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Seized Property Auctions
Seized property auctions come in several forms and vary depending on your state and county. In states that have judicial seizure procedures, meaning the process must go through the court system, auctions are held in local courts. A designated judge must issue a ruling in favor of the creditor, and then the home is put up for auction.
In states where there are no judicial seizure procedures, the real estate agent conducts the auction. These auctions can take place at a local auction house, community center, or even online.
From the buyer’s perspective, the process is quite similar in all cases. There will be an opening price – usually the amount owed on the mortgage or possibly less – to help attract interest. Bidders can raise the price until the auction closes or bidding stops.
Note: Usually, the highest bidder wins, although in some cases, the creditor may have the right to choose the buyer who will receive the home.
Auction winners will need to pay auction fees, bidding fees, and earnest money before leaving the auction. Title and closing procedures, just like a traditional home purchase process, will take place in the following weeks.
Advantages and Disadvantages of Buying a Seized Home at Auction
The biggest advantage of buying a seized home at auction is the price. In most cases, buyers can get more for their money compared to the open market, which means a larger and more spacious home than they could typically afford.
But what is the biggest disadvantage of buying seized homes? They come with a lot of risks. There may be significant problems with the home (in many auctions, inspections of the home are not allowed), and many homeowners in foreclosure cause serious damage to their homes before leaving.
There may also be hidden costs. Since foreclosures also require you to pay any outstanding loans and taxes, prior fees, and even attorney fees, the final price can end up being much higher than the original auction price.
Finally, competition can be fierce. Investing in repairing and selling properties is very popular, and investors come from all over for the opportunity to buy good properties at low prices. In many cases, these investors are highly experienced and well-versed in bidding processes and auctions.
What to Consider Before Buying
Seized homes may come with a lot of baggage. There may be liens on the property due to the previous owner’s overdue taxes, insurance, or even things like overdue child support. You will need to pay off these debts or settle accounts directly with each lienholder. This could take a lot of time, money, and resources if you are not well-versed in the process.
There is also a chance that the homeowner will file for bankruptcy on the auction day. If this happens (and you have already purchased the home), you might have to wait a while to get your money back. You will also need to bid on the home at another auction once the creditor puts it back on the market.
Is it Worth It?
Is the Foreclosed Home Right for You?
At the end of the day, it’s important to review the positive and negative aspects, consider your goals as a homeowner or investor, and take a serious look at your finances and ability to renovate the home before buying a property at auction. While the foreclosed home may seem appealing at first glance, there are a lot of fine details in purchasing these distressed properties – knowing the full scope of what you’re getting into can help save time, money, and serious headaches.
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Sources: The Balance only uses high-quality sources, including peer-reviewed studies, to support the facts in our articles. Read our editorial process to learn more about how we fact-check and maintain the accuracy, reliability, and trustworthiness of our content.
Courts in California, “Judicial Procedures for Foreclosure.”
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