How to Bid on a Foreclosed Property

Auctions are one method lenders used to dispose of foreclosed properties for sale. Have you ever tried to sell a car - and believed that you had an agreement to sell your car only to have the deal fall apart at the later stage of the transaction? Bad things happen every day in real estate transactions, and it certainly can happen with a foreclosure auction, for example when the winning bidder cannot arrange the financing in time.

To get a good feel of what can prevent the winning bidder from purchasing the house, first let's examine the bidding process more closely. Foreclosure auctions are held in easily accessible locations. If a notice says that a sale will be held on the courthouse steps, that literally means the sale will be held on the steps outside the courthouse.

Last-minute delays are relatively frequent. The action could be postponed or resolved at the last second for several reasons, such as the homeowners filing for bankruptcy, reinstating the loan, or filing a complaint to the court that the lender failed to notify them properly.

You should always call the Register of Deeds office or the lawyer in charge of the sale, the day before, to inquire whether the transaction is still on. You probably will not be alone in this. If you are interested in the house, expect others to show interest as well. Although sometimes nobody shows up!

Regulations and rules vary according to your locality, but in many cases you will need to have a $10,000 cashier's check for the down payment or a cashier's check equal to 10% of the property purchase price. You will also be expected to arrange financing and complete the property purchase within a short time period; the term depends on your locality.

If you cannot arrange the financing, you may lose the deposit, but if you petition the auctioneer you may sometimes get the deposit returned. There is no guarantee that it will happen, though. That is why you should bid only when you are certain you have adequate financing in place.

The sale then starts with the recital of the action by a referee. He is the receiver, with the power to perform the sale even with the absence of the homeowner. After the sale introduction is concluded, the transaction begins.

An opening bid is usually made by the lender. That bid is often known as the "upset price." It is the amount due the bank, including the late payment charges, mortgage balance, and all expenses incurred in initiating and running the foreclosure. The upset price offers you an indication about what amount the bank needs to get from that property with the aim to avoid losing money.

Banks are not required to identify themselves, and sometimes they will not bid at all. If the bank does not bid, there is usually a good reason for that and that will certainly raise a red flag. This may not be the best foreclosed property for you to bid on, either. Your goal is to find foreclosed homes to bid on that will not require a lot of time and expense for repairs before you can put it on the market.