With many homes currently in foreclosure, buyers may turn to a foreclosure auction as a potential place to find a deal on a house. In Washington state, foreclosed homes are sold through a trustee auction, which is a process that happens outside of the court system. If you plan to buy a home at a trustee auction, you need to understand the process and bidding requirements. More importantly, you need to understand as much as you can about the home you are bidding on, particularly since you are purchasing in as-is condition.
Evaluating a home that is being sold at a foreclosure auction can be difficult, and often requires guesswork. Remember that up until the foreclosure auction, the home is still owned by the individual who is being foreclosed on. The owner controls access to the home, and as you might guess, there may be little or no incentive to allow people into their home. People facing foreclosure may be ashamed, frightened or even angry about their situation.
- Home is vacant – A home may be abandoned prior to the auction, sometimes just a few days before, but other times may sit vacant for months. If it has been vacant for a long time, the home may be re-secured by the bank who holds the mortgage to protect their investment. Evaluating a vacant home generally involves peeking in windows to get a glimpse of the interior. You may also try to contact any companies that have posted notices on the door.
- Home is occupied – Can you see the inside of a home that is occupied? It really depends, but in most cases the answer is no.
- Maybe the home is currently listed as a short sale or was very recently listed. If it remains listed, your agent should be able to show the home according to showing instructions in the MLS. If it was recently listed, a call to the previous listing agent may gain you access, or at a minimum will give you better insight into the actual condition of the property. Previous listing photos can also be a great help in evaluating the potential condition of the interior.
- If the home has not recently been listed for sale, it is unlikely that there are any photos of the interior, and it is also unlikely that the owners are going to let anyone inside. Folks facing foreclosure are not incented to have their home taken away and aren’t going to take kindly to random knocks on their door. You should be cautious about your own safety before you go trespassing on someone else’s property to attempt to see in the windows.
Let’s say that you are satisfied with the exterior condition of the home, and have enough data about the interior to be satisfied that the property is in reasonable condition. Property condition isn’t the only risk you face in buying a home at the foreclosure auction. You also need to be aware of the condition of the title. There could be liens and encumbrances on the property that become your problem as the new owner. The mortgage being foreclosed gets extinguished by the auction, as do 2nd or 3rd mortgages underneath that one. However, unpaid property taxes, HOA bills or other liens can become your problem as the new owner. At a foreclosure auction, you will not receive a title insurance policy, so you need to do the title research on your own.
Buying at a foreclosure auction can get you a great deal, but involves a significant amount of risk. The actual condition of the property is known to a limited extent, and you are not going to have the opportunity to formally inspect it. In addition to the unknown condition of the property, there can be nasty surprises on title that become your problem. Properties sell for significantly less at foreclosure because of these risks. The educated buyer will do their best to investigate the risks prior to auction, but recognize that in many situations you are left to an educated guess on what the property actually looks like inside.