What Happens At A Foreclosure Auction – What To Expect

Whether you're an investor that would like to get into buying foreclosed homes for your personal use or to flip the property or if you are having your home foreclosed on, you may want to know what to expect at a foreclosure auction. Certainly, the real steps that will be taken could be different from state to state and from house to house, but it's definitely good to know what you will be getting into when your house goes into foreclosure auction or if you are going to one. Foreclosure auctions can be exciting, even fun, but knowing what to expect will help you make the most of the experience, whether you are an investor or a homeowner who is trying to get your house back after foreclosure.

Before the Auction 

You'll probably discover about the foreclosure auction in a local newspaper and on the flier may be information to pre-qualify for bidding.  This will let you put down a deposit so that the auctioneer will know that you're a serious bidder and could fulfill your bid if you become the winning bidder.  Being pre-qualified just kind of makes the process go faster so that you don't have to play around with the deposit on the day of the auction.  Throughout this time you should also do some study on the house by looking into any liens that may be against the property, how much the property is worth, how much it has appreciated in the last few years, on top of property values in the area.  If the home looks as though it will need some repairs, you may want to consider this also when attempting to come up with the amount you will be willing to pay for the house.  Without this research, no quantity of knowledge about what goes on at a foreclosure auction will help you since you won't know where to start as regards to truly making a good bid. 

What Happens At the Auction 

The foreclosure auction will usually begin with the auctioneer reading legal notices in addition to a legal description of the property.  The auctioneer will typically then start taking bids on the property.  If the auctioneer has pre-qualified bidders the process is more streamlined, if not, every time a bid is made the auctioneer will then ask for the bidders deposit check, which is usually at around $5,000 for residential auctions.  After each bid the auctioneer will try to solicit bids for higher amounts.  Every auction is different, but the auction increments typically are set by the auctioneer and might be by $100, $500, or $1,000 per bid.  The auctioneer will go on to soliciting bids by this increment until it is clear that the highest bid has been reached.  Then, the auctioneer will announce, "Going once, going twice, three times, sold!" indicating that the auction is over and the property has been sold to the highest bidder. 

When the bidding has ended a foreclosure deed, purchase papers will be drawn up and validated by the new property owner or purchaser and the mortgage holder.  A grace period will likely be given to allow the purchaser to find financing or to come up with the funds to cover the full amount of the bid.  This grace period is normally 30 days unless the purchaser and the mortgage holder agree to other terms.  After the grace period a closing will come about, so that the new owner will formally take the title to the property. 

What Happens next? 

Now the purchaser can do what he or she intended to do with the property, whether it is to move into the home or to sell it for full market value.  The money paid by the purchaser will be distributed in order of priority, first of which would be taxes.  After the taxes money will be paid to the mortgage, then the second and third mortgage if applicable.  If there is still money after paying these debts, the remaining money will be paid to lien holders and creditors.  There is a really slim chance that there will be money left over after all of the debts are paid, if this happens then the monies will be paid to the former home owner. 

What about the Original Homeowner? 

The original owner can be at the auction if they would like to bid on their home, and this is legal provided that they have the deposit needed.  If the owner of the home that has been foreclosed does bid on the home they should remember that the deposit is not refundable and the deposit assumes that they will be able to finance the home within the grace period.  Previous owners should also remember that if they buy the property back old debts may merge and become reinstated such as second and third mortgages that became void when the first mortgage foreclosed on the property unless one has filed for bankruptcy and is in fact free and clear of these debts.  Owners will often drum up the funds to make the deposit so that they can have another 30 days to attempt to save their home.  Owners may or may not be successful in their tries to save their home at a foreclosure auction. 

As you can see, there are lots of things that go into a foreclosure auction, but none of them are all that hard to understand, but being familiar with them can make the auction more enjoyable.  The auction itself isn't all that complicated, however it can be really fast paced.  At some foreclosure auctions you may find a lot of people, at others there are very few.  This can depend on various reasons, such as the location or the debts attached to the property, or even the state of the property.  If you're serious about the property it is better if you pay close attention when the bidding begins so as to you are sure that you can get your bid in when you feel it's time this way you will have the best chance of being the top bidder.