Foreclosed homes can be taken over and put up for sale by banks or other lending institutions, due to the default of the owners in repaying the mortgage loan, which is secured by keeping the said homes as collaterals. As the lenders have to recover their investment in a foreclosed home, such homes are sold at a price, which is less than the market value.
Usually, foreclosed homes are sold at a discount of around 20% to 40%. If such homes are not sold at foreclosure homes auction, then, they become the property of the lending institution and are known as REO (real estate owned) homes. The lender may entrust the task of selling such homes with a realtor or the in-house REO department.
How to Buy a Foreclosed Home at Auction
While, a foreclosed home comes with a discounted price tag, there are some risks too. You may not be allowed to inspect the home beforehand. Another risk associated with foreclosed homes is that, if you emerge successful in bidding, you may be required to pay the full amount in a short period of time.
In some cases, you may also have to evict the occupants too. Buying a foreclosed home at auction is much different from a normal home sale and the laws regarding this provision may change from one state to another. Apart from the legal aspects, you must have a basic understanding about the procedure and the related dos and don'ts.
Even some realtors can help you to find a suitable foreclosed home. While, some of the government agencies advertise the sale of foreclosed homes, you may get the list of such homes from the county clerk's office too.
Collect Information about the Property
Once you decide to buy a foreclosed home at auction, you have to do a little bit of research, regarding the market price of similar homes in the neighborhood. Apart from that, you have to do a full title search on the property and check whether there is any debts, liens, unpaid taxes, etc.
Preparation for Auction
If you are new to such auctions, then, gain some awareness about the auction process and learn more about the related rules. You may also attend some other auctions for this purpose. Confirm the location of the auction and bidding procedure (may change with states).
In some states, only 10% of the amount has to be paid initially and the rest can be paid within a stipulated time. So, you have to arrange for finances for buying a foreclosed home at auction.
As you have an idea of the market price of similar homes in the area, you have to determine a bid amount for you and make sure not to go above that. It has been observed that in case of auctions, foreclosed homes are sold at higher prices too.
As auctions are very fast procedures, you may get swept away with the process and end up with a very high bid amount. So, it will be always better to fix a bid sealing that should be at least 20% lesser than the market value of such houses.
If you emerge as the bid winner to buy a foreclosed house at auction, you have to confirm it by verifying the documents of the auctioneer. The auctioneer can give you information about the further formalities. It will be better to consult a real estate attorney regarding the ownership and possession of the home.
This is only a brief overview about buying foreclosures. Such buying is not usually recommended for beginners, but, you can do this successfully, with the help of an expert.