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| Fast talker: Auctioneer Pat Harvill helped run a real estate auction Jan. 20 in Dearborn, Mich., where more than 300 foreclosed homes from
the Detroit area were put up for bid. Jim West/ZUMA Press/NEWSCOM |
Let the home auction bidder beware
A foreclosure auction can be a golden opportunity – or a minefield for the unwary.
By Margaret Price | Contributor to The Christian Science Monitorfrom the July 30, 2007 edition
Page 1 of 3
New York - If you're hoping to grab a good house potentially at a great price, you might want to beat a path to your county's courthouse. In today's dour housing market, amid the vast number of properties in foreclosure, more people are converging on courthouses or other places where such properties are auctioned. And if they've got the sharp eye and tenacity of homeowner Nancy Levin, they might dig up a gem.
When Mrs. Levin's family needed to relocate within Michigan, she took on the task of researching properties for sale. Eventually, she found a lovely three-bedroom, 3,000-square-foot home adjacent to a golf course in tony Bloomfield Hills, Mich. But because the mortgages on the home were in default, Levin eventually had to buy the house at a foreclosure auction about 18 months ago.
The process was far from simple. Among the array of issues, Levin encountered frequent postponements of the auction date, requiring her to keep an eye on the ever-changing schedule of this sale. When the auction finally occurred, Levin was duly rewarded. As the only bidder on the house, she landed the property for its opening auction price, plus $1. All in all, the sale price was about $120,000 less than the home's appraised value, creating what Levin dubs "an amazing deal."
But to some observers, the Levins were exceptionally fortunate. Foreclosed homes sold at auctions, a tragedy for previous owners, present a golden opportunity to others. They are also potential mine fields for the unwary.
About 40 percent of properties with a mortgage in default end up at foreclosure auctions, experts say. And if bidders haven't done their research on a property, they could find themselves landing a house riddled with problems.
For one thing, foreclosed properties may have been neglected, and the public often will have had little or no chance to inspect a property closely before the auction. Moreover, the property could contain liens for such things as unpaid taxes and association fees, some of which the buyer may have to pay. Moreover, there could be a redemption period after the foreclosure sale to be aware of. In the many states where this period exists, borrowers can redeem their property, which was sold at the foreclosure auction, by paying the amount it sold for at the auction, plus interest.
There are other financial pressures involved. Buyers need to bring cash or a cashier's check with them to a foreclosure auction. That's because winning bidders must make down payments immediately after the auction. In fact, some states require winning bidders to pay the full sales amount the same day as the auction.
And these days, the process increasingly involves a disconcerting twist: Many properties may be worth less than the value of their outstanding mortgage.
In recent years, many homeowners obtained adjustable rate mortgages at very favorable terms. But when their mortgage rates adjusted upward, they were hit with higher payments, sometimes beyond their ability to pay. As the housing market soured, some homeowners have been unable to sell their property before the bank foreclosed.
If such properties end up on the auction block, their opening bid could be close to, or even higher than, the assessed value of the home. At the same time, many bidders are professional investors who will pass on homes where they don't foresee a profit.
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