This article discusses who can bid at a foreclosure auction and why. Attending and bidding at a foreclosure auction, whether online or in person, can be an interesting and challenging experience.
Who Can Attend a Foreclosure Auction?
Live foreclosure auctions are free and open to the public to attend. Online auctions, however, must first require an account to be set up. This can be done by anyone with a computer and internet connection.
Some state counties now conduct foreclosure sales online, such as in Florida and Michigan. Be sure to check your state’s available auctions and requirements.
Who Can Bid at a Foreclosure Auction?
Anyone can attend, but bidding requires registration, whether the auction is in-person or online.
Online bidding may require a bid deposit. This is actually a hold on a credit or debit card and is not a charge.
If you want to bid at an in-person auction, you will need to register and show the ability to pay with cash or cashiers checks. You will often need to submit financial documents showing you are in possession of sufficient funds to pay for the property in full. This requirement varies from state to state however.
Allowing as many attendees as possible ensures that the house foreclosure auction generates the highest possible recovery for the bank or lender.
Who Will Likely Be at a Foreclosure Auction?
- The Auctioneer
- The Plaintiff (usually a lender)
- The Plaintiff’s attorney
- The Plaintiff’s representative
- The original home owner (possibly, but not likely)
- Spouses and friends of bidders
- Real estate professionals i.e. brokers and agents.
- Other new and experienced real estate investors
Representatives of the Lender
An agent or representative of the lender usually attends foreclosure auctions to protect their interests. The home needs to sell for an amount the lender can accept. This is usually the total left on the mortgage plus the lender’s related legal fees. Some states let the lender set a minimum bidding amount before the sale, so the auction starts at that bid amount. However, even if state laws allow a lender to set a minimum bid ahead of time, the lender may send an agent to the sale to represent them.
The Original Homeowner
A homeowner can bid on their own property at the foreclosure auction, even though this is not very common. It is not illegal for a person to bid on their own property at a public foreclosure auction, yet this depends on your state’s laws. However, if you buy your home back at auction for less than what was owed, your lender may take you to court for the difference, which is known as a deficiency judgment. If your lender foreclosed, your state may give you a redemption period to buy your home back, even if another person wins the bidding for the property at auction.
The power of sale contained in most mortgages in the U.S. generally states that the property will be sold “to the highest bidder at public auction.” The mortgage will not contain anything which states that the Borrower and the “highest bidder” cannot be the same person. If you are the highest bidder and they refuse to make the sale, then the lender is violating the terms of the mortgage and the foreclosure itself could be void.
However, the lender has the right to credit-bid up to the balance of their remaining mortgage at the auction, which counts as a bid against other bidders offering cash. If you outbid the lender’s mortgage credit-bid and they refuse to take it, the foreclosure sale was not conducted according to the terms of the mortgage and is void. This could lead to the lender facing a wrongful foreclosure lawsuit.
In most states, the terms of the mortgage govern that the bank has no right to reject a bid. Check the rules for the state the mortgage was issued, and the mortgage documents to be clear on this subject.
The main reason the original homeowner will bid at an auction even if they have the cash needed to pay for their home is to get rid of junior liens attached to the property. A foreclosure will erase the second and third mortgages on a property. These debts are no longer attached to their home, meaning that they cannot be enforced without a lawsuit making them easier for the home owner to settle for a discount.
Veteran bidders are usually investors or lender representatives who have been through the auction process more than once. Beware of getting into a bidding war with one. If you are new to foreclosure auctions, consider oberving them and watch the behavior of these individuals during the auction.
Real Estate Investors
Investors often attend foreclosure auctions as a means to buy property at prices below the market value. Many with ties to the construction industry may join forces and use pooled money to bid on properties at auctions. Foreclosed homes may have damage and these investors are willing to put in the funds and effort needed to repair them.
Real Estate Agents and Brokers
Agents and brokers interested in buying their own foreclosure properties or on the behalf of other investors may be present at foreclosure auctions. Some larger auctions will have representatives from several large mortgage lenders in attendance.
Many people arrive to simply observe to learn more about auctions or as members of bidding parties.
Bidding at Sheriff Sales
A sheriff’s sale is open to the public. Lenders sometimes attend or send a representative in an effort to bid to try to buy back their own property, which is permitted. Like regular foreclosure auctions, everyone must have certified funds available before they can bid on a property.
Bidding at an Online Auction
In an online auction, you could be anywhere when you bid. This includes at home, the office, or anywhere with an available internet connection. Bidding also does not just last a single day but can occur 24 hours a day over the course of several days or weeks.
Online auctions also broaden the types of properties you can bid on, including short sales, non-distressed, and bank-owned homes (known as REOs), among others. Thus, the same types of bidders at live auctions are also usually present , but there may be more of them because of the convenience and scope that online auctions provide.
Quick Search for Foreclosed Properties In Your Area
Other Things to Consider
Foreclosure auctions can be exciting places to get great deals on properties. However, if this is your first auction, you should start by observing other buyers to learn their behaviors.
Also, consider speaking to a licensed real estate agent or broker with experience in foreclosures who can assist you in the process.
Each state has its own rules regarding the foreclosure auction process and the funds required if you are the winning bidder. The trustee can cancel the sale if the winning bidder cannot come up with the necessary cash. In most states, you need the full amount upfront and must pay immediately after your win. Do your research and learn the auction requirements before bidding on foreclosed properties.
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