How a High Bidder Can Fail to Complete the Sale in a Residential Foreclosure Auction

One of the key aspects of learning how to buy a foreclosed home at auction is to making sure you can successfully complete the sale if you do bid.

Always remember that, as the creditor, the bank carries no responsibility for repair, upkeep, maintenance or other costs. If the bank knows about major problems with the house, it may not bid.

If the bank does not actually own the house, then it is just another interested party. If the bank owns the house which it will if it bids and it wins then it acquires all the costs of ownership and the responsibilities.

Here is the bottom line: Anytime the bank does not bid, then you probably shouldn't bid for the property except if you have inside knowledge. (For instance, you have been able to visit the property and ensure that what seemed, at first glance, like a major foundation issue is actually an insignificant cosmetic issue.) The actual problem is, you may not know if the bank has bid unless you are familiar with all the related parties in the auction. That is why attending a few auctions as the observer will help you learn how to identify a bank's representative although he does not announce himself as such.

Banks can only claim on the judgment amount and no more. If the winning bid is greater than the judgment, surplus monies or the remaining funds are acquired by junior lien holders, and the property owner may claim the remainder. It is very rare that there will be surplus monies; all auction bidders are looking for good deals and nearly always desire to pay significantly under the market price.

Usually the judgment amount is higher than what the investor is willing to pay. If the bank becomes the high bidder, as it happens quite frequently, the bank will get the property and then the bank is required to resell the property.

Then what can go wrong? The high bidder may not able to arrange financing, and the sale won't go through. Houses "sold" at a foreclosure auction frequently can be available for sale days later.

Do not bid on a property unless you can bring a certified check for an amount that is enough to cover the down payment. After that you must come up with sufficient cash to pay the purchase price in full as required by the deadline. The folks who hold the auction have no patience with a new investor who places a bid and then fails to go through with the purchase. Sometimes, you are required to show the certified check before being permitted to place a bid. If an investor bids and he fails to go through with the transaction, he can be banned in future auctions of foreclosed properties for sale.