Foreclosures: Before the Auction

Prior to a foreclosure property auction, you need to evaluate the property. The purpose, of course, is to determine if you want to buy it. Most, if not all, real-estate auctions include the term "as is." This means what you see, and don't see, is what you are buying when you bid on the property.

The best advice to anyone thinking about buying a property at a public auction is to be well prepared. You must do your own due diligence prior to the date of the auction.

Remember that you will not have time to ask questions about the property at the sale. Always expect and anticipate that the property is to be sold "as is and where is." There will be no concessions or negotiation at the auction. What you bid is what you must pay (if you are the high bidder) for the property. If you later discover the roof leaks, you get to fix it at your expense. The seller of the property is not responsible for any structural problems of the property.

Your inspection could be curtailed if the property is still occupied by a hostile owner. This also could mean, if you are the successful bidder, that you will have to go through the eviction process to get the property owner out of the house.

Foreclosure properties may not be insurable. Their condition might be such that no casualty insurer will issue a property damage coverage policy. Trashed properties, for example, are often uninsurable. If you are relying on financing to finalize the purchase of the property, without casualty insurance you will not be able to borrow the money.

Failing to get inside to see the property before bidding on it makes little sense. Without a preliminary inspection you could be buying a nightmare. The property could be in pristine condition, or the owner might have stripped it and damaged it beyond repair.

Title Issues of Auctioned Properties

Always check the title before the auction. Check on liens and other possible title clouds. If you have questions or believe the title cannot be easily cleared, you should probably pass on making a bid at the auction.

Many times title insurance is not easily obtained on properties sold at public auctions. The title insurers, especially the underwriters, consider it risky to issue title insurance on properties that are sold at auction. They are concerned that if the auction was not properly conducted there could be an underlying claim to the property. This presents a real possibility for you that you might not be able to purchase insurance that the property title is free and clear of any claims.

Title insurers might declare the property to have an extraordinary and unusual risk. If they detect any errors in the auction sale process, you can be sure they will decline to issue title insurance.

Knowing When Auctions Are Held

You learn about the time, date, and location of foreclosure auctions the same way you do about foreclosures: from the public notices posted in the courthouse and legal notices advertised in the local newspapers. By watching and reading these notices, you will know when and where the foreclosure auctions will be held.

They are routinely held during business hours at the courthouse. However, local tradition and law will determine the time and place.

Cash for Purchase

If you have the cash to purchase the property outright at the auction, you are in a powerful position to bid and close on the property. Depending on the jurisdiction, you may need to show that you have the cash before you can place a bid.

Bidding on a property without the cash to pay for it is difficult and sometimes impossible. When you don't have the cash and are relying on financing, you could quickly find yourself in a precarious situation. Any deposit you placed on the property could be forfeited if you can't close on the property within the time frame allowed.

Remember that the lender will require not only that you are approved as a borrower, but also that the property be suitable as collateral. Should you not be able to get title insurance or casualty insurance, or the property needs extensive repairs, your lender may decline your loan. Your bid is usually accepted without the condition of your being able to obtain suitable financing. Before you realize it, your deposit is forfeited.

Purchasing property at public auctions without the cash and relying on financing is often perilous and too risky for most real-estate investors.

To exclude people without the money necessary to purchase the property, some jurisdictions require that you provide proof of funds before they will accept your bid. The purpose is to prevent unqualified buyers from jamming up the real-estate auction process.