A Layman’s Guide to Foreclosure Auctions

Purchasing a home is rarely a simple process. There are many laws and legal procedures that can quickly confuse the ordinary person. Purchasing a property at a foreclosure auction can also be a bit confusing, but buying a house at auction is no more complicated than buying any piece of real estate…as long as you know the rules. To get a better understanding of the process of purchasing property at a foreclosure auction, here is some basic information.

Types of Foreclosure Auctions

First of all, there are two distinct types of foreclosure auctions: judicial foreclosures and non-judicial foreclosures.

Judicial vs. Non-Judicial

The main difference between these two types of foreclosure auctions is as their names suggests. Judicial foreclosures require court supervision over the sale of the property while non-judicial foreclosures give the lender the power to sell the property without court supervision. Judicial trustee/foreclosure homes (some states use ‘trustee’ while others use ‘foreclosure’) are often sold at live auction events held on the courthouse steps but every state has different methods of selling their judicial foreclosures. Laws vary widely by state and it’s important to understand the laws in your particular state prior to attending the auction.

Online Foreclosure Auctions

The number of websites selling foreclosed homes via online auctions grows weekly. These sites are similar to their offline counterparts in many ways but the online space offers much more convenience. Rather than having to go down to the local courthouse or hotel ballroom, you can bid on foreclosed homes online from anywhere in the world. In addition, online auctions usually last a few days instead of a few hours, as is the case with judicial foreclosure sales.

General Rules to Remember

Once you are familiar with the different types of foreclosure auctions, it is essential to understand some general rules.

Bring Sufficient Funds

First and foremost, make sure to bring more than enough money for the home or homes you intend to purchase. This is imperative because most live foreclosure auctions require the winning bidder to produce the necessary funds on auction day. Also, since financing is not typically available for homes purchased at foreclosure auctions, payment is generally a cash-only affair. Again, check with your state, as each state has its own rules concerning payment.

Perform Necessary Research

It is vitally important to perform your own due diligence. Due to strict foreclosure laws, it is unlikely that prospective buyers will be allowed to physically inspect the home they hope to purchase at a foreclosure auction. Things you can do include researching the neighborhood and home prices around the property as well as driving by the house to get a glimpse of the outside. Past title reports and other property data are also available on many properties and this information will help determine the home’s value so you can set your maximum bid.

Be Aware of Separate Costs

Finally, be aware that there may be other costs, in addition to the auction price. These costs can include unpaid property taxes, liens and any past-due homeowners’ association fees, among other things. A “buyer’s premium,” above and beyond the winning bid price, is often charged as well, especially with regard to purchasing foreclosures at online auctions.

There are many amazing bargains to be had at both judicial and non-judicial foreclosure auctions. But whether the foreclosed home is sold at the courthouse steps or online, the key to getting a great deal is knowledge and preparation.