How to Buy a Foreclosure Property at Auction

What are the steps involved in buying a foreclosed property

With home prices at their lowest in years and mortgage interest rates at record lows, there may not be a better time to buy a home in the next 20 years than right now. Many first time home buyers who want the best deal when they buy a home look at buying a foreclosure property at auction. While there are great deals available, there are many pitfalls to buying a foreclosure at auction.

Before looking at a foreclosure auction, home buyers may want to consider purchasing a home that is in foreclosure through a short sale before the actual foreclosure auction (see: Buying a home using a Short Sale). Often you can get the same deal you would get with a short sale without the hassle of the foreclosure process.

For buyers who still want to go the foreclosure auction route, the first step is to start shopping around. There are numerous foreclosure listing web sites that track foreclosures. In addition, most local newspapers carry legal notices of all upcoming foreclosures and foreclosure auctions.

Foreclosure Auction Issues

Once you identify a property that you want to purchase, the next step is to determine what type of foreclosure auction is scheduled. Foreclosure processes vary from state to state for court ordered auctions, so it is important to consult with an attorney or title company prior to attending an auction so you know the procedure. In many states there are four issues that prevent first time home buyers from buying a foreclosure at auction:

1. No chance to inspect the property in advance. Buying a home for the first time is often a daunting task. Buying a home when you don't have a chance to inspect the property in advance makes it even less appealing.
2. 10% down payment required. Most first time home buyers do not have 10% as a down payment so they are not permitted to bid. The 10% deposit must be brought to the auction usually in a certified check to be held by the attorney until closing.
3. No contingencies permitted. Foreclosed homes are sold "as-is, where-is," which means there are no contingencies permitted for obtaining a mortgage or doing an inspection. Buyers only have the morning before an auction to complete their inspections.
4. Must close within 30 days. Most court-ordered auctions require that buyers close within 30 days or they lose their 10% deposit and there are usually no exceptions. This means, for example, that if there is any delay in obtaining financing then the deposit is forfeited.

Because of these strict rules, most court-ordered foreclosures are purchased by real estate investors in all-cash deals, leaving first time buyers out of the action.

Sometimes, lenders who have already foreclosed on a number of properties will hold an auction to sell all of their properties at one time. These auctions are different from court-ordered foreclosure auctions because these auctions rarely have the minimum 10% down payment rule in place and also will allow more than 30 days to obtain financing and close on your purchase. While lenders will usually not offer financing directly on their own foreclosed properties, they usually have other mortgage loan sources available to assist with financing. As a result, these auctions are much easier to participate in than court-ordered auctions.

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For a free mortgage pre-approval and an exact rate quote to help you purchase your next home, please email us or call us at 1-877-868-2503.

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