Inside Info on Future Auction

[T Smith]

I have a friend who plans to walk away from his house and I want to buy it. He said it would be better to wait for it to go to auction. Is he right? Doesn’t it have to go through foreclosure first?

I’m thinking about taking out a home equity loan to have the cash on hand for the purchase. Thoughts?

[Andy Mirza]

@T Smith The foreclosure is the auction. The culmination of the foreclosure process is the public sale of the property at the auction at the courthouse steps (or other public place). He's right that this is the best way. If it sells to a 3rd party or back to the bank, your opportunity for a great deal is lost.

You have an advantage over all of the other potential bidders at auction. If your friend is willing to let you see the inside of the house and disclose any issues, you'll have information that nobody else will have. Bidders have to rely on exterior inspections and may get lucky to peek inside a window of a vacant property.

You still should do title research like you would for any other property that you'd buy at a foreclosure sale. You want to make sure that the correct lien is foreclosing, most likely the 1st in your situation, and that there aren't any other outstanding liens that would be a problem.

If the numbers make sense, I'd take out a HELOC and do what you're planning to. Just be aware of the risks of doing so.

[Ron S.]

Or? All things being equal, If his balance is attractive when running the numbers, buy it from him before auction to avoid the chances of it getting bid up at foreclosure sale. That's the only way you get the "Inside" deal. Yeah, like Andy said, either way you'll get more insider information with an interior inspection but still, if you can avoid the auction and if its a good deal, close it before the foreclosure sale so some other guy doesn't outbid you. That said, if there was a ton of equity, the owner wouldn't' normally just walk away.

[Phil Z.]

If they are 'arms length', a short sale is the best way.  IF you buy at the Courthouse Auction, you usually have very unfavorable terms and will require cash.  IF you wait for it to be bank owned then you compete with the entire market.