Buying Foreclosures at Auctions and Trustee’s Sales

Written by Susan Willets
November 15, 2008


There are many reasons that a home may go to foreclosure auction, also known as a trustee’s sale:

Auctions are the riskiest way to buy foreclosures and should be used only when the investor has obtained experience and fully understands the foreclosure investing business.

Risky Sales

The success rate of buying foreclosures at auctions varies greatly and it’s imperative that the investor be well-educated about the state’s foreclosure laws and requirements to make a purchase. Most auctions are held on the courthouse steps on a pre-determined day of the month. Anyone who is interested in purchasing the property needs to have the funds available the same day and usually receives the property “as-is.”

Right of Redemption

Another factor to consider with auctioned foreclosure properties is the owner’s right of redemption. Each state/organization has a set amount of time that the owner has to “make the situation right.” For example, if back taxes are owed on the house, the IRS allows 120 days after the sale for the owner to pay the taxes and regain possession of their home. A local attorney can help you understand redemption laws in your state.

Steps to Prepare for an Auction

  1. Verify the auction place and time. Homeowners are given a grace period prior to the auction to bring their mortgage current. This along with other reasons can cause auctions to be cancelled or delayed. You can contact the trustee or county clerk to verify the time as well as the location of the auction. They will have the most current knowledge of any cancellations or postponements.
  2. Order a full title search on the property. This provides you with information regarding additional liens, unpaid taxes, construction debts, etc. that you will be responsible for after the purchase.
  3. Research the property’s condition. Most homeowners have been struggling for at least a year financially before they give up and allow their home to go to foreclosure. This financial difficulty not only means they could not pay their mortgage, it also means they could not afford the maintenance and up-keep on their home. Try to find out as much information about repairs that may be needed, structural condition, etc.
  4. Check out the area around the home and look for any issues with the land. This can include zoning issues, toxic waste issues, or other factors that place the home in a dangerous area and/or make it difficult to sell.
  5. Gather information about estimated market value and any additional liens. With the help of your real estate agent and research, you can determine a realistic market value of the property which will help you decide on your maximum bid amount and determine if the opening bid amount is a bargain. Visit the county recorder’s office to find out how much is still owed on the property as well as any additional liens that may be attached to the home. While some liens may be removed from the property, others (such as tax liens) will have to be paid by the buyer after winning the auction.
  6. Determine a maximum price you are willing to pay. There are several ways to determine a reasonable price for a property. Complete a comparative market analysis and use your previous research on the neighborhood and other nearby properties to determine how much the property may be worth. Be sure to add in the additional costs of repairs and updates to your figures. Use all of this information to determine what your maximum bid will be (so that you can still make a profit on the turnaround) and stick to it!
  7. Arrange for financing. In most cases, buyers at auctions are required to provide payment for the property the same day. It is necessary for you to secure funds prior to attending the auction. There are several financing options available; choose which one works best for your situation.
  8. Educate yourself on the state’s foreclosure laws and auction procedures. Find out what payment requirements apply to your state. Some states require the bidder to have the full payment available with a cashier’s check/cash, while others allow for a percentage to be paid the day of the auction. Information regarding the bidding process and requirements can be obtained through research, meeting with an attorney/lawyer or simply attending an auction to see how they work.
  9. Make final preparations and attend the auction to place your bid. Contact the Trustee the day before the auction to ensure no changes have been made and make your final preparations for placing your bid. Arrive at the auction early to get yourself acquainted (if this is your first auction) and locate the auctioneer.
  10. Place a bid. The auction process can be intimidating for new investors as they are often quick and action-filled events. This is where it helps to observe auctions prior to attending to place a bid. Observe other investors and follow their cues, but do not allow them to intimidate you. Some investors are experienced and frequently attend these auctions, but they are not always thrilled to see new competition.
  11. Take possession of the property. If you are the winning bidder, get all the necessary documents from the auctioneer to show that you have won the property. The auctioneer and a real estate attorney can help you determine the next steps to take over the property. The time frame for this varies from state to state and can last from a few days to a month. Some properties also have a redemption period where the homeowner can pay the delinquent amount along with processing costs and regain possession of their home. If this is the case with your property, avoid making any changes to the property until the time has passed.
  12. Eviction of occupants may be necessary. In some cases, the trustee will evict the residents. If you are responsible for this, contact a real estate attorney or the county sheriff to find out the procedures for your state/county.

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