Whether you are an investor that would like to get into buying foreclosed homes for your personal use or to flip the property or if you are having your home foreclosed on, you should know what to expect at a foreclosure auction. Of course, the actual steps that will be taken can vary a bit from state to state and from house to house, but its good to know what you will be getting into when you go to a foreclosure auction. Foreclosure auctions can be exciting, even fun, but knowing what to expect will help you make the most of the experience, whether you are an investor or a homeowner that is trying to get your house back.
Before the Auction
Youll likely find out about the foreclosure auction in a local newspaper and on the flier may be information to pre-qualify for bidding. This will allow you to put down a deposit so that the auctioneer knows that you are a serious bidder and can fulfill your bid if you are the winning bidder. Being pre-qualified just sort of speeds up the process so that you dont have to mess around with the deposit on the day of the auction. During this time you should also do some research on the house by looking into any liens that may be against the property, how much the property is worth, how much it has appreciated in the last few years, as well as property values in the area. If the home looks as though it will need some repairs, you should consider this as well when trying to come up with how much you will be willing to pay for the house. Without this research, no amount of knowledge about what goes on at a foreclosure option will help you because you wont know where to start when it comes to actually making a good bid.
What Happens At the Auction
The auction will typically start with the auctioneer reading legal notices as well as a legal description of the property. The auctioneer will usually then begin taking bids on the property. If the auctioneer has pre-qualified bidders the process is more streamlined, if not, each time a bid is made the auctioneer will then ask for the bidders deposit check, which is typically right around 5,000 for residential auctions. After each bid the auctioneer will attempt to solicit bids for higher amounts. Each auction is different, but the auction increments usually are set by the auctioneer and may be by 100, 500, or 1,000 per bid. The auctioneer will continue to solicit bids by this increment until it is clear that the highest bid has been reached. Then, the auctioneer will announce, Going once, going twice, three times, sold! indicating that the auction is over and the property has been sold to the highest bidder.
Once the bidding has ended a foreclosure deed and purchase papers will be drawn up and validated by the new owner or purchaser and the mortgage holder. A grace will likely be given to allow the purchaser to find financing or to come up with the funds to cover the full amount of the bid. This grace period is usually 30 days unless the purchaser and the mortgage holder agree to other terms. After the grace period a closing will take place, so that the new owner can formally take the title to the property.
What Happens, Now?
The purchaser can do what he or she intended to do with the property, whether it is to move into the home or to sell it for full market value. The money paid by the purchaser will be distributed in order of priority, first of which would be taxes. After taxes money will be paid to the mortgage, then the second and third mortgage if applicable. If there is still money after paying these debts, remaining money will be paid to lien holders and creditors. There is a very slim chance that there will be money left over after all of the debts are paid, if this is the case then the monies will be paid to the former home owner.
What about the Original Owner?
The original owner will often be at the auction so that they can bid on their home, and this is legal as long as they have the deposit required. If the owner of the home that has been foreclosed does bid on the home they must remember that the deposit is not refundable and the deposit assumes that they will be able to finance the home within the grace period. Owners must also remember that if they buy the property back old debts may merge and become reinstated such as second and third mortgages that became void when the first mortgage foreclosed on the property unless one has filed bankruptcy and is truly free and clear of these debts. Owners will often drum up the funds to make the deposit so that they can have another 30 days to try to save their home. Owners may or may not be successful in their attempts to save their home at a foreclosure auction.
As you can see, there are a lot of things that go into a foreclosure auction, but none of them are all that difficult to understand, but knowing about them makes the auction more enjoyable. The auction itself is not all that complicated, but it can be very fast paced. At some foreclosure auctions there are a lot of people, at others there are only a few because of the location or just the debts attached to the property, or even the state of the property. If you are serious about the property you should pay close attention when bidding starts so that you are sure that you can get your bid in when you feel its time so that you have the best chance of being the top bidder.
When youre going shopping for real estate in the middle of an economic recession you can pretty much guarantee that whatever you purchase, youre going to be able to make a profit. There are certain parts of the country that take a little longer to be affected when a recession strikes, but sooner or later every place is going to start to feel the pinch-which means you can basically stick a pin in the map when youre trying to decide where you want to make your investment.
Of course, just because you can make a profit just about anywhere doesnt mean that you shouldnt take measures to maximize that profit. If you were sitting in the middle of a giant room of sweets that were yours for the taking absolutely free, would you go for the Godiva chocolate or the M&Ms? When you have the choice between a property that youre going to make a minimal investment on and a property that you will make an incredible profit on when the economy starts rising up again, go for the property thats going to bring you the best return!
Where are you going to find the best deals? Urban properties and homes in the suburbs of these urban areas are always more highly in demand than those that require a lengthy commute to get to lifes essentials. Homes in the suburbs of Washington, D.C. are going to sell for a greater profit (and much more quickly) than a home in a small town like Rexville, NY. (Dont worry if youve never heard of it-most of the rest of the world hasnt either!)
When you first begin investing its usually recommended that you pick a property close to home, where you know the neighborhood, the general ambiance and, most importantly, what sells! If you choose to do your own rehab this is particularly important, as there are many areas in the country that are particularly prized for their historical value and which will bring a much lower return on your investment if theyve been stripped and decked out in the latest style than if theyd been carefully restored. An experienced rehabber will know this. A beginning investor will not.
Other factors you may want to take into consideration before closing the deal are:
The quality of the neighborhood. Unfortunately, all urban areas have their slums. An area with a high crime rate, a wide-spread amount of graffiti and property damage, regular drug activity and daily visits from the police is going to be much less desirable to a prospective buyer than a home situation in a nicer part of town, where they can safely allow their children to step out the front door without having to worry that they wont come home.
The condition of the house. There have been many, many investors that have plunged right in to the world of real estate and rehabilitation and bought a handymans special only to discover that by the time they got done paying for the repairs to the property the profit margin was considerably less than what they were hoping for-and what they would have made investing in a property that needed a little less work.
Before you commit to buying a property, take the time to have the home inspected carefully. Certain factors, such as a leaky roof, faulty foundation, termites and extensive mold, are going to be both difficult and expensive to fix. Unless you can quite literally get the property for a song, justifying the amount of time and expense youre going to put into the restoration project, it may be best to allow that one to pass you by.
What you plan to do with it afterwards. This is probably the biggest factor when it comes to real estate investing, because what you plan to do with the property after you purchase it makes all the difference when youre determining what types of properties are suitable and what are not. If youre planning on rehabilitating a property, then reselling it as a single family residence, purchasing a small ranch house on the edge of the city may be a perfectly profitable proposition. Youll likely be able to sell the property for more than you paid for it and justify the investment.
On the other hand, if youre planning on renting the property out youre going to want to investigate the current rental rates of the neighborhood before youll be able to determine the success of the investment with any degree of accuracy. There are some areas where income based housing drives the average rental price of the neighborhood down, which is good news for renters but could result in major inconvenience for the investor who has paid hundreds of thousands of dollars for a property that they are only going to be able to rent for a couple hundred dollars a month.
The moral of our story? Take the time to carefully consider your options and do your homework before closing the deal, no matter how appealing that deal may be.
Of course, if youve been investing in real estate for the past ten years none of this is news to you! Experienced investors who are familiar with things like market trends and identifying weaknesses in potential properties will find the buffet of low priced real estate spread out before them a tempting proposition, and reaching beyond their immediate demographic boundaries may offer a new wealth of possibilities for tremendous profit gain.
Just remember that investing during a recession is a slightly different proposition than investing when the economy is booming. Youre going to hear me say this over and over again, because it cant be emphasized enough-when youre investing in real estate during a recession youre investing in the long term. Many of todays real estate investors have made their fortune in the market by taking advantage of todays Now, now, now! mindset and investing in and disposing of real estate in a very brief amount of time. When the economy is strong its not at all unusual for an experienced investor to be able to purchase and flip a property within the space of a week-experienced rehabbers in a month of less. Any property that you invest in during a recession may remain in your possession for several months before you are able to realize a maximum return, because the whole point of investing during a recession is to purchase an asset at the lowest price possible and sell it when the economy goes back up.
Its rare for the experienced investor to find themselves in this situation, but its entirely possible to spread yourself too thin when the temptation of pages upon pages of available property was just too much to resist. Suddenly theyre responsible not only for the amount theyve paid for the initial investment to purchase the property in the first place, but for the taxes, rehabilitation and maintenance required to keep it maintained and prepare it for sale.
Try to limit yourself with a realistic expectation of what you can afford in the long term. If as the recession continues you find you have more than enough capital in hand to pick up a couple more properties you always have that option, but disposing of a property you can no longer afford during a recession can be more difficult than taking a submarine and going diving for Atlantis-which is the reason that investing in real estate during a recession is so lucrative to begin with.
Using Foreclosure Auctions To Buy A House At Below Market Value
Buying a house below market value is a good way to get more profits as a real estate investor. One way you can find property at below market value is a foreclosure auction. Real estate goes into foreclosure when an owner of that real estate does not pay their mortgage on time. When real estate payments are not up to date it is a distress property. Nothing physically can be wrong with the house and it can be classified as a distress property. If the payments are not up to date that is enough to make a house a distress property. When a house is in distress status the owner is given a certain amount of time to bring the payments up to date. If the property owner does not bring the house up to date the bank that holds the mortgage can foreclose on the property.
When the bank takes control of a house that is when a distress property is classified as a foreclosed property. When the bank forecloses on a house, the bank will try to sell the house in a foreclosure auction. In a foreclosure auction the person with the highest bid will take control of the house from the bank. If the price is too low the bank will not sell the house. Some foreclosure auctions start at the price the bank is willing to sell the house for. Finding these auctions can take some work. Some places you can find foreclosure auctions are the newspaper and online. One other thing you can do is buy foreclose property lists for your area online. It is important to do research on the properties to see witch ones you will be interested in. It is important to research the property so you wont over bid. One way of doing this is going and physically taking a look at the properties you think you will be interested in and do an assessment of there value.
Most likely you will not get to see the inside of the house, but you can make an assessment of the house from the outside. You should stay off the physical property if you can. You will not want to get charge for trespassing. It is recommended that you take pictures and write notes about the property; this is a good way to help you to make the decision of what properties you will want. It can also help you to make an assessment on the highest you will pay. When it is time for the foreclosure auction stick to your assessments and do not over bid. You may not get your first choice but it is better to get your second or last choice at below market value than to over pay for your first choice. Buying foreclosure properties does take some work, but the money you will save is worth it.