Real estate foreclosure auctions are generally not a simple procedure. A significant amount of preparation including investigation into to the property, financing arrangements and listings searches are usually required. Additionally, the auction’s starting bids may not be as favorable as one might expect. When considering foreclosure auctions the above article may serve as a starting point and/or supplemental information in the foreclosure auction process.
i) Foreclosure risks:
One of the most important things to know about foreclosed property is the risk involved in buying such property. Not only may the removed mortgage holders neglected to fix the home before they were asked to leave, they may have taken their financial frustration out on it as well. There may be no telling what the damage could cost because when properties are auctioned off they may not allowed to be closely inspected beforehand. A few of the risks associated with bidding on foreclosed properties are as follows:
° Damage to the interior of the home
° Bidding price may be at par or below the home’s market value
° Outstanding debt on the home can become the responsibility of the bidder
° Bidding psychology may cause the bidder to overbid on the home
° Inexperienced bidders may neglect to research the properties prior to auction
ii) Types of property available at auctions:
Any property that has become passed delinquent and reacquired from a mortgage lender may be put on auction. These homes may range from homes in low income to more expensive homes in wealthier neighborhoods.
Furthermore, there is little shortage of foreclosed property according to U.S. housing statistics. In the period between 1970-1999 between 3-7% of U.S. mortgages went through either delinquency or foreclosure according to the United Sates Census Bureau. In 2006 U.S. foreclosures amounted to 1.2 million as per http://wwwrealtytrac.com, a national mortgage statistics provider.
iii) How to find an auction:
Foreclosure auctions may be facilitated by county treasurers who are legally entitled to facilitate the sale of property on behalf of mortgage lenders. However, foreclosure auction listings and assistance is made available through the real estate section of newspapers, by the U.S. Housing and Urban Development Department (HUD), title corporations and on online listing services such as the Real Estate Disposition Corporation. Many listing services providers that offer information and assistance including the foreclosure buying process including HUD charge a membership fee.
iv) Tips for Foreclosure Auction Bidders:
Before attending a live auction there are several things a foreclosure bidder might want to keep in mind. Protecting one’s own interest is ideally the goal of anyone who participates in such an auction. A few important tips to consider before bidding are as follows:
° Don’t bid on the property without funds
° Obtain auctions listings ahead of time.
° Research the homes, market statistics, neighborhood prices etc.
° Incorporate resale, repair, legal and auction costs into bid
° Perform a title search at the local city hall or title company.
° Check for liens and assumable outstanding debt against the property.
° Understand auction psychology such as bidding escalation.
Summary:
Buying foreclosed properties can be a risky business that may not always return a great profit to a bidder. To start, if a home is valued at a greater value than the remaining mortgage loan due, the owner of the mortgage is more likely to sell the house to pay off the loan that can no longer be afforded.
For this reason, auction bidding doesn’t always begin at a favorable price i.e. the value of the home is not likely to be more than the debt owed upon it. In addition to the above obstacles, buying homes at auctions can require significant know how about the legal, financial and risk related aspects of home purchases
Sources:
1) http://www.huduser.org/periodicals/ushmc/fall95/fall95.html
2) http://www.realtytrac.com/ContentManagement/pressrelease.aspx?ChannelID=9&ItemID=1855&accnt=64847
3) http://www.ushomeauction.com/howitworks.php
4) http://www.allcountries.org/uscensus/814_mortgage_delinquency_and_foreclosure_rates.html