Make Money Buying Foreclosed Homes at Auctions Part IV

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.

In Parts One and Two of this series on buying your dream home via a foreclosure auction, I discussed how to find the right property and then the steps you need to take to find out whatever information you can about the property. In Part Three, (Buying Foreclosed Homes at Auction, Part III: How Much is it Worth, and How Much Will it Cost?)I focused on the financial aspects.

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

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...particularly the money end of it. People bid hard-earned money at the auction, then call our offices the next day to find out what they should do next. That's many days too late to be finding out how the process works. So I'll tell you how now.

You've done your research. You know what you want to buy, how much the house is worth, and most importantly, how much you should pay for it. Now what?

This article is focusing on what happens when you show up to bid on a property. After all of the research (see my previous 3 articles in this seriers), it would be a real shame to blow it all by not knowing what happens during that last step.

• Do a dry run. It is easy to get caught up in an auction, any kind of auction. Before you go to bid on the home you want, attend an auction. Watch those who very obviously have done it before. If you have questions of them, ask.

• Get a copy of the ad. Even if you see a listing on a Web site that lists the deposit needed to buy the property, get a copy of the ad, as there are specific terms to these auctions (many detailed in Part III of this series). Don't count on the attorney's office (ever) or the auctioneer's office to send you/fax you a copy of the ad. We see 400-500 sales a week. We cannot/will not fax copies of the ad to anyone.

Most newspapers are online these days. Look at the location of the property, then determine which paper covers that area. Then go online to that newspaper and try a search of the real estate classifieds. You may have to hunt/peck a bit, but have a copy of that ad with you when you go bidding.

• Be flexible. The top thing you need to know, and the ONE thing I hear about most from those who call me, asking for details of an auction, is concern when a sale cancels. The truth is, the vast majority of auctions will cancel before you go to bid on the property. Some cancel as the sale is being conducted. I literally am on the cell phone with our auctioneers as they are calling the sales, telling them of cancellations.

Why do they cancel? That's the second, most-asked question. The reasons vary significantly. The owner of the home may have filed bankruptcy, worked out a pay off agreement with the foreclosing lender, renegotiated the terms of the original loan, for starters. That's on the lender's end. It may also be because the legal ducks were not in a row. With the increased foreclosure rates we've seen moratoriums (halts) put on foreclosures. They stall, not necessarily stop, the sale, but they stop it for the day you were going to bid. If your property cancels, that property may very well be going up for sale again once things are in line again.

I had a woman who was totally irate call me. She opined that she had taken off a half a day of work to bid on a home. Opined is a nice way of saying she was cursing at me. The sale was cancelled at the last minute. It happens.

Bottom line, before you walk out the door to attend that auction, check to see if the home you want is still up for foreclosure. We maintain a Web site in real time. That is, as soon as I find out the sale is cancelled, I cross it off the list of homes for sale. If you don't have access to such a site, call the auctioneer directly.

So, be flexible. Have more than one home in mind that you want to bid on.

• Know where you are going. While some foreclosures are held on the property premises, the majority are held on the courthouse steps of the county in which the property exists. I can't tell you how many times I've gotten calls from bidders claiming that our auctioneers "didn't show up" to sell a property. The fact is, the person went to the wrong courthouse. Find out exactly where the foreclosure auctions are held in your area. On our site, we generally list the address as well as any specific info. as to where the property exists.

• Have the proper deposit in the proper form. This was covered in Part III but it bears repeating because it's also where people foul up. If you plan to bid on more than one property, know that you can have more than the posted deposit, but never less. If you have two properties in mind, and you'd like either one, bring the larger deposit. You will be refunded the difference.

• That said, know the deposit amount has NOTHING to do with the opening bid price. You won't know what that is until you get there. We can't tell you what the opening bid must be. In Maryland, our auctioneers find out the starting bid when they hit the courthouse steps. They find out shortly before you do. It has been said that you should find out what is owed on the loan, then figure 10 percent as the starting bid. That was a good rule of thumb until this odd housing market took hold. Some of the loans that have been granted on these properties are far higher than these houses are worth. Sometimes there's a correlation; sometimes not.

• Also along those lines---the deposit amount is not the price of the home. People call all the time thinking that the house will sell for the amount listed as a deposit in the ad. It's an auction, not a real estate sale.

• Show up on time. These auctions are scheduled sometimes merely a minute apart. Again, we get calls that the person was there, but our auctioneers didn't show up. The fact is, the auctioneer had come and gone. Think of all that research you've done (research, research, research!!!) that goes wasted.

• Show up. Sounds like a version of the above, but it's amazing how many people send people to bid on/buy properties because they have to work. I'm not sure how it works around the country, but in Maryland, you need to get to an attorney and give that person power of attorney (the right to act on your behalf) to sign the contract. If you fall into this category, contact the attorney listed in the ad BEFORE the auction to find out that attorney's precise rules.

• If you have a question (not one of the basic questions you should have researched beforehand), ask it. The auctioneer may not have time if he's calling sales in a row. A trustee (from the attorney's office) should be able to clarify things as well.

• Even if you make the highest bid among others bidding on the property, you may not win the house. Very few property sales are absolute auctions nowadays. The way the property was unnaturally inflated for so long, the bank may have a lot more invested in the property than what it appears on the surface. The bank reserves the option to do a Buy Back. A Buy In/ Buy Back is exactly what it sounds like. The bank didn't get the price it needed (generally near the amount owed), in order to sell that property. So you may bid the most (among other auction goers), but you may still walk away empty handed.

I was the high bidder, and I won! Now what?

• Read the contract. Sign the contract. Get a copy of the contract. You'd be amazed at how often people forget one of these three points.

• Don't start calling the attorney or auctioneer the next day asking why the sale isn't done. In Maryland, it takes about 45-60 days for a sale to be ratified; that is, for the courts to deem that it is a legal and proper sale. As settlement winds on, the attorney handling matters for the foreclosing bank will contact you to tell you where/when the settlement will occur. Calling on a daily basis will not make it happen faster.

• When the settlement goes through, move in and enjoy your prize.