Buying real estate through a foreclosure auction has become a hot topic in late-night infomercials. There are several real estate "gurus" who claim they can teach anyone how to make massive profits by investing in distressed properties sold through auctions. The burning question on most people's minds is... can buying houses through foreclosure auctions yield a great real estate deal?
The answer is... Yes. Plenty of deals await you at the foreclosure auction. However, in order to capitalize on those deals you must know what you are doing. Foreclosure auctions are not for newbie real estate investors or individuals buying their first home.
When foreclosure homes are sold through auction the property is sold "as-is" to the highest bidder. The bidder must have sufficient funds to purchase the property when they place their bid. Once the bid is accepted there is no turning back.
It is important to realize that most real estate sold through foreclosure auctions have little room for profit. Additionally, few foreclosed homes are in perfect condition. Most require repairs or renovations. Many have been neglected for years because the borrower was unable to properly maintain the property.
When real estate is placed on the auction block, the first bid is generally reserved for the lender who holds the mortgage note. The lender usually places a bid for the amount owed on the note. If no one bids higher, the property is returned to the bank and becomes real estate owned (REO) property.
The first step in participating in foreclosure auctions involves locating where the auctions are held. One of the most trusted sources for locating foreclosure auctions is RealtyTrac.com. Oftentimes, foreclosure auctions are published in the real estate section of local newspapers. Additionally, some foreclosure auctions are posted at county courthouse websites. In most cases, you will need to conduct research to locate auctions in your area.
Once foreclosure auctions are located, it is important to familiarize yourself with the policies and procedures. Some auctions require bidders to bring the full amount of their bid, while others require bidders to bring a certain percentage of the bid amount to auction.
In order to bid on foreclosure properties, you must become educated about the properties offered through auction. This includes the market value, how much is owed on the mortgage note, and if any liens are attached to the property. This information can be located through the county Recorder's office and requires a visit to the local courthouse.
Once the above information is obtained, you will be able to determine how much you should bid at auction. Oftentimes, buyers use a home equity line of credit (HELOC) when bidding on properties sold through foreclosure auctions. HELOCs are simply an open line of credit which can be accessed at any time.
It is quite easy to get caught up in the frenzy of action that occurs during the bidding process of foreclosure auctions. It is important to set a firm amount for foreclosure real estate. Otherwise, you could end up spending more than the property is worth. Additionally, it is important to realize that if you bid more than you can afford and unable to pay the full amount within the stipulated timeframe, you will lose the deposit you paid at the auction.
Once you win a bid through foreclosure auction, certain steps must be followed to take possession of the property. In some states, property is transferred immediately, while in other states the sale must be confirmed through the court system.
One lesser known fact about purchasing real estate through foreclosure auctions is that occasionally the homeowner or tenants reside in the house. Bidders who purchase foreclosures where people reside will be responsible for initiating eviction procedures.
Before investing in foreclosure real estate, we encourage you to learn more about various real estate investment opportunities and strategies in our foreclosure auction article library.