Most homeowners make their monthly payments and pay their taxes, but what happens when they don't? After 90 days of non-payment, the lender can start foreclosure proceedings. Once a house is foreclosed upon, the bank or lender will turn to a foreclosure auction to try and recoup as much as possible from the outstanding loan.
Since the minimum price is often set at the value of the outstanding loan, some home auctions are unsuccessful. In this case, the property becomes a REO or bank-owned property. Bank owned properties are a class of property that are owned by the bank or lender and this usually occurs after an unsuccessful foreclosure auction.
Tax Foreclosure Auction
There are a lot of responsibilities that come with owning a home and one of them is paying your property taxes. Property tax is generally equal to about 1% of the home's value and must be paid to the local county assessor's office twice a year. If for some reason you decide not to pay your taxes, your home could potentially be foreclosed on by the IRS.
An IRS real estate auction is very similar to a regular foreclosure auction but instead of dealing with banks and lenders, you get to deal with "Uncle Sam". But generally, since the government is only looking to recoup the total loan debt, you might get a nice discount on a house for auction with this option.
Foreclosure Auction Process
Remember, a foreclosure occurs when the owner of the property is unable to make his/her payments and the property is then seized by the bank or lender. The actual foreclosure process can take some time but it is pretty simple to understand. There are actually several opportunities for investors to try and purchase a foreclosure at a bargain rate.
Notice of Default
After about 90 days of missed payments, the lender will issue a NOD or Notice of Default with the county. This basically puts the homeowner on notice that they will be foreclosed on if they're unable to bring the loan current. The whole process could take up to a year though depending on how busy the banks are with other foreclosures and priorities.
Notice of Sale
If the homeowner is still unable to make payments, a notice of sale is issued. This notice basically sets the date for public sale of the property and is referred to as the pre-foreclosure auction period.
Once the home in question has been officially foreclosed on, it goes to auction. The opening bid is set by the foreclosing lender and is established according to the balance owed. But that balance can also include late fees, legal fees and any accrued interest on the mortgage.
If there are no suitable bids above the asking price, the property is sold back to the lender and deemed a Real Estate Owned property or REO. If a buyer is found, they are usually required to submit a cash payment within 24 hours.
Auctions can take place anywhere, so it's important for buyers to know the rules of the particular auction since some will require payment at the end of the auction. Auctions can take place at a mobile auction house or even on the steps of the property itself.
How to Find Foreclosure Auctions
Finding foreclosure dates and foreclosure auctions is a relatively simple process. Often, there will be listings in the newspaper or with your local county real estate office. You can also check with a knowledgeable Realtor who specializes in foreclosure home auctions. Lastly, there are several reputable websites that you can use online in order to aid you in your search for results.
Buying a House at Auction – How to Proceed
Investing in bank foreclosures can be very profitable but you need to know how to buy and what to buy. In fact, a bank foreclosure auction can be a great investment opportunity for you but only if you are prepared.
First, you'll need to make sure that you have enough cash to cover the selling price or access to quick cash in your savings account. Some auction houses will allow you more than a day to pay but be sure to check beforehand.
Researching market values and comparables is also an important aspect of foreclosure investment. Since you want to get the cheapest price possible you need to know what the market is like and what type of earnings you can expect from a below market value home.
Finally, ensure that you're able to attend all foreclosure auction dates in your area since there is usually heavy competition for the best properties.
Common Foreclosure Auction Questions
What is the Required Documentation?
Remember, you can't just walk up to a courthouse auction and place a bid. You'll need to pre-register and also show that you have the financial means to pay. The easiest method for payment would be getting a cashier's check from your local bank.
Can I Go to a Foreclosure Auction Just to Watch?
Although most public auctions won't allow you to walk up and place a bid, you can definitely go and just watch. It's actually a good idea to attend at least one auction ahead of time so that you are familiar with the process.
Is a Lawyer or Realtor Recommended When Buying a Home at an Auction?
A lawyer or Realtor is not necessary at an auction, but if you have the means to hire one they can only bolster your confidence in the investment. Some foreclosure properties may have two mortgage loans and/or additional tax liens so it's important to investigate property records yourself or hire someone that can do it for you.
What Types of Homes Are Found in a Foreclosure Auction?
A bank foreclosure could encompass any and all types of properties. No single type of property is completely immune to foreclosures so you should be able to find whatever you're looking for: everything from a small condo to a luxurious mansion.