How to Buy Your Dream Home at a Foreclosure Auction, Part I

If home ownership has been out of your reach, there's an option you should consider: bid at an auction for a home that is being foreclosed upon. You can find a great house for a fraction of what it sold for initially or what it would sell for if sold through a real estate agent.

That said, you must know what you're doing. It's amazing, but the very consumers who will spend $2 in gas to save that extra penny per gallon, don't ask questions before they start bidding on foreclosed properties at auction. And that's a critical error.

Right off the bat, what you need to know is that you don't have to pay for any of this information!!!! There are tons of firms out there offering to sell you info on foreclosed properties so you can get ahead of the game. Any information they have is public record. I'll tell you what to do FOR FREE.

The first two parts of this four-part series on buying foreclosed properties at auction focuses on things you must know/questions you should ask BEFORE you attend a sale. It's meant to be an overview. That alone should tell you that the process is more complicated than showing up at an auction with checkbook in hand. Specifically, Part I focuses on how to find the home you want to bid on. Part II focuses on miscellaneous things you must know before bidding on a home at auction.

In Part III, I'll detail the financial aspects. What really goes into determining how much that foreclosed property will actually cost you? The price you bid is NOT the cost of the home, not by a long shot. Part III is entitled:

Buying Foreclosed Homes at Auction,

Part III. How Much is it Worth, and How Much Will it Cost?

Part four picks up on the courthouse steps where most sales occur. It's all about what you need to know about the actual sale process.

Part Four is entitled:

Make Money Buying Foreclosed Homes at Auctions, Part IV. At the Courthouse---Before and After the Sale

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I've been a journalist most of my life, but for the last two years, I've been working in the foreclosure department of a real estate auction firm. For years, I asked many, many questions, and now I'm on the other side, answering lots of questions. I'm absolutely amazed time and time again by how many people will bid on a property at auction without knowing how the real estate auction process works.

If you want to find your dream home for less than anyone on the block paid for their homes, you can, but you have to find out a few things. Scoring at foreclosure auctions is a lot more about putting time into research, as opposed to putting out money. Here are some of the things you must look at to find the perfect home for you to bid on at auction.

What can I afford to pay? Just as you would with any home purchase, get

prequalified for a loan. It's important for so many reasons. First, you will figure out your total cost cap, and you won't waste time researching properties that are obviously outside your price range.

Gather initial information. Look at the legal ads in the paper where the property is located. Even if you hear about a property going up for auction from another source, you'll want to get a copy of the ad as that will tell you of the various expenses and terms of sale. Don't forego this crucial step.

Check out Web sites. Look at the Web sites operated by local auction houses. The firm I work for maintains a Web site that lists all of the current foreclosures we are handling in the State of Maryland and Washington DC for a two-week period. It lists the date and time of sale, location of sale (generally the courthouse), street address of the property, the deposit needed to buy the property (more on that later), and the attorney handling the case for the foreclosing party. Again this is information some slick entrepreneurs will try to sell you. You can get it for free elsewhere.

Make your list, and begin gathering information. Whether you are buying for yourself and your family or you are buying to invest, research a few properties. Get the newspaper ad to get more initial information.

Now the fun begins. You must figure out what the property is really worth. That's not as easy as it sounds. You need to know this from the start:

It's entirely up to you. It's all about due diligence. It's all about doing your homework! A good quarter of the calls I get regarding "how to buy at foreclosure" comes in the form of "well how many bedrooms and bathrooms does it have."

The person has looked at our Web site, seen the address, and calls us to get more information on the individual property. The auctioneer is hired by the attorney representing the foreclosing party (generally, the bank). We may place the ads in the appropriate newspaper. Then our auctioneers physically call the auction on the day of sale, generally on the courthouse steps.

You won't get specifics (condition of the house, # of bedrooms, etc.) from the auctioneers, or from the attorney for that matter. It's up to you, period. People will go to

Consumer Reports and onto the Internet to compare prices of HDTV, but they seem to be stymied by the thought of research properties in foreclosure.

How do you know what the property is worth? There are so many things that go into how to figure out the worth of a foreclosed property that there needs to be a separate article devoted to just that. To that end, I've written a companion piece to this entitled: I've written a separate article on that entitled:

Make Money Buying Foreclosed Homes at Auctions, Part II. How Much is That Property Worth? (A third part focuses on what happens at the sale and after a sale.)

For the purposes of this article, I'll just say that you must determine the worth of the house. Both the cost and actual worth of the house will be discussed in Part II, but I'm listing a few items in this overview.

Know the hidden costs. They're not really hidden as they're explained fairly well in the newspaper ad. The costs will be factored into the real cost of that house you want to buy. These extra costs include the legal fees needed to complete the sale, the interest that will be charged from the time you buy until the time the sale closes, utility fees (possibly) and unpaid taxes (if any).

Buying Free and Clear. Newspaper ads may (or may not) say that the property you wish to bid on is subject to a prior mortgage. That means someone else has a financial interest in the house and that must be satisfied before a clear title will be granted to you, the purchaser. Ask the attorney handling the foreclosure if you will get a clear title. Again, it's not something the auction house may help you with. It's a legal question.

County Land Records. Beyond talking to the attorney, go to the county land records (where the property is located), and go to the information desk. Tell the person at the desk exactly what you are looking for and why. If you are doing this for the first time, let the person know that, too. Most people will go out of their way to help you as no one wants to see a person make a poor financial decision.

Do a drive-by. While you will be trespassing if go onto the foreclosed property without the permission of the current homeowner, you can get information on the property. (Please don't be so callous as to knock on the person's door asking to take a look. I only say this because I've had people ask me if they could do that.)

Visit the property and get a good look at it from the outside. Is it being maintained (grass cut, painting, etc.)? That will give you an indication as to the sort of problems you might encounter as the owner. If you see a pest control truck sitting outside, you know there's a problem.

Take it all in. When you do your physical look at the property, don't just look at the actual property in foreclosure. Look left, right, back and front...at the neighbors. I was interested in a property near my dad's home. My dad blurted out something to the effect of: well you have the family that keeps the Christmas lights up all year but never cuts the grass, ever. On the other side is a convicted pedophile. That hammered home the need to really do one's homework. Check out schools, Web sites regarding convicted pedophiles, zoning, etc. regarding the area, shopping, traffic and the like. You don't have a real estate agent backing you up on this.

Neighbors and the golden rule. My case of the ill-fated property I took a shine to brings up another great resource: neighbors. Be respectful, however. While there will always be the nosy neighbor willing to gossip about the homeowner's financial woes, most regard this person as a neighbor. Ask questions, but be kind. Don't approach the family's children asking about the condition of the home. Foreclosure is devastating on a family. You have every right to have a home of your own, but don't make it harder on the family who has lost that home.

Hopefully what you've gotten out of Parts I and II of this series is that there's a lot more to buying at foreclosure than just looking at a listing. I remember one family who called me via cell phone as they were driving the streets of Washington, D.C. trying to find our auction gallery. The man (who was driving at the time) asked questions which said to me he knew far less than the average person bidding at auction for the first time. They were asking questions that weren't even up to the beginner ranks.

As the man's wife barked questions and orders in the background, and another passenger chimed in with questions to ask, the man came up with one really good question: "What tips can you give me on buying a home at foreclosure?" My answer, which I'd give again today, "Turn your car around, and go home."

A home is not an impulse buy. With the proper research, however, it can be a great way for you to afford your dream home.