There are numerous types of real estate auctions conducted for a wide range of reasons by a
variety of agencies. Some real estate auctions are initiated by the
property owner; most often, real estate auctions are conducted due
to failure by property owners to honor legal commitments such as payment
of property taxes, income taxes or mortgage. Other reasons for a real
estate auction to be held might include divorce, death of the property
owner (as part of an estate sale), lawsuit, government seizure
due to illegal activity, or property abandonment.
BUYING FORECLOSED HOMES AT REAL ESTATE
AUCTIONS
When you hear of a house selling on the courthouse steps, this is
literally what happens. In a home foreclosure auction, lenders and
buyers will congregate outside the courthouse, bidding on properties. This
bidding is very intense and the process moves quickly. To avoid
potentially devastating results, you must conduct as much research as
possible prior to bidding in any real estate auction.
In order to participate in
home foreclosure auction
buying, you first need to do the following:
- Prior to the sale, thoroughly research any properties you are
interested in purchasing;
- Prior to the sale, perform a full title search on the property to
insure that the foreclosing entity is the first mortgage
holder;
- Keep your expectations realistic;
- Evaluate your potential profit versus loss should you win the
bid;
- Decide what your highest bid will be and stick to it.
Pros of Home Foreclosure Auction Purchase
- Savings against market value can be high;
- Outstanding return on investment when performed properly.
Cons of Home Foreclosure Auction Purchase
- Real estate auctions can be postponed;
- There is often little or no opportunity to inspect a house prior to
sale;
- Title searches can be costly;
- Large cash layout is required within a short period following the
sale;
- Hidden problems such as additional lienholders (if the foreclosing
entity is not the primary lienholder), land use restrictions (such
as zoning or wetlands restrictions) and environmental issues (such as
asbestos removal, petroleum contamination or toxic waste hazard).
TAX DEED SALES
In a tax deed state (currently about 17 states employ tax deed systems),
county governments sell full ownership and possession rights to an
investor when taxes on a property are not paid. This is often but not
always done at a public foreclosure auction. A tax deed sale generally
takes place at least several years after the first tax payment becomes
delinquent. Property is sold for the back tax amount plus any fees,
interest charges and court costs. The purchaser generally obtains full
ownership rights or all rights held by the county.
TAX LIEN AUCTION
In a tax lien state (currently about 18 states have tax lien systems),
county governments sell their right to a tax lien or tax claim on real
property. This is usually done at public tax lien auction, but some
large counties with a high volume of liens conduct internet tax lien
auctions. A tax lien provides an investor with the right to receive
interest penalty charges if the tax lien is paid off by the delinquent
property owner and the right to foreclose the tax lien and take title
to the property if the lien is not paid. A property tax lien is a
high priority lien superior to judgment liens, mortgage liens, trust deeds
and other private liens.
Real estate auctions are an excellent way for an experienced real estate
investor to generate a high return on capital. Unfortunately, real
estate auctions are also a great way for novice real estate investors to
lose their shirts if they do not perform due diligence.
Perhaps the two greatest mistakes novice real estate investors make
when bidding at real estate auctions are failing to adequately research
the properties upon which they intend to bid (including visual
inspection and completion of a full title search) and overbidding
after becoming caught up in auction fever during a frenzied round
of bidding. Never become married to the idea of buying a particular
property, no matter how good it may look to you. I strongly advise anyone
desiring to purchase real estate through the auction process to attend
numerous auctions without bidding to experience exactly how the
process works. It is also a good idea to attend a real estate auction
with someone you trust who has a background in real estate if you know
such a person.
References:
Authored by Kenneth L. Anderson.
Original article published 20 March 2006.
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