Foreclosure auction tend to be more favorable to investors as compared to those hoping to buy a home and it’s a wise decision to buy at an auction because there are many foreclosed home thus increasing the potential of acquiring the property at a price way too lower than the market or fair value. So how does a home end up in a foreclosure, auction, (1) following a borrower’s failure to make his/her monthly payments over a period of time and making no efforts to be current or negotiate the lender; and (2) failure to pay property taxes or extreme delinquency in the local and state property taxes.

How foreclosure auction works

Foreclosure auctions are held at the local government court houses or any other places at the discretion of the Mortgage Company for instance a hotel conference room additionally the auction can also be carried out online, the bank’s foreclosure auctions are conducted by their trustees while those arising from tax liability are presided by a sheriff. The law provides that before the foreclosure auction sale can take place, it must be announced to the public and that it should be held at the date, time and place as per the state statutes.

Advantages of buying at a foreclosure auction:

The starting price is usually the outstanding mortgage debt or lower to attract more bids which normally comes with a 5-20% discount from the market value of the property.
The cash payment requirement helps reduce competition for those with financial muscle and the reduced possibility of the homeowner to avoid foreclosure thus improving their chances of getting the property.

Demerits of buying at foreclosure auction:

Buying at an auction is very costly because the auction price must be paid in cash on the same day. However, a down payment may be acceptable but the balance should be cleared within 30 days, no mortgage is allowed after a foreclosure auction.

Inspections on the foreclosed properties prior to the auction are rare therefore, evaluate you risk appetite and if you cannot risk to find conditions different than you thought it is better to stick to the auctions that allow for prior inspection.

Buying at an auction may be followed by liabilities arising from obligations owed by the previous owner such as liens, back taxes and second and third mortgages; therefore you must do some due diligence to ensure you acquire a clear title before the auction.

The former homeowner may express his/her frustrations to the property causing serious damages to the property’s condition. The former owner or tenant may still be residing in the property which might require you to evict them and this could be a length endeavor and sometimes costly because of issues such as cash for keys.
Lastly, if you are considering to buy a property at an auction, take your time to get more informed about how they operate and about the properties that have caught your eye because it is not automatic that a foreclosed home will offer a favorable price