How Does A Foreclosure Auction Work?
Interested in attending a foreclosure auction?
After a foreclosure, banks may sell the property at a foreclosure auction. These auctions help the banks make back their money after the resident fails to make mortgage payments on time or in full.
Foreclosure auctions can be a great, cost-effective way for real estate investors to purchase properties far below their market value.
Before attending one of these auctions and making any purchases, you should also understand the difference between a tax auction and a foreclosure auction.
In both cases, the process is nearly the same. However, the items that you will be bidding on may have different circumstances.
Let’s take a quick look at the differences between these auctions and how foreclosure auctions work.
Foreclosure Auctions vs. Tax Auctions
First, you should know the differences between foreclosure and tax auctions.
When property owners fail to make their mortgage payments on time, banks may sell the property at a foreclosure auction to recoup the money that is owed to them.
Typically, these auctions are held at the bank that owns the property or at the property itself. You might also find some auctions being held online rather than in person.
You should be aware that bidding prices are often higher at these auctions than at tax auctions. This is because the bank needs to make back as much money as possible.
Tax auction serve a different purpose.
Whereas foreclosure auctions are held for banks to make back their money, tax auctions are held when property owners don’t pay their property taxes.
Instead of being held at banks or at the property, tax auctions are often held at a convention center or courthouse.
Moreover, at these auctions, bidders aren’t bidding on the property. Instead, they’re bidding for the chance to purchase the lien for the unpaid property taxes. Meaning, bidders will make back their investment plus interest if the property owner does end up paying the property taxes.
If property taxes aren’t paid, then the winning bidder can start the foreclosure process.
What to Expect
Foreclosure auctions are similar to any other type of auction. But they can be intimidating for people who have never been to one.
Ultimately, investors are looking for a great deal on their next opportunity to flip a property while banks are looking to make as much money as they can.
The auctioneer will announce the properties that are for sale — describing the qualities of each property and declaring the starting bid. Keep in mind that you might also be responsible for any debts attached to the property.
Each auction will provide rules and procedures, so make sure to become familiar with these.
After bidding starts, you simply raise your number to place a bid or you can bid by voice.
If you win a bid, you can proceed to the clearing desk to complete all necessary paperwork and make your payment. In some cases, full payment will be required at the auction. You’ll usually have to pay via check or cash. In other cases, you might only have to make a minimum deposit and pay the rest within a set amount of time.
Lastly, remember that you’re buying the property as is.
As such, you should do your research to find out as much about the property as possible. Foreclosure properties are often in very poor shape and can be a pain to renovate before selling. So, be sure you know what you’re getting into before making any bids.
Foreclosure auctions can be a great opportunity to purchase properties at a low price. However, it’s important to understand how this process works before making any major purchases.
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