Home Auctions - the Secondary Phase for Foreclosures
A foreclosure is plainly understood as the legal process that is instituted by the lender in a mortgage loan after a borrower’s default or failure to pay. The end of the pre-foreclosure phase of the property is signaled after a homeowner has failed to get back up to date with their mortgage payments and the bank takes legal possession of the property. Then, the next stage follows in the form home auctions. The Lender hopes to quickly recover his/her capital by selling to the highest bidder in this court auction.
If a sale is made, proceeds will be disbursed accordingly to: the lender holding the first mortgage; the second and third mortgage-holders if any, and then the homeowner should there be any remaining amount from the sale made less his other remaining obligations such as charges and claims against the property.
Everyone knows that an auction is a good venue for one to buy a property at really bargain prices. However for first time purchasers or bidders, there are a few things you need to know before getting into an auction and these are as follows:
Preparing for the Auction:
- Make a “title search”. If you don’t want any trouble with the property you are about to bid on, be sure that you check all records relating to it. If you don’t you might discover too late that there are unpaid personal taxes, civil lawsuit judgments or state and federal tax liens that would not warn you from determining it to be a sound sale. You might pay more than what you bid for if this becomes the case
- Be financially prepared. You might want to have ready cash or cash equivalent as this is required at the auction. When a bidder wins, he is made to deposit a 5-10 percent at the end of the auction and the balance be paid within a few days after.
- Observe in auctions prior your bid. Make sure you are familiar with the process and you will get the feel of the water in an auction as many people too often get caught up in excitement over several bargains and this clouds their rational thinking and make them unwise bidders.
The Opening Bid: The opening bid is often determined through the total remaining loan balance, court costs, interest and back taxes, legal fees and liens and judgments. This should be made known as the winning bidder will be obligated to fulfill these. The trustee establishes the opening bid prior the auction proper. Should no one go beyond the opening bid, the property will be taken back by the lender and this becomes Bank Owned.
How to Bid: Bidders approach auctioneer one at a time with cashier’s check or cash on hand and bidding over a previously recorded amount is not possible unless you have an additional check or cash to show. One’s capacity and limitation to bid will be determined by the auctioneer in accordance to your check or cash proof. Remember that before the opening bid the trustees reads all legal description and terms of sale for the property so you will have a technical idea of what you’re bidding on.
The Winning Bid: A winning bid is signaled by the third strike of the auctioneers’ hammer and hence you will be expected to make a 5-10 percent deposit at the conclusion which is non-refundable. Remaining balance is expected to be settled in between 1-30 days.
Note that owner can still succeed in the redemption period to buy back the property as mandated by the province’s law however in most cases given the poor financial standing of the owner, he is less likely to get in the way of your owning the property. Redemption period varies in provinces and some even have none.
Conclusion: Without a doubt a foreclosure auction is an excellent venue for you to buy properties for only the price of what is owed the mortgage which means that you will be looking at a sale that is substantially below its market value. What better bargain can there be? Just remember to look for an auction with little or limited competition.