A foreclosure auction is the usual next step for a bank lender after they foreclose on a house. But do you actually need to be present at the auction? Can you buy a foreclosed home without attending a foreclosure auction?
Trustee Foreclosure Auctions
Most foreclosed homes are sold through live “trustee” auctions. These are typically held in non-judicial foreclosure states, which means the bank can foreclose on its own without a court decision against the borrower. The auction is managed by a lender-appointed Trustee who is tasked with selling it at auction.
Trustee auctions are held at a public locations like hotel ballrooms, the courthouse steps, etc. They can also be held on the steps of the property itself, though this is fairly rare.
At live trustee auctions lenders are looking to get the greatest return on a sale that they can. The Trustee is tasked with maximizing the amount of the sale and ensuring the minimum bid is met (typically the amount of the outstanding mortgage, plus attorney fees and other costs). This is done by getting as many bidders with sufficient funds and buying interest together at the auction.
Live trustee foreclosure auctions require buyers to:
a) Show up in person themselves, or
b) Hire a representative to show up in person to bid and purchase properties on behalf of the buyer
At most trustee foreclosure auctions there will be numerous professional buyers working for investment companies. These buyers represent their employers, and the actual buyer is usually a company.
Live Sheriff’s Auctions
In judicial foreclosure states, most house foreclosure auctions are run by a court-appointed party such as the county sheriff. These are called “sheriff’s auctions”.
Sheriff’s auctions are similar to Trustee auctions in their personal attendance requirements. You must attend a sheriff’s auction yourself or hire somebody to bid and purchase properties on your behalf.
Options for Purchasing Foreclosed Homes Without Attending an Auction
Okay, so now that we’ve discussed live trustee and sheriff’s auctions and their attendance requirements, let us discuss other options for buyers looking to purchase a foreclosed home without attending an auction.
Purchasing Foreclosed Homes Through Online Auctions
Unlike a live auction that requires you to register, submit financial documents, and attend in-person, online auctions allow you to buy properties remotely.
Online auctions make the research and purchasing process much easier. They are becoming a popular method for investors looking to buy foreclosed homes, and banks and municipalities looking to get the highest value.
Online auctions allow buyers search, track, and research properties. They offer the ability to make bids on a variety of properties, including bank owned properties, short sales, non-distressed homes, and commercial properties, over a set period of time. None of these require you (or a representative) to be physically present.
Buyers should remember to do as much research on a property that they can. Online auctions make registering and bidding on properties much easier. But they do not eliminate the need to research the property’s title, physical condition, etc. In fact, to do this properly, astute online auction buyers will often hire a local title company, real estate agent or contractor for “boots on the ground” work before bidding on a property.
The buyer must provide all necessary documentation and funding to purchase before the bidding begins. Online auction sites typically require a deposit held in the auction’s escrow account for you to bid — this is usually around 5% of the purchase price of the home.
Using a Realtor for Foreclosure Auctions
in many states, it is possible to hire a realtor to act as your representative at an auction. This is similar to an investment company employee buying on behalf of the company, except a Realtor is an independent contractor. The Realtor will attend the auction, bid according to your wishes, and process the necessary payments and documentation.
Realtors are required to know the inner details of the real estate market, documentation, financing and purchasing processes before they can represent clients. This expertise is usually paid for through a commission arrangement directly with the auction buyer.
Buyers should find an experienced real estate agent who will work through the auction process with them, and to assist you in research and closing the auction sale.
Purchasing Foreclosed Homes Through REO Listing Agents
Another method to purchase a foreclosed home without attending a foreclosure auction is through listing agents who deal with REOs, or real estate owned, properties.
REO sales are structured like a typical home sale, except the property is owned by the bank. REO sales tend to be more procedural, for example the sale may require sign-off by the bank’s board of directors. An REO listing agent’s job is to help market and close these sales.
It’s important to understand that the listing agent works for the bank. REO properties are ones that have been previously foreclosed and have gone to auction, but did not sell. They are usually in fairly poor condition. The bank may have fixed major issues with the home to make it habitable. And the bank generally cleans up most title issues (but not always!).
There can still be significant issues with REO homes, so be careful about buying them sight-unseen. It is recommended that you have an experienced representative (e.g. a Realtor) to assist you if you cannot be physically present in an REO purchase situation.
Other Ways to Buy Foreclosed Homes Remotely
Foreclosed homes can be found through government agencies, insurers, and the Internal Revenue Service (IRS).
Government agencies offer an advantage of usually having a large number of foreclosures available. They can also offer buyers an opportunity to purchase foreclosures before they reach listing services. Large government auctions can be attended online or in person. The same cautions apply as discussed above.
This article has covered the most common options to buy a foreclosed home without attending a foreclosure auction.