Hi Eastgate,

Has anyone here purchased a property at auction?

Yup... in King County, WA.

There's a house in my neighborhood going to auction next week that I'm interested in purchasing. The owner has a debt of $50,000 and the house will be auctioned without an appraisal.

A) You ought to get a preliminary title report to determine what otehr liens there are, for SURE,
B) Is the property vacated? If not, "just say no." Evicting the existing owners after they lose their home can take months, during which such time they can trash the place in spite of their anguish...

Is it possible to contact the attorney representing the bank before the auction takes place?

Sure! Just call. The attorney will tell you what their minimum asking price will be... however, BEWARE! The attorney's minimum asking price is ignoring of all other non-represented lienholders. You might think you are buying the place for $50k, and discover many more liens in place you just became responsible for settling as the new owner of an unforeclosed property.

I know that the successful bidder has to bring 10% of the purchase price in the form of a cashier's check.

Really? Are you SURE? Most jurisdictions require full price in cashier's checks the day of auction (shown to the auctioneer before bidding during registration to bid.)

SOME jurisdictions USED to allow a non-refundable amount the day of the auction, with the balance due within 24 hours... but I'd heard from pretty much around the country that most have gone to "same day" requirements.

But how do you know how much to bring in advance? The most you're willing to pay?

Exactly.

Who do you deal with if your bid is successful? I would most likely need a loan.

You need to arrange your cash in advance. Most people use funds from their HELOCs or other liquid investment accounts. In some jurisdictions there are "hard money lenders" who will accompany you to the auction (if you arrange with them by a couple days in advance of the auction) and provide up to 60% of your cash needs behind your own cash on the barrelhead. It's definitely EXPENSIVE money though... gives you 30 days to get your financing in order after you win, however (at a steep cost.)

And a loan would require a home inspection, but the bidder isn't allowed inside until the purchase price is paid in full. How does that work?

There is no conventional financing available for auctions. Its your own cash, friends/family cash, or "cousin Guido's" cash (and you do not fail to repay cousin GUido on time... if you like your kneecaps where you normally keep them ;~)

Cheers,
Dave Donhoff
Strategic Equity & Mortgage Planner

(Just kiddiong about cousin Guido... he doesn't do kneecaps anymore... he's got hoards of attorneys these days! ;~)

Wow! Thanks for the detailed response! The auction is in three days, which doesn't give me much time to think. I spoke with the auctioneer--he said that you have 30 days to pay the remaining 90%.

So a bank wouldn't finance a house purchased at auction?Some of the houses sell for quite a bit of money.

Yes, eastgate, of course a bank will finance auction purchases. Call the bank now though because you'll need to be pre-qualified. I've provided financing for foreclosure auction properties hundreds of tiems.

The Public Notice should have given the amount you need to bring to the auction to obtain a bidder's number. It's usually set at 10% of the bank's (lender) appraisal. So, in your case...I'd imagine they are requiring $5K.

Lenders do not require a home inspection before granting a loan. But, they do require an appraisal. A drive-by appraisal is usually sufficient though.

Dave is correct in that you do need to check on the title. Sometimes, a foreclosing institution will provide a title abstract for potential buyers to look at; but usually not. So, you'll have to visit the recorder's office yourself & look up the property. The town recorder will help you if this is a new process for you. The foreclosure auction will wipe-out any liens that are junior to the one being foreclosed. You take title subject ONLY to superior liens.

Most foreclosures require settlement in 21-30 days. That's plenty of time to get your loan provided you're pre-qualified & all the lender has to do is plug in which property you've purchased.

Good luck at the auction & remember...even if the lender out bids you...you can still purchase the property. The lender will take it into REO inventory & you can then make the lender an offer to purchase subject to finance, inspections, appraisal, or anything else you negotiate.

/tricia

Thanks for the information, Tricia. I lurk here often and enjoy reading your responses.

I'm not sure what you mean by "superior liens," but I guess I can google the topic.

Can you get a loan easily on an old house that's somewhat in a state of disrepair? The house is probably 100 years old; the wood siding appears to be in good shape, but when I viewed the house using Google Earth, it looks as though a tarpaulin has been placed on a section of the roof.

I would suggest you seek construction/permanent financing since the house needs significant repairs & likely wouldn't qualify for a conforming loan. When you phone the bank ask about construction financing...

There is a heirarchy of liens filed against a piece of real property. It's a lengthy subject but I'll be glad to answer specific questions, if I can. Try googling, 'Heirarchy of Real Property Liens'. If this is the only mortgage filed against the property liens that 'may' be superior would be mechanic's liens & municipal tax liens. There other recordings that 'could' affect title as well as loans. It's 'possible' that there's a lease or life estate that has priority to the mortgage being foreclosed. This is not likely because most lenders would obtain a Subordination Agreement before lending on a property with a pre-existing lease or life estate but it is possible so be aware to look for it. Your best bet is to go to the recorder's office & look up the file.

/tricia

Tricia,

Wow... you certainly schooled me today! AND were politely gracious enough to follow-on with a "Dave is correct" comment to salve the pain ;~)

(Then again, I'm still unfamiliar with jurisdictions allowing that much time to fund an auction sale.)

Thanks!
Dave

Here's another way to purchase real estate at auction. Frankly, this would be my preferred way rather than at foreclosure sale because due diligence is easier.

Dave, this type of real estate auction requires a 5% premium (auctioneer's fee) but, IMO, it's worth it for the opportunity for a more thorough due diligence process. They require $5K for a bidder's number &, if you're the successful bidder, a personal check to make up the difference between the $5K & 5% of the purchase price including the premium. These auctions are springing up all over the country to dump the REO properties.

/tricia

Here is a link that might be useful: Do I Hear $10K?...Now $14K...$20K to the man in the back...

eastgate: I purchased my first home at a foreclosure sale - in one state - had to have all of the money by the end of the day. Where I am now, different state - requires a cashiers/bank check to bid at auction and the remainder due in 30 days. Terms or bid conditions should be in the foreclosure notice and if there is one a bid package from the auctioneer.

It should not take days to go to the courthouse where deeds and liens and mortgages are recorded and search the records. In some places you can go online and do the searches.

In our case, we have already hired a lawyer to help with the property search and arranged with our bank for the loan - so we can close in less than the 30 days required after the sale. All we are waiting on now, is the new sale date.

Best of luck to you. It can be daunting - you have to have your ducks in a row, you never know about the true condition of the property. I agree don't buy anything that has people still living in it unless you are prepared for a long eviction process.

I called someone at the office that handles the auctions--the clerk in charge said that the liens are taken care of by her staff.

Most likely, I don't need to worry about anything anyway-- the investors/flippers will be out in full force and I'm not willing to pay much. Thankfully, this isn't a dream house, so I won't get upset if I lose.

Thanks again for the help! I'll let you know if things work out in my favor.

Hi

There is an auction in my area at the end of the week.
The house I'm interested in is not a REO and not even a short sale. I was told that the seller owns it free and clear. I checked the county records .. the house was bought couple of months ago for 140k. What things should I look for in this particular situation?
Also, is there a way to double check on the auctioneer? I have this nitemare that somebody takes my 10% buyers premium and runs away with it ..

That's my worst fear, too--that I can't get a loan within 30 days and my 10% (that I worked years to earn) disappears.

I was outbid by $30,000.

Darn! I'm trying not to fall into a self-pity mode.

It was just so hard to know how much to bid given my low salary. The winning bid would have amounted to a monthly note exactly half of my take-home salary (including exhorbitant insurance and taxes). The house was a double though, and in a nice neighborhood, so I could have rented out one side of the house. And it was also one of the few properties selling without appraisal. On the other hand, the property obviously needed some work and there was a murder literally around the corner a week ago. I need someone other than my fiscally ultra-conservative parents to provide me with advice.

Ahh, well. Now I have to fight the urge to spend the rather large cashiers check in my purse.

Thanks to everyone for their good wishes and advice.

eastgate,

Get thee to the nearest bank and deposit your money! lol

I'm sorry you didn't get the property. Yes, bidding at auction can be daunting. I'll bet you learned a lot by attending & participating in the process though, huh?

And, I agree with you that a loan equalling 50% of your take-home salary is a stretch. Don't give up. The next couple years will see many opportunities. Keep your eyes & ears open and keep trying.

Wishing you fair winds & safe harbor.

/tricia