One hundred seventy five thousand, four hundred is the opening bid required by the lender. Who will give me one seventy five, five. Silence,no bids! Going once,twice,three times. Back to the lender. It took about thirty seconds. No one bid because after the back payments, late charges, and attorney fees are added to the mortgage balance on a loan that is only two years old, it equals more than the market value. No equity! Often the cause is because of the lenders themselves. When the market is really hot, the lenders offer competitive loan programs with opportunities to get into a home with 100% financing or a very small amount down.
The auction is the climax of the process of foreclosure. It is held on the court house steps in a large metro county in Georgia. Georgia is a non judicial foreclosure state. This means the lender does not go through the court system to foreclose. The lender hires an attorney or firm to process it. The legal notice is run in a designated paper for four weeks, and sold the first Tuesday of the month between 10:00 A.M. and 4:00P.M. on the courthouse steps.
This was not the only property auctioned. There are about three hundred fifty more houses to be auctioned. Some have been taken off the auction block for various reasons. But, about 95% of the properties go back to the lender. The few properties that have equity are bid on and won by an experienced, savvy investor. Research has been done on the numbers, using tax records, comps, original purchase price, the cost of repairs, and suitability to fix and sell or fix and hold for rental. Often the bidder has not even been able to see the inside of the house because the owner has moved out, and cannot be located.
The experienced bidder has also checked to see if there are any tax liens. Tax liens stay with the property. Also, another precaution is to make sure that the foreclosure has been called by the first mortgage or senior holder, and not a second and junior position. If it is the first mortgage that is being called, the junior position is wiped away. But, if the junior position loan is being called, the first mortgage is due in full. The amount can look like a real bargain with a lot of equity, unless you have done your homework, and know that non payment on the second put the home in foreclosure. All other clouds on the title, liens and second mortgage are wiped out by the foreclosure auction.
Another main point to be aware of is that cash is due immediately after winning the auction. This is usually done by bank cashier checks in several different increments up to your maximum bid. Immediate payment is strictly enforced. It does not mean five hours later, the next day, or any variations. New courthouse auction buyers often miss this point.
Now the property is no longer a foreclosure, but is a foreclosed property. If it went back to the lender, it is now an REO, or real estate owned. It is owned by the lending institute, or by the Veteran’s Administration, or Housing and Urban Development.
The official foreclosure auction should not be confused with other auctions that advertise they will be auctioning foreclosures. These auctions are after the properties have gone back to the bank, or properties that are held by individual owners who are not in foreclosure, who feel it is the best way to sell their property. These types of auctions are run by private companies. The payment rules may be different, and the auction company usually adds a buyer’s premium that has to be paid in addition to the winning bid.
Note: In judicial states a court hearing is required, which makes the process longer. The auction is called a sheriff sale, handled by the sheriff. It may be held at the courthouse, or at a property. Also, a smaller amount of properties may be auctioned, but more auctions may be held. Also, in some states you may have 30 days to pay the funds. In my state of Georgia there is not any redemption period available for the previous homeowner to buy back the home. But in some states there are provisions for this. Each state has different procedures and rules. Check with your state or county for rules and procedures.
I am writing this as a guide to help others be aware of what is involved with an auction of property that is being foreclosed. Please conduct your own due diligence.