How to Buy a Foreclosed Home at Auction

Three Parts:Conducting Pre-Auction Due DiligenceAttending the AuctionFinalizing the Sale

When a homeowner (i.e., borrower) defaults on their home loan, their lender (i.e., the bank) will take possession of the property. This process is called foreclosure. When the lender takes possession of the foreclosed property, they will sell it in order to recoup some of the money owed under the loan. Often, lenders will sell these properties at auction. If you are looking at purchasing a foreclosed home at auction, you need to do your research before attending the auction. At the auction, make sure you come prepared to quickly bid on the home and finalize the sale, which includes paying for your new home with cash.

Part 1
Conducting Pre-Auction Due Diligence

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    Contact a specialized real estate agent. Some real estate agents specialize in what are called real estate owned (REO) properties. Do a quick online search for these specialists and discuss your options with them. They will guide you through the different types of paperwork you will need as well as what to expect during the process. In addition, they can help you complete a lot of the tasks leading up to the auction itself.[1]
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    Research foreclosure auctions. In general, there are two types of foreclosure auctions, which include public and private auctions. In addition, both public and private auctions can take place live or online. For example, in Miami-Dade County, Florida, public foreclosure auctions take place online.[2] You can often find auctions by looking in your local newspaper, online real estate listings, or by using your specialized agent.
    • Public foreclosures usually occur soon after ownership of the property transfers to the lender. In contrast, private auctions usually take place after a failed public auction and after the lender has already been listed by real estate agencies.[3]
    • Live auctions are conducted in-person and in a location open to the public. In contrast, online auctions are conducted over the internet using various reputable websites.[4]
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    Attend auctions as an observer. Find local auctions in the area where you are looking at purchasing and go to a couple. When you go them, observe the buyers, the auctioneers, and the process.
    • Buyers may try to intimidate others in order to scare them out of a bidding war. Other times, buyers may be as discreet as possible in order to stay under the radar. Going to a few auctions and observing will give you ideas about how to handle these tactics.
    • The auctioneers are there to sell the property for the highest price possible. See how different auctioneers conduct their business and look for an auction that is as relaxed as possible.
    • When you go to auctions as an observer, ask questions before and after the auction itself. Try to get an idea of how much money you need to bring, the types of payments they accept, how the bidding process works, and what is expected of you after the bidding is over.[5]
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    Keep an eye out for homes you want. Once you find an auction you feel comfortable with, keep an eye on properties going through that auction house or public process. While looking for attractive properties, you need to know what to look for. Most properties sold at auction are sold "as-is", which means you will take possession of the property with no guarantee of its condition.[6]
    • Because properties are sold as-is, you should look for properties that look to be in good condition. Do not focus your attention on homes that have visible exterior damage or title concerns.
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    Inspect the property. Lenders usually do not have a right of possession until the auction is complete. Therefore, you will likely not get a chance to tour the property to search for shortcomings. In order to inspect the property, drive by and take pictures of the exterior. If you have permission, you may be able to walk around the home and look around. Gather as much information about the home and the neighborhood as you can. You can also try to talk with neighbors about the area as well.
    • Never try to enter the home or the property without permission. Doing so may amount to trespassing and may lead to criminal or civil penalties.[7][8]
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    Conduct a title search. A title search involves looking through public records in order to understand the history of a particular parcel. When you conduct a title search, you will be able to learn who owns the property, what tax liabilities you may be responsible for, and if any other creditors have claims on the property. If a creditor has a claim on the property, it may affect the type of title you would get if you purchased the property at auction.
    • If you purchase a property subject to a lien, you may have to pay off the creditor in order to get rid of the lien. This is an extra cost you may not want to be responsible for.
    • To conduct a title search, go to the county recorder's office where the property is located and ask to examine property records. You can usually do this in-person and for free. However, it may cost you to make copies of the documents you find.
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    Study comparable homes in the area. To get an idea of what a home is worth, look at other home values in the area. Try to find homes that have a comparable size and location.[9] When you find comparable homes, look into their values. Ask neighbors or use your specialized agent for this process.
    • Doing this will help you determine how much you should be willing to bid at auction. You do not want to end up paying more than the property is worth.
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    Get funding. Once you think you know how much the property is worth, you will need to get the funding necessary to complete a purchase. Most auctions require you to pay the full purchase price immediately after the auction or soon after. Therefore, you will need to get enough funding to be able to cover the full purchase price before you go to the auction.[10]
    • If you do not have that amount of cash on hand, you may have to get various loans in order to cover the costs. Talk with your local bank to determine what funding sources are available to you.
    • Some auctions will allow you to finance your purchase.[11] If your auction allows this, take the time to get pre-approved for a mortgage. When you go to the bank to get pre-approved, you will provide them with financial information. The bank will then make a determination about how much loan they would be willing to offer you for the purchase of a home. If you are pre-approved, you will show the auction that you are a serious buyer and that you have the funds available to purchase.[12]

Part 2
Attending the Auction

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    Confirm the auction specifics. A few days before the auction, you need to talk to the individuals holding the auction to confirm the auction's status. Make sure you know when the auction is and where it will be held. Auctions can, and often are, cancelled or postponed for various reasons.
    • Borrowers usually have a right of redemption, which allows them a period of time to pay off the debt and keep their home. If this happens, the property you are interested in may be taken off the auction block. This is one of the many reasons to check in with the auction before you go.[13]
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    Arrive early. Auctions don't last long. If you arrive even 10 minutes late you could miss your property. Make sure you arrive before the auction starts so you have time to register and get yourself in order.[14]
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    Bring an advanced deposit. Most foreclosure auctions accept cash, money orders, or certified checks. In most states, you will be required to put down an advanced deposit before you will be allowed to participate in the auction itself. Usually, the amount you are required to put down will be 5-10% of the expected final bid on the property you are interested in.[15]
    • For example, if the property you are looking at is expected to sell for $300,000, you may be required to bring an advanced deposit of $30,000 just to participate.
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    Bid on the property. Once the auction starts, you will bid on the property you are interested in. In most cases, you will have a numbered paddle or you will simply raise your hand to bid. Make sure you listen closely to the auctioneer so you understand where the price is at.
    • Always have a maximum price for your properties. If the bidding goes above your price, stop bidding and wait for another property to come along. While you may have loved the home, you do not want to pay more than it is worth.

Part 3
Finalizing the Sale

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    Talk with your auctioneer. When the bidding ends, the auctioneer will indicate who has won the bidding. If you have won, you will have to speak with an auction administrator as soon as the auction is over. They will tell you how to make your final payment and how to take possession of the property.
    • Do not leave the auction without getting these details. If you do, you may lose the property and forfeit your advanced deposit.
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    Submit purchase documents. As soon as the auction ends, you will begin the process of transferring ownership of the property to you. In most states, you will be required to fill out a certificate of sale or an execution of sale receipt. You may also be required to submit a deed of sale and Internal Revenue Service (IRS) Form 8300.[16]
    • The deed of sale is the transfer document that evidences the fact that you are getting the property from the lender. This document must be recorded with the county recorder's office.[17]
    • IRS Form 8300 is form required to report cash payments over $10,000. It will ask for your personal information as well as the lender's information. You will then describe the method of payment, how much was transferred, and what it was transferred for (i.e., to purchase real property). The lender will usually be the one to fill this out on your behalf.[18]
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    Buy title insurance. Most of the properties you will bid on at foreclosure auctions will be transferred using quitclaim or special warranty deeds. This means you will not be promised that the property is in a certain condition, or even that the lender has an unencumbered interest in the property. In most cases, you will receive whatever ownership interest the lender has in the property (and sometimes the lender will not even know the extent of their ownership interest). For these reasons, it is important to purchase title insurance before you take possession of the property.
    • Title insurance will protect you against any undiscovered liens and other title defects you would otherwise be responsible for.[19]
    • Talk to your real estate agent about quality insurance products. If you do not have a real estate agent, look online for a reputable insurance company that sells title insurance.
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    Have the sale ratified by the court. At public auctions, the sales made will have to be ratified by the court. This ensures that the borrower was indeed late on payments and that the lender had the right to sell the home. This will usually happen relatively quickly after the auction, maybe even within a few days.
    • Once the sale has been ratified, you will be required to move quickly in order to finalize the deal.
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    Finalize your loan. If you are going to take out a mortgage to finance the home, it is time to finalize the mortgage and get your check. This needs to be done soon after you bid on the home. The auction and the lender will require payment quickly.
    • To finalize your loan, go to the bank that pre-approved you and get the paperwork started.
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    Make your final payments. Once you receive a cashier's check from the bank that covers the purchase price of the home, you will need to deliver it to the appropriate party. This will usually need to be done in a matter of days. If you fail to deliver payment on time, you may forfeit your right to purchase the property as well as any money you have already put down.
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    Receive your deed. Once you pay for the home, you will be given your deed as well as possession of the home. However, even once you get possession of the home, you may still have to work to eject the family currently living there.
    • If you need to bring an eviction action, talk to your local sheriff's office for instructions.[20]

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