Foreclosure auctions are like car accidents, no one wants to be the victim, but there are many interested in seeing it happen. For some people auctions are a waste of time and for others the only way they know how to buy a property. Put these 5 tips to work for you (especially # 5) and you’ll have low risk and big returns.
1. Find out who is foreclosing: First determine whether it is the first mortgage or the second mortgage holder that is foreclosing. If it is the first mortgage, the purchase will be subject to state, federal and municipal ties such as taxes, water and sewer. If the second lien holder is foreclosing, then you will be subject to the first mortgage settlement amount and state, federal, and municipal ties.
2. Perform a title search: To discover any title defects that may adversely affect the property’s value or marketability. Typically you do this after you have a property under contract, but at auction you have no way to withdraw without losing your deposit. In most cases, a current owner search is acceptable.
3. Be a spectator: Attend at least two auctions as a spectator before becoming a registered bidder in an auction. You must visit two other auctions where you do not intend to bid to witness the process.
4. Contact the auctioneer: Call the auctioneer the morning of the auction. This will save you time as many auctions are canceled or postponed.
5. Network: Networking with investors at the auction is one of the best techniques for finding motivated buyers. You may find buyers in ways like the “we bought houses” posters or advertisements, but the investor buying at the auction is mostly focused on buying at the auction and does so simply because it is the lowest fruit and that is the only way they know how to do it. It is very easy to identify an opportunity as long as you can read the newspaper and follow a map.
It amazes me that no other investor uses this strategy. How do I know this? Because I’m the only one at an auction that goes from car to car to introduce myself and exchange business cards and find out what kinds of properties they like to buy. Most investors are left alone in the auction because they believe that others are competing. I do not consider them competition, I consider them cash buyers and they may want to buy a property that I am not interested in or they may pay more for the property. Either way you will earn more money.