How Does Buying a Home in a Foreclosure Auction Work?

If a home goes into foreclosure, it is typically sold at an auction. The process by which this happens can vary slightly from state to state, but there are some common things that you can expect no matter where you live if you're buying a foreclosed home at an auction.

Here's what you need to know about how the process works.

The basics of a foreclosure auction

Often, properties are sold at a designated time on the courthouse steps, although sometimes the auction can take place online. While anyone can attend these auctions, you'll usually have to register in advance if you want to place a bid on a home that's up for auction. And you will typically need to provide proof that you'd have the funds to pay for the house if you won the auction.

Auctions sometimes don't happen at the planned date, or are canceled because the homeowner finds the money or challenges the legal process by which the auction was scheduled. So you can't necessarily count on the property you want to purchase being sold at the designated time. You'll want to keep tabs on what's happening to the home, which you may be able to do using public records.

At the auction, you'll be bidding against others who also want to buy the property. The lender who foreclosed can be one of those bidders. Whichever qualified buyer has the highest bid will win the auction.

But there are a few more details to be aware of as you go into this process.

You probably won't get to inspect the house first

You typically cannot inspect a foreclosure before buying it at auction. Homeowners or tenants may be living in the property and disturbing them would be considered trespassing. You can drive by the property if you want to, and usually should.

You can also review public records to see if there are liens (competing claims) on the property. The liens may not disappear if you buy the house at a foreclosure auction, so you could find yourself responsible for paying back that debt if you buy the property. You can do a public records search or pay for a title search from a company that performs them. Title searches are designed to look for competing claims on the title (which shows ownership of the home).

You'll most likely have to pay cash for the house very soon after winning the auction

When you buy a house at a foreclosure auction, you are most likely not going to be able to get a mortgage loan to finance the purchase. Mortgage lenders want appraisals, inspections, and proof there are no liens, so they aren't going to give you a loan to buy a house at auction.

You usually have only a short time to pay cash for the property when you make the winning bid. Sometimes, you have to pay the same day or by the next morning. If you can't pay, you could lose any deposit you put down that was required to bid. So, be sure you have the money in your bank account.

If you learn about how foreclosure auctions work and you're prepared to buy a house that may not have been well taken care of or that may come with various debts you have to pay, then buying a foreclosure could be a good way to get a deal on a house. Just make sure to learn the ins and outs about how these auctions work, so you don't find yourself bidding on a property and regretting it in the end.