Before a property goes to auction, there are some events that are most likely to have taken place. One of such is that the homeowner refuses to pay his mortgage for several months which will prompt the bank to file a notice of default. When the bank files the notice of default, should the homeowner refuse to immediately pay the balance owed on the house or renegotiate the mortgage, the property can be put up for an auction.
Another reason a property can end up at an auction is if the home owner refuses to pay property taxes. If the tax evasion to State and local authorities become severe, then same can be seized by the State or Local tax authority for auction.
The Foreclosure process begins with a pre-foreclosure. At this time, the lender begins the legal process that would lead to a foreclosure of the property. One of the pre-foreclosure legal process a lender must take is to file the notice of intent with the Court. The Lender must also place an announcement of the foreclosure of the property in a local newspaper for a specified period of time. The aim of this is to give due notice to the homeowner. On the other hand, if you are an interested buyer of the property, the announcement would also enable you to research the property before auction day. An auction takes place at a local courthouse or any other location determined by the auctioneers. After a property has been scheduled for auction, the homeowner has one more chance usually less than a month to stop the auction by paying the balance owed to the foreclosing lender. This is a common occurrence. There was an auction announcement sometime in Chicago regarding a mansion. When the Homeowner saw the auction announcement, he immediately negotiated with the bank and paid the balanced owed on the property. The auction was cancelled.
The bidding procedure for an auction varies depending on the State the auction is to be conducted. In some States, the bidder must verify his or her identity and ability to pay for the property before being allowed to bid. The auctioneer will then ask for an opening bid. The opening bid will set the amount after which all bids must increase. Once the bids reaches the reserved price for the property, the atmosphere becomes tense as the property is regarded to be on the market. At this point, the property will be sold to the highest bidder.
The procedure for payment for auctions vary, however, the most common form of payment for auction is that the winning bidder would immediately pay ten percent of the auction price and pay the balance within thirty or sixty days depending on the auctioneer. On the other hand, an auctioneer may specifically ask for complete payment of the auction price by check.
Online Auctions are popular and real estate is no exception. Although the larger percentage of real estate auctions are done physically, online auctions are becoming increasingly popular. The online bidding war is more competitive because the bidding can be done 24 hours in a day through any computer that is connected to the Internet.
Bidders Due Diligence
A Professional in the real estate industry understands the importance of due diligence before participating in a real estate auction. It is unreasonable for a bidder to go for an auction without first doing research on the estimated market value of the property that is going to be auctioned, how much is owed to the lender and if the homeowner has any other liens on the property aside the home mortgage. All these are public information that can be easily researched by a bidder. The essence of this research is that the bidder is equipped with the best bid during the auction, this will put him or her at an advantage of being the highest bidder. Always remember never to get carried away and bid higher than your pre-determined maximum price.
Post Auction Redemption
Some States allow a waiting period after an auction during which the original homeowner can repurchase the house if he or she matches the auction price. The essence of this is that you may win an auction sale without actually getting the house.
Advantages of Foreclosure Auction
1. Discounted Price:
One of the advantages of buying a foreclosed property is that most of them will sell at a price lower than the current market value of the property.
2. Speedy Purchase Process:
Auction sales are the fastest, transfer of title to the property can happen on the auction day itself. Things move really fast with auction sales.
An auction is a profit making enterprise. This is because, a good number of auction winners sell the property at much higher prices and make good profit.
Disadvantages of Foreclosure Auctions
1. Inability to negotiate price below outstanding mortgage:
The biggest disadvantage of buying a foreclosed property is the inability to bid below the outstanding mortgage debt. The foreclosing lender’s main goal is to recoup the debt of the homeowner, so the auctioneer would have been strictly instructed to insist on a particular price above the outstanding mortgage debt owed by the homeowner.
2. Additional Liens on the property:
Majority of the Homeowners who had their property foreclosed will have additional liens on the property due to the poor state of their finances. Some of these liens may be tax liens and contractor liens. Worse still a homeowner undergoing financial troubles might have committed the house to a second mortgage.
Real Estate auction is a modern and effective method of selling real estate properties. It is an intense marketing process that involves the public sale of property through an open and competitive bidding process. Thanks to real estate auctions, the traditional method of working with real estate agents and searching real estate listings are no longer the only ways of acquiring property. Now this brings us to the question, how does a property end up at auction. There are two main types of auctions. They are foreclosure auctions and tax lien auctions.