Buying a Home At a Foreclosure Auction
Buying a home at a foreclosure auction can be very risky. With high risk there can be high rewards. Or, there can be an expensive lesson.
What is a Trustee's Sale? It is the last step of the foreclosure proceedings. The homeowner has defaulted on their mortgage, has failed to cure the debt or come to arrangements with the lender, and the lender has decided to sell the home to satisfy the debt. The Notice of Trustee's Sale is recorded at the county office and published for three weeks in the county that the home is located in.
The minimum posted bid to buy a home at foreclosure is usually equal to the loan balance, interest, penalty fees, and attorney fees associated with the sale. However, lately, the minimum opening bids have been much less than posted. The banks want to sell these homes, not take them back if no one bids on them.
The location and time of the Trustee Sale are indicated in the Notice of Sale and it usually occurs on the county courthouse steps, or sometimes on the steps to city hall. Many times the Trustee Sales are postponed. The reasons for postponement may include a bankruptcy filing or a short sale negotiation. I've seen Trustee Sales postponed several times.
The home is auctioned off to the highest bidder, who must pay in cash. From the auctions I have attended, these buyers will have an envelope with various amounts of cashier’s checks, which they show to the person in charge of the auction.
If no one bids over the opening bid, then basically ownership reverts to the lender. The property then becomes an REO – Real Estate Owned. The bank will then list the home with a real estate agent to sell the home. Lately, the banks have been pricing these homes below market value in order to get multiple offers and in order to start a bidding war atmosphere.
If someone does bid over the minimum price at the Trustee Sale, then the auction winner will get the Trustee’s deed to the property. There is no inspection period. There is no right to cancel. The buyer may have just purchased a home that has tax liens against it, and the previous owners still living in it. The buyer may have to go through the eviction process and hope that the property is not destroyed.