Often the foreclosure process ends with a bank foreclosure auction. This is exactly what it sounds like: the bank sells the property in default to the highest bidder. Bank foreclosure auctions can be a great opportunity to buy a home at reduced price, but don’t expect to get it for pennies on the dollar. It’s important to know what to expect at a bank property auction so that you can get the best deal possible.

Pre-Foreclosure

The first step in the foreclosure process is known as pre-foreclosure. This is when an owner is notified by the lender that the mortgage loan is in default. The best recourse for the homeowner at this point is to get the loan up to date, but in these tough financial times that can be difficult to do. Pre-foreclosure is a good time for a prospective buyer to start doing research on the home before it goes to auction. At this point, it may be possible to make an appointment to see the home inside and out, evaluate the condition of the home and determine a reasonable price range.

Pre-Auction Preparation

Not every home in pre-foreclosure will make it to the auction stage, so it’s a good idea as a prospective buyer to have a few possible properties in mind. It is not always possible to inspect a property before the auction, but try to do as much investigating as you can so that you can make informed bidding decisions. The other important thing to investigate beyond the physical condition of the home is the title history of the property. Most of this information is available online for free or involves a quick trip to the county or city clerk’s office.

Next, you need to have cash and additional financing available to purchase a home at a bank property auction. The amount of cash needed on the day of auction varies from state to state. Some states require the entire bidding price of the property to be in cash or cashier’s check, other states only require a certain percentage of the bid to be in cash.

Auction Day

Before a house goes on the auction block, the bank pays off any taxes owed so that it can be sold with a clear title. Then the bidding generally starts at the amount the bank has spent on the foreclosure process at this point, including the balance of the mortgage loan. Sometimes it will be necessary for you to do the title search and take care of any liens yourself.

The bidding procedures can vary from state to state, which is why it is a very good idea to observe an auction or two before becoming a bidder. If no one meets the banks lowest bid, then the property becomes real estate owned by the lender (REO). This type of property is sold through a real estate agent.