Purchasing Foreclosure At Auction

Foreclosures on residential properties across the country have reached epidemic proportions in recent years, and many experts see a substantial wave of them on the real estate horizon. While those facing foreclosure may find their families uprooted and their financial future uncertain, there are some who will use the opportunity to build their investment portfolio. By buying foreclosed properties through their local court’s auctions of homes, condominiums and commercial real estate, buyers and investors stand to build significant wealth.

There are individuals and savvy business entities nationwide whose sole mission is to acquire foreclosed properties at auction. Thanks to the Internet and local municipalities’ cataloging of available auction properties – as well as many private sources of reliable information regarding properties coming available on the auction market — purchasing a foreclosed property through auction has been made easier for those willing to do their homework.

Although it may not be easy, perseverance can be rewarded and profits can be realized by buying up foreclosed properties. You will need to invest some serious time researching your potential investments, and it can get aggressive at times – the faint of heart need not apply.

Getting Starte With a Foreclosure Purchase

Those who are successful have developed a system to discover, track and evaluate a potential purchase. Most who are serious auction buyers will monitor the local auction websites, and keep statistics on multiple properties simultaneously. The goal is to be ready to bid and buy the minute you have identified a property or properties you feel meet your criteria. If you learn the rules of how the game is played, you can walk away a winner.

Ideally, you should be able to either view the property in person, or through a trusted representative. There are countless details you can learn by simply doing a visual inspection of your potential purchase, the surrounding neighborhood, and other local factors that may determine the value of the property. However, in many cases, there will be little or no access to the inside of a property and a buyer is making the purchase “as is” with no warranty as to its condition.

In Florida, an auction sale of foreclosed properties typically happens within 30-60 days after the foreclosure judgment is entered via court ruling.

In most localities, your county clerk’s office will be your primary source of foreclosure property auction details. (They also deal in tax auction sales – make sure you know the difference). The clerk’s office will generally publish auction details in the local paper and/or via their website, including a list of properties available, and also the date, time and location of the auction sale proceedings. You need to spend some time familiarizing yourself with navigating the clerk’s website in order to best discover properties that are made available, and make the purchase process work for you.

If you plan to attend an auction and bid on a property, you need to be familiar with the process before you show up. Attending a couple of auctions beforehand will give you a sense of the procedures, and provide you with details on how to proceed. The bidding process can vary in different locations – some require certified funds, like a cashier’s check – for the entire purchase amount, while others only require a percentage of the total, with the balance being due within a specified number of days. If you have a contact in the real estate business or know an attorney who deals in foreclosure properties, you may want to ask them for input. Yet, nothing is better then being there to see what happens firsthand.

Get the Facts In order to successfully purchase an auction property, there are certain key details you will need to know going in. First and foremost is the realistic estimated market value of the property. You should research recent sales information of similar properties in the same geographic area to determine what the market indicates about the property’s actual value. That information, combined with the amounts currently owed and the amounts of any outstanding liens on the property, will help you determine if the property represents a reasonable investment. There also may be additional fees due to the foreclosing lender, so make sure you are aware of all applicable costs before you bid.

The opening bid amount represents the total of all monies owed on the property. In some cases, the winning bidder will be responsible for satisfying any outstanding liens on the property before a certification of title transfer will be issued. An attorney, real estate title company or a search of county records will unearth any liens that have been placed on the property. Be sure to do a thorough search for outstanding liens – there may be more than one mortgage on the property, and could be liens which have been levied on a secondary mortgage, or a tax lien, in place.

Even after the auction, a tax lien could still be in effect, so make sure you understand the total financial obligations you will face in order to legally take possession of the property. You should also factor in any potential repair or updating costs that may be needed to bring the property up to a reasonable market value, if your intent is to either re-sell it or rent it out as an investment property.

The foreclosing lender will typically bid $100 (to keep doc stamps low). If there are no other bids above the total amount owed, the foreclosing lender will obtain possession of the property. Working in your favor is the fact that in the vast majority of cases, the lender does not want the property, and is anxious to see it sold successfully at auction.

How Much To Bid? Once you have all the facts, you will need to determine the specific amount you can comfortably bid in order to justify the purchase as a reasonable bargain. It is vital that you resist the temptation of falling in love with a property you are planning to bid on. In the heat of an auction setting, where there will likely be multiple bidders vying for the same property, it is easy for your emotional attachment to get the better of you, and you may wind up bidding more than the amount you set as your limit. This is only bricks and mortar, after all, so try to keep your wits about you. With the prevalence of foreclosed properties hitting the auction market these days, you can be reasonably assured that, should you not walk away with the property you planned on buying, there will be a similar opportunity coming along right behind it.

Obviously, you need to be certain you can complete the transaction if you end up being the successful bidder. Make sure you have sufficient available cash with which to close the deal in the specified time frame after the sale – in most cases, you will lose any deposit you paid at the auction should you be unable to finalize the deal. Remember – this arena is not for novice investors.

Ready, Set, Go… Once you have all your research done and your facts understood, you are ready to jump in and bid. Each auction will be under the direction of a trustee who has been appointed by the foreclosure court. You need to know how to contact that person, in order to verify if the auction you plan on attending is still scheduled. Often, last minute schedule changes or other factors will dictate a change of the actual auction date. It is suggested to call a day in advance to double-check.

In Miami-Dade County, The Clerk of Courts now conducts an online version of foreclosed property auctions. Those who register in advance via their website can place bids online, as opposed to actually attending the auction. But, be warned – this method is generally only recommended for those experienced bidders who are intimately familiar with how the process works.

If you would rather be on-site when the auction takes place, plan on getting to the physical auction location early. Hopefully, you will have had the experience of attending a few auctions as an observer already, so you should be comfortable with the atmosphere. Just keep in mind, there will be people there who do this for a living, and take it very seriously. Don’t be surprised if you are not welcomed with open arms by the other bidders – remember that they will most likely be competing with you to snatch up the same property, and some of them don’t exactly welcome competition.

But, don’t let them intimidate you. Again, keeping your composure and your emotional (and financial) wits about you is the key to walking away the happy owner of a potentially rewarding piece of real estate.

Congratulations! There are some follow-up steps you will need to do in order to successfully take ownership of the property once you have become the successful bidder. Be sure to get all the pertinent documentation you require from the auctioneer to indicate you are the winning bidder, and clarify any additional measures necessary to take possession of the property. It may be smart to consult with an experienced real estate attorney if you have any questions about legal requirements concerning the transfer of title.

Depending on the local laws, you may have legal rights to the property immediately, or it may be up to 30 – 60 days. There may also be what is called a “redemption period”, within which the former owner has a chance to buy the property back from you, providing they have paid the full auction amount plus any applicable costs and fees. This rarely happens, though – chances are that if the property was sold at auction, the former owner is in no position to buy it back. Yet, you would be smart to hold off on any planned improvements to the property until you are absolutely certain it is yours.

If there are tenants currently residing in the property, you may need to evict the tenants. You should consult with a lawyer familiar with the process, or contact your local sheriff’s office to learn how to do it legally, and as efficiently as possible. Of course, you may also elect to allow the tenants to remain in the property, if even for a short period, which could help you recoup some of your initial outlay of funds used in the purchase process.

Buying a foreclosed property through an auction can be an excellent way to build your real estate portfolio, providing you are aware of all the potential pitfalls along the way. Smart investors make substantial profits using this acquisition method, and treat it as a business operation. Arm yourself with as much information as possible in order to make an educated decision, and you can find that the efforts are well worth your time and hard work.