Trustees Sale Of Foreclosed Property
This is the public auction that sells the home to the highest bidder. The sale starts with an opening bid that is the minimum that the lender will accept for the home based on the outstanding loan balance, any unpaid taxes, and other costs that will be associated with the sale.
You will need to be present to bid on the home or attend the online sale if the process is done virtually. The highest bidder will get ownership of the home at this juncture. You will need to know that you will have the final say about how long the current owner gets to stay after you have bought the home, and this will be written into the final documentation of the sale.
Why Do I Keep Getting Outbid At Auctions
New investors can get frustrated quickly when dealing with foreclosure auctions, as they will see their max bid get crushed in seconds. How are all of these people outbidding you?
It can get incredibly frustrating when youre outbid, especially on a property you wanted, but in the end, you dont know the motivation the other bidders have. Often youll be outbid by people who are looking to purchase the home for themselves or a family member to live in. Auctions are popular for these potential homebuyers looking to get a good deal on their new home. As they do not see this as an investment that must turn a profit, they have more cash theyre willing to bid with.
Get Your Financing In Order
Most foreclosure auctions accept cash, bank money order or cashiers checks for payment. In nearly every state, youll have to pay in full immediately following the auction of the property a few states allow you to pay a percentage at auction and the rest within a certain time frame.
County foreclosure auctions often require advance deposits. The deposit amount varies across municipalities, but generally runs from 5% to 10% of the expected final bid amount of the property.
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How To Bid On A Foreclosed Home At A Florida County Sale Or Auction
The first step is doing your research. You should always make sure that you look into the property as thoroughly as possible before you decide to bid. You might want to pay someone to do a title search and make a drive past the property so that you can see the exterior of the home at least. You might also be able to see what the home looked like on a site like Zillow. Remember that the interior might not look like this now, but you will at least be able to see the arrangement of the rooms inside the home.
You will want to know the estimated value of the property and how much is owed on the mortgage before you bid. You should also find out how much the lien is on the property. This will impact what the starting bid is for the property. You will also need to pay off these liens when you take ownership, so this is valuable information to have.
What Types Of Properties Are Sold At Auction
While virtually any type of property or asset can be sold at auction, most home auctionsand the type youve probably heard the most about, thanks to the housing crisisare foreclosures. Depending on the state, a trustee assigned by the lender or an officer of the court conducts a foreclosure sale to recover the balance of a loan from a borrower whos defaulted on their mortgage payments. We estimate the foreclosure backlog will have grown to more than 1.1 million residential properties by the end of the first quarter of 2021, said Daren Blomquist, vice president of market economics at Auction.com.
There are two types of real estate auctions: live and online. The latter is becoming more and more prevalent as people grow more comfortable with making major purchases online.
No matter which route you choose, remember that home buying can be complicated. Companies like Auction.com are making the process more efficient and transparent, but in most cases there are still long contracts, escrow, disclosure documents and other paperwork required by law.
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Who Should Buy A Foreclosed Home
People who are willing to do significant research before making an offer, and who are willing to deal with lengthy delays and onerous paperwork, could find this a good strategy.
It very much helps to be able to pay significant cash on short notice for repairs, overdue taxes, and liens.
Eligibility for one of the federal financing programs such as a 203 loan, HomePath ReadyBuyer, or a HomeSteps mortgage, is a plus. These programs were created to help you buy a home.
Failing that, an all-cash offer, if possible, can give you a leg up.
Work With A Licensed Florida Agent Experienced In Foreclosure Purchases
A real estate agent who specializes in foreclosures can be a very big help to your overall purchase process. You will find that not all realtors have this experience, but you can look for people who advertise that they know about short sales and have an SFR designation if you want a specialist in this kind of purchase. Your realtor can help take the guesswork out of the purchase process and make sure that you consider all of the potential costs.
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Is Now A Good Time To Buy A Foreclosed Home
The moratorium on foreclosures due to the COVID-19 pandemic ended on July 31, 2021. Investors predicted a wave of foreclosures when the moratorium ended but so far there is no evidence that has occurred.
People looking to buy foreclosures in today’s market should expect to find a limited supply and competition on most deals.
The Condition Of The Home
A crucial component of how much youll pay for the home is its condition. When a home goes up for auction, the process for purchasing it will be different than if you were to buy a home in a more traditional way, with a full inspection. You may be required to buy the home as-is. Buyer beware!
Constantine warns buyers that auctioned homes may be in poor condition.
Most of the ones that go to auction these days will not pass FHA or VA financing for numerous reasons, he says, mostly due to the age of the roof but also due to cracked stucco, wiring problems, and other code concerns. Appliances may have been ripped out, or there could be wood-destroying organisms like termites. Water damage may also be an issue.
Theres no guarantee that everything will be functional or work the way its supposed to. There may be damage that isnt visible from the outside. The home may require extensive repairs.
Once the home is yours, you may find that the previous owner or occupants did not properly care for and maintain the home. Sometimes, in dire situations, the occupants may even have vandalized the home sold the copper pipes, for example, or defaced interiors.
Even if you cant conduct a typical home inspection, there are things you can do to better gauge the homes condition.
Constantine recommends you do your due diligence.
For example, can you see a new roof on the home? Was a permit filed for it? Or the addition on the back was a permit filed for that?
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Foreclosure Auction Risk No : Paying Off Liens On The Home
Challenge: You dont know if there are liens on the home. Some auctions dont give you clean title to the property, meaning liens from the federal government or other entities may not be removed during the foreclosure auction process. Youd have to pay off those liens if you won the property.
Solution: Focus your efforts on two or three homes in desirable locations. To find out about any liens, pay a real estate attorney to run a title search on each property and issue a commitment to insure the title after purchase. Ask how the policy treats liens filed between the time of the search and the time you close.
A less-expensive option: Hire an independent title search professional called an abstracter or an online company. Title insurance costs vary by state.
Financing Options For Foreclosed Homes
Private lenders tend to be skittish about financing foreclosure deals. However, several government-sponsored financing options are available for those who qualify:
- 203 loans from the Federal Housing Administration ,
- Fannie Maes HomePath ReadyBuyer program,
- The HomeSteps program through Freddie Mac.
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Some Tips For How To Be Successful At A Property Auction
Notice I didnt say how to win but instead how to be successful, as I cant give you any tip for winning an auction besides: be the highest bidder.
Instead, let me talk about how to make sure you become a practical real estate investor who goes to auctions.
Pros And Cons Of Buying A Foreclosed Home At Auction
The biggest benefit of buying a foreclosed home at auction is the price. In most cases, buyers can get more for their money than they would on the open market, meaning a larger, more expansive home than theyd traditionally be able to afford.
The major downside to buying a foreclosure? Its a lot of risk. There might be major problems with the home , and many foreclosed homeowners do serious damage to their properties before leaving the premises.
There also may be hidden costs. Because foreclosures also require you to pay off any loans, overdue taxes, back interest, and even things like attorneys fees, the final cost can end up much higher than the original auction sticker price.
Finally, it can also be very competitive. Fix-and-flip investing is pretty popular, and investors will come from all over for the chance to snap up a decent property at a low price. In many cases, these will be highly experienced investors who know the bidding and auction processes well.
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More house for your money
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Lots of opportunities to upgrade and customize the house
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Real Estate Owned Sales
If the home is not sold during the auction, the lender will become the owner and then will proceed to sell the home as the owner of the property with a real estate-owned sale. This is also called a bank-owned sale and the lender might actually remove the liens and do some work to improve the property before the sale.
You will probably pay more for this kind of purchase than you would if you were buying at a public auction, but you will have the benefit of getting to see the home before you buy and there will likely be efforts made to improve or fix issues with the property that will not be done before a public auction.
How To Find Foreclosed Homes For Sale
Foreclosed properties can be found on multiple listing service websites and print publications, via online real estate searches, at bank offices and websites, and in local newspapers.
In local multiple listing services, the foreclosure status of a property may not be highlighted the fact may only be stated in the property description.
A more direct route is to go through websites that specialize in homes and properties in foreclosure, such as Fannie Maes HomePath.com. Some financial institutions such as Bank of America also have web search pages for foreclosed homes.
Lenders increasingly are selling seized assets through real estate agents, so dont hesitate to ask a real estate broker or agent for opportunities. Some real estate pros even specialize in foreclosure properties.
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Foreclosure Auction Risk No : You Can’t Inspect The Property
Challenge: You cant get inside the property before the auction to inspect it for structural problems and repairs. Many foreclosure auction properties are in bad shape because the owners couldnt afford the upkeep. And sometimes angry homeowners purposely damage the property to punish the foreclosing lender.
Solution: Walk around the home to check its exterior condition. If its vacant, look through the windows. Ask the neighbors what they know about the property. If it was a rental, check the inspection records on file with the local government.
Live Versus Online Foreclosure Auctions
The main difference between a live foreclosure auction and an online auction is how the winner is determined.
Live Foreclosure Auction
A live foreclosure auction is usually a big event. There may be hundreds of homes being sold. It is usually held at a county building, such as the courthouse. One property will be auctioned off at a time. Bidders will raise their paddles to raise the bid price.
The bidding continues until no more bids are being made. The last bidder is the winner and the auctioneer will move on to the next house.
Online Foreclosure Auction
An online auction usually takes place over days or even weeks. Each bidder will keep raising the price. Once the auction ends, the highest offer is the winner.
During an online auction, bidders will generally monitor the price and increase the bid slowly. Many times, there is a flurry of activity at the very end, as bidders race to offer a higher price.
One key thing to remember here is that your competition at a foreclosure auction will be very different. Since many potential buyers arent comfortable with how foreclosure auctions work, you might not be up against a large number of buyers. However, investors who are looking to make quick money will often attend foreclosure auctions.
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Finding Real Estate Auctions
One way to find auctions is by contacting local governments directly or visiting their websites for information and then following up by phone to confirm the details. Another is through sites such as RealtyTrac.com and Auction.com. However, online information is not always accurate.
Properties may be listed that are in pre-foreclosure, because the owner is behind on payments. These properties may never go up for sale because their owners catch up on payments or come to an arrangement with their lenders.
Local real estate agents and brokers can also be valuable resources. Unfortunately, you may not find them eager to help, because agents and brokers do not automatically earn commissions on live auctions. However, these realtors can earn commissions through online auctions.
And If Youre The Winner
Be ready for things to move fast. With Auction.com, for example, the contracting department will contact you within two hours and walk you through the online purchase and sale agreement, which shows the total purchase price and the timeline for submitting documents and payments. Make sure that escrow receives your documents and payments on time otherwise, you could lose your earnest money deposit.
Look closely at the property page for each property you are planning to bid on. Many properties have whats called a buyers premium, which is the fee charged by the auction company for conducting the sale, from marketing through the closing. The amount can vary, but its usually 5% of the winning bid amount. Many properties dont have a buyers premium because the bank or seller has arranged to pay this fee out of their proceeds from the sale.
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Figure Out Your Budget
Before you go into an auction, youll need to know how much you can and should bid. Many times the opening bid represents the amount owed on the property other times, its set much lower in an effort to attract bidders . Either way, there are three things to keep in mind.
- A bank is not allowed to make money on a foreclosure auction. Anything gained on the auction after tax liens are satisfied will revert to the previous homeowner.
- An auctioneer may set a hidden reserve if a bank has a minimum that they will accept for the property. If the reserve is not met, the seller has no obligation to sell the property even to the highest bidder.
- Good deals have limits. Research recently sold comparable homes in the area to know what constitutes a wise purchase in the propertys neighborhood and set a threshold for your top bid. A top-performing real estate agent can help.
Youll also want to give yourself a generous budget to account for probable repairs and updates. If someone hasnt been able to make their mortgage payments, there are probably other home maintenance tasks that have fallen by the wayside.
Connolly says that her buyers have seen major repairs come up after foreclosure auctions, such as the need to replace plumbing and electrical systems. Since you may not be able to get an inspection, give yourself a buffer for the following items, making your best estimate based on your locale and the size of the home:
