How do homes wind up being auctioned off on the courthouse steps in the first place? When a lender agrees to loan you money to buy your home you are asked to sign a document called a Deed of Trust. That document usually runs about 20 pages of single spaced legalese but basically says: “If you pay, you stay [in your home]. If you don’t, you won’t.”
When a borrower fails to pay his loan payments, the Deed of Trust permits the lender to auction off the home in order to recover as much of its loan as possible. In the Deed of Trust, the lender appoints one or more people, called trustees, who are empowered to sell your home at the courthouse steps if you fail to make your loan payments.
Although the trustees are appointed by the lender, they have a fiduciary duty to the borrowers to sell the home at auction for the highest bid possible. In the off-chance that the home sells at auction for more than the amount owed to the lender, trustees make sure that the excess goes back to the borrowers. For this reason, the trustees will not disclose the outstanding balance owed on the loan to prospective bidders.
How do you locate homes being auctioned off? These days, locating properties being auctioned off is quite easy. There are many Web sites that compile foreclosures, and many real estate agents and auctioneers maintain lists of properties being auctioned off at foreclosure.
By law, all foreclosures must be advertised in the local newspapers of general circulation. Those ads contain the very detailed legal description of the property, the terms and conditions of the sale and the date, time and place of the auction. The ads also indicate that in order to bid at the auction you will have to bring certified funds in a certain dollar amount. That dollar amount often represents approximately 10 percent of the outstanding balanced owed to the lender. What the ad will not tell you is anything about the property features such as the square footage of the lot and the home, the number of bedrooms or baths or the property condition.
What you should do before even bidding? The maxim caveat emptor or “buyer beware” is never more important than when buying a foreclosed home. All foreclosures are sold in “as-is” condition. Because lenders legally do not have the right of possession of the home until the auction is completed, there is typically no opportunity to conduct a pre-bid interior inspection, unless the current owner is willing to allow you to enter his home to conduct an inspection.
Because the home still belongs to the borrower, anyone attempting to visit or inspect the property in foreclosure does so at his own risk. Entering another’s property without permission is essentially trespassing and punishable under the criminal laws.