Buying a foreclosure home at auction: Be very careful!

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We keep hearing about all the great deals in foreclosure. Buying a house at auction seems to be gaining popularity. However you could end up with a money pit and lose a lot of money.

Where does the auctioneer get the houses to sell you?

The homeowner is unable to make the mortgage payments. A loan modification can not be worked out, so the lender forecloses. There is the judicial foreclosure where the property is auctioned off at the courthouse. Then there is the non-judicial foreclosure where the auction is done by a trustee instead of a judge. If you are looking to buy the process is the same. The auction system is mostly houses from the trustee. The trustee will wait until there is a sizable inventory of houses. The details of the auction will be advertised nationally and the actual auction will be held at a hotel, a convention center or some other locations that are appropriate for large crowds.

What traps should you look for?

>>Condition of the house.

The house could be crap. If you had an angry homeowner the appliances could be missing. There could be damage to the windows, doors and the roof.

>>Financing.

In order to bid on a house you need to put down a deposit. If you are successful with your bid you have to pay cash for the house.

>>Legal issues.

If the homeowner files bankruptcy the day of the auction, the lender will withdraw the house from the auction. If there are liens on the house, you have to pay off the liens in order to get clear title. These liens are generally child and spousal support, IRS taxes or county property taxes.

There are still good opportunities to make some decent profits at real estate auctions. But you must do your homework and be prepared to set a limit for your bidding and stick to it.

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