In the first part of this series, I talked about the preforeclosure process which ended with the issuing of a notice of default by the bank. In this post the next step of offering the home at auction will be discussed.
After issuing the NOD (notice of default), the lender will offer the property for sale at auction. The auction may take the form of a sheriff's sale or through a private party. Usually the auction will start with a minimum bid which will cover the balance of the mortgage, interest and any costs associated with the foreclosure. However, most foreclosure auctions don't even get one bid, because the amount owed on the home is usually greater than the market value of the property. As a result the lender will end up the highest bidder thus becoming the owner of the property.
If you do decide to bid on a home at a foreclosure auction, there are some points to be aware of. Often the homeowners are still occupying the home, and will be unwilling to let you in to see the interrior of the home. This results in your bidding on a property that you have only seen from the exterrior. In addition you will not be able to bring in any inspectors. The home will be sold "as is" without any warranties. It is crucial to do your homework and research the title before bidding on the home to determine if there are any back taxes or leins on the property.
You will need to obtain all of your financing in advance, because public auctions usually demand cash payment at the time of the sale.
If you do end up being the highest bidder and buying the home, you may be faced with evicting the homeowner. Also be aware that the former owner may try to vandalize the home before leaving.
If the bank does end up as the owner of the home, it is now referred to as a real estate owned (REO) or bank owned property.