One of our listeners had an interesting question this week: George wanted to know if you go to an auction and bid, say, $1000 on a $500000, and win, are you liable for the full amount or just what you bid and back taxes? Also, would you need a registered check backed by bank.

If you’ve been swayed by those TV commercials that say you can pick up a mansion for a pittance, that’s not exactly how it works.

Buying at a foreclosure auction can be risky. But it can have huge benefits, too.

First, no, you won’t be picking up a half million-dollar home for a pocket full of change. Here’s why: During most sales at a home foreclosure auction a home is advertised as requiring a minimum bid of at least two-thirds of the value to be considered for sale. Potential buyers have to understand that unless they meet or exceed that stated minimum, the sale will not be completed.

Also, in most cases when you buy at an auction you can inspect the property before the bidding begins. So don’t roll up as the auction’s beginning…and expect to make a full inspection.

And when it comes to paying, chances are what you will need is either hard currency or a cashier’s check. A personal check certainly won’t cut it. What usually happens is when the bid is finalized; the winning bidder has his name and payment information recorded by a representative from the lending institution, typically a legal representative. In most places, a down payment of at least 10% is due by the close of business the day of the sale. But this varies from county to county, state to state, auction to auction, so check with the auctioneer you’re thinking of going to. Some of them even require that cashier’s check for the entire purchase amount within a few hours.

As to the price, you’ll pay what your final bid is, but you will still end up owing any unpaid property taxes and junior liens, those are debts put on the property after the debt which caused the property to kick into legal foreclosure.

Buying at auction also comes with the possibility that the former owner will exercise their right of redemption by coming up with the cash to buy the house back within a certain period of time.
The IRS also has 120 days to redeem the property if back taxes are owed. Redemption laws differ from state to state so you’d have to speak to a local real estate lawyer.

If that hasn’t put you off and If you’re still tempted to buy at a foreclosure auction, find a REALTOR® who is experienced at doing real estate transactions at auction. They have the experience, the background and the knowledge to help guide you through what could be a very tricky transaction.

Do you have a question for us? Drop us a line or a comment!

Categories
Homebuyer, Taxes