimes you can make salient observations that help to shape your bid.  I'd make a habit to drive by one or two properties on the way to the auction on Friday morning.  Make observations about the neighborhood and the condition of the building.  Sometimes the occupants are friendly and will tell you all about the condition.  Other times they are weary of the parade of investors coming by and will be unfriendly.

Go to the Auction
Some auction purchase companies allow you to provide your bids to their agent(s), and communicate via phone that day whether you won the property.  But if your schedule allows, go to the auction and bid for yourself.  See what other properties go for and develop intuition of market values and bid prices.  Trustees are the companies that execute the process of the auction. There is a step called qualifying where they will call out the address of a given property and ask who wants to bid.  You'll need to show that you have checks, and sign up for the right to bid.  Once qualifying is done, the bidding process will occur.

Win the Property, Sign Purchase Agreement
If you win the property, you'll need to provide the exact name which you'd like to appear on the Title.  If you have a common name like mine, it can be helpful to include a middle initial to make it easier on your Title Company later when they have to differentiate you from other people of the same name as they run searches on liens and judgements.  Or, you may choose to vest the property in the name of an LLC.

Set Up Insurance
Your hard money lender will want to know that your property is insured the very day of the auction, because it's yours now! It's good to get in contact with an insurance agent before auction day, to make this a smooth experience.  Some companies will not ensure vacant or unlivable properties during the renovation phase. If you do research ahead of time to choose an insurer, it will be a sample matter of calling them after winning the property, saying "I got one" and telling them the address. They will put together a statement that you have insurance called a "binder" and provide that to your hard money lender.

Sign Loan Docs for Hard Money Loan
The next step is to go to the office of your hard money lender and sign loan documents with them. Be aware, they may say their terms are "12% plus 2 points" but there will also be a loan original fee, document preparation fee, etc. You can ask for a rundown of all the fees before you agree to work with a particular hard money lender to reduce surprises. If your agent requires a fee, such as mine did at 3%, that will likely be due at the time of signing the hard money loan documents. Straight cash-out-of-pocket! The agent's work is done and yours begins.

Get Started
Next comes the "fun" parts: Get a locksmith to change locks, or talk to existing tenants if it is occupied.  Setup utilities in your name.  Be alert that the water/sewer companies may want you to make past-due payments.  Call your contractor and make a plan for the renovations!