Buying Real Estate At Foreclosure Sales
Buying properties at foreclosure sales is probably one of
the more popular methods known by real estate investors.
The foreclosure auction occurs after a homeowner has
defaulted on their loan and the bank has taken legal action
to take possession of the property. The foreclosure auction
is publicly announced usually in the legal section of your
newspaper. Foreclosure sales can occur in as little as 3
weeks and as long as f our months. State laws vary;
therefore the process will be different from state to state.
Buying at the auction is definitely not for new investors
with limited funds because at foreclosure sales, you'll be
expected to come up with a minimum of 20% down and the
remainder due within 24 hours. Therefore, if you plan to
buy at the foreclosure sales, then you need plenty of cash,
a working line of credit, or access to cash from a money
partner.
Before you get your hopes up, foreclosure sales rarely
produce good deals. With most of these auctions, if there
is any equity in the deal, then you'll have a large crowd
that will bid the property up until there is no room for
anyone to make money from the deal. A lot of times, those
that have access to plenty of cash buy, get emotionally
involved in the bidding and bid the property price up to
where they pay close to top dollar for the property. So be
careful not to fall into the bidding war, because once you've
bid, its too late to back out.
Now, before you trot off to the foreclosure sales with the
intent to buy a property, there are some basic facts, often
overlooked, that you should know. First, you should have a
clear value of what the property is worth in its "as is
condition". You can gain this figure by comparing the
property to other homes in the same area with common
similarities. You should have your Real Estate agent pull a
list of comparable sales, then drive by the homes to take
note of the differences in the property being foreclosed and
the properties that have previously sold.
If the property is vacant, then by all means, get out of the
vehicle and look all around the property, and on the inside
if possible. If someone is living there, then there's
obviously no way to look at the property without
approaching the owner. If you find the owner is still there,
consider approaching the homeowner to see if they want
to sell the property. This will not only let you in on the deal
before it goes to the foreclosure sale, but will also give you
the chance to take a peek on the inside too.
Next, you should conduct a title search to see how many
liens are attached to the particular property. Also, before
bidding you should know if the foreclosing bank is a first
mortgage, a second mortgage, or a lien holder. Once, I
attended a foreclosure sale that had people bidding and
the bidders didn't know if the foreclosing bank was a first
or a second. If the foreclosing bank is a junior lien (i.e. -
second, third mortgages, etc) then you'll be required to pay
the senior liens off before you can sell the property.
Finally, timeliness is important. If you arrive just two
minutes late then the auction could be over. So be sure to
arrive a little early if you're planning to bid. Be sure to call
the day before and the day of the sale to make sure the
attorney is still planning to auction the property. Many
times, sales will be cancelled last minute due to a seller
coming up with the arrearage or filing bankruptcy.
Remember, very rarely will you find deals at these
foreclosure auctions, but I still recommend you attend. You
can go simply to meet the other bidders to find buyers to
flip your houses to.
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