Buying at a foreclosure auction

Since the struggles began with the housing market a few years ago and banks began having to repossess assets, I am often asked about the auction business and the misunderstandings surrounding foreclosure auctions. I wrote earlier and touched on the differences between what we do and a foreclosure auction. I am not a lawyer and the foreclosure laws vary from state to state, but I will do my best to explain the differences.

First, a foreclosure auction is a legal action to collect on a note where the foreclosed property serves as collateral for that note. A mortgage or deed of trust assures that selling the property can collect for the note if the loan defaults. In foreclosure, the property is required to be advertised for a period of time, then the property is then sold, typically by an attorney, at the court house steps. The lawyer will literally stand on the steps of the court house and read the foreclosure notice as advertised and then ask for bids. The lender will typically enter a bid based on some criteria often governed by state law. Usually there are no further bids and the lender becomes the new owner of the property. The lender then takes the property into OREO (Other Real Estate Owned) or REO (Real Estate Owned) for resale. It’s not until then that we come in.

These auctions are open to the public, and you can buy at these auctions, but allow me to caution you on a few important points.

  • First these auctions are not for real estate novices. You should seek the help of an attorney to check title before bidding.
  • Legal notices make it hard to identify the property as they often only list a legal description and no street address for the property.
  • The sales are often paid in cash, required in full immediately following the auction.
  • Many times, there is not a chance to see the property beforehand because they are occupied.
  • As a buyer, you are not protected by any of the disclosures that are required in a typical transaction.

However, I do have several auctioneer friends, who are primarily in the Northeastern US, that conduct foreclosure auctions where they are professionally marketed and sold. These auctions are an exception to the lawyer-run auctions that are typical in most of the US.

When you’re looking at a foreclosed home through an auction company like J. P. King, lenders are selling their OREO properties, which they have already foreclosed on and taken into their inventory to sell.

  • These properties are offered with an insurable title.
  • Properties are held open for inspection so you can do your due diligence before bidding, giving you the opportunity to consult professionals to assist you.
  • You can use the services of a buyer-broker to help find comparable sales data to establish a price to bid.
  • Known defects are typically disclosed to interest bidders.
  • A 10% deposit is paid into escrow and 30 days is given to arrange financing and close the sale.

So most often if you are attending a bank auction, it is an auction of foreclosed properties, not a foreclosure auction. I hope this helps clear a few things up if you were confused on the topic.

Speaking of bank sales, we have a few bank-owned properties coming up in North Carolina if you’re interested in giving it a try.

Have you ever purchased property at a foreclosure auction? What is your advice or experience?


~ by Craig King on July 12, 2010.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: