Generally, homes are sold at public auction for one of two reasons. Either you defaulted on your mortgage loan and the lender is selling the property at a foreclosure auction to recoup the money you borrowed, or a tax collector has seized the property to collect delinquent taxes you owe, notes Realtor.com. Tax lien auctions work differently since, in most states, the homeowner has a specified period of time after the auction to pay the past-due taxes and redeem the property.
Talk to the mortgage lender before the foreclosure auction date. Unless you have enough cash to pay for what you owed on the house at the time the bank foreclosed, the first mortgage holder can still go after you for any difference, cautions Bankrate.com real estate adviser Steve McLinden. You may be able to negotiate with the lender to forgive some of the remaining debt so that you can buy the house at auction for less than what you owed.
Set aside enough money for closing costs. Depending on the mortgage lender, you might be able to negotiate on some of the closing costs. Keep in mind, though, the bank is probably taking a loss.
Come to the foreclosure auction ready to pay for the property in full if you have the winning bid. The process varies by state, but normally you must be able to provide funds in cash within a 30-day escrow. In some cases, you may have a much shorter period of time in which to pay. If you don't have liquid assets that you can convert to cash, talk to several lenders about qualifying for a home loan despite foreclosure. You will need to secure your financing in advance. Underwriting standards vary so you may qualify for a loan with a subprime mortgage lender. Also, underwriters for some traditional lenders take into account factors such as serious illness, divorce or a death that leads to loss of income and contributes to foreclosure. As long as your credit has always been good otherwise, you may qualify for a mortgage loan.
Bring a cashier’s check for at least 10 percent of the listing price as an earnest deposit, says Realtor.com. You also will need a cashier's check to pay the auction fees. Usually, a lender will start the bidding at a foreclosure auction at the balance owed on the mortgage plus foreclosure costs, default interest and other related fees, according to The Mortgage Insider.
Try negotiating a small, lump-sum payoff with your second mortgage lender, if applicable, in case you have the final winning bid. Even though you will be buying back the home free and clear of liens, when foreclosure auction doesn’t satisfy the second mortgage debt, that lender can sue you in court, points out Nolo. Foreclosure sale eliminates the second mortgage lien on the property but it doesn’t eliminate the debt. The lender can attach a new judgment lien to any property you own in the future, including the house you bought back.
If you can't get a mortgage loan but have other liquid assets, provide financial documents such as savings account statements, individual retirement account statements, mutual fund statements or retirement benefits statements proving that you can get the cash to buy back the property.
Since the lender isn’t allowed to make a profit when selling a property at auction, your house will likely be sold for less than its fair market value. But because of all the legal and foreclosure fees, it can cost you more than the balance you owed at the time you defaulted on the loan.
- Bankrate.com: Buying a Home in a Tax Lien Sale
- Nolo: What Happens to Liens and Second Mortgages in Foreclosure?
- Auction.com: Frequently Asked Questions -- Residential General Auction Questions
- Bankrate.com: Can Owners Buy Back Foreclosure at Auction?
- MSN Real Estate: 12 Tips for Buying Foreclosures at an Auction
- LegalMatch. "Foreclosure Alternatives." Accessed June 20, 2020.
- Cornell Law School Legal Information Institute. "Foreclosure." Accessed June 20, 2020.
- NOLO. "Homeowners’ Associations (HOAs & COAs)." Accessed June 20, 2020.
- Consumer Financial Protection Bureau. "How Does Foreclosure Work?" Accessed June 21, 2020.
- U.S. Department of Housing and Urban Development. "Are you at risk of foreclosure and losing your home?" Accessed June 21, 2020.
- Cornell Law School Legal Information Institute. "Equity of Redemption." Accessed June 21, 2020.
- FindLaw. "Regaining Ownership After Foreclosure: Statutory Redemption." Accessed June 21, 2020.
- If you can't get a mortgage loan but have other liquid assets, provide financial documents such as savings account statements, individual retirement account statements, mutual fund statements or retirement benefits statements proving that you can get the cash to buy back the property.
- Since the lender isn’t allowed to make a profit when selling a property at auction, your house will likely be sold for less than its fair market value. But because of all the legal and foreclosure fees, it can cost you more than the balance you owed at the time you defaulted on the loan.
Amber Keefer has more than 25 years of experience working in the fields of human services and health care administration. Writing professionally since 1997, she has written articles covering business and finance, health, fitness, parenting and senior living issues for both print and online publications. Keefer holds a B.A. from Bloomsburg University of Pennsylvania and an M.B.A. in health care management from Baker College.