If you plan to make money investing in foreclosures, there are three main windows of opportunity: before foreclosure, at auction, and after foreclosure has taken place. Each has its merits and disadvantages, but foreclosure auctions are probably the most risky for potential investors.
First of all, let's lay down the facts. It is possible to buy foreclosed property at auction for 10 percent to 40 percent less than the open market price. However, big discounts normally mean that the property needs a lot of work to bring it up to a saleable standard.
This is one area where many investors fall down. There is rarely time for a detailed inspection before the auction so buyers must assess the condition of the property based on a brief walk around. If the owners are unwilling to let you inspect the property, you may have to base your entire assessment from the exterior of the house.
Homeowners who default on loan payments are rarely able to afford essential repairs and home improvements, so almost all of the homes sold at foreclosure auctions need some renovation work. Quite a few people end up spending more money on refurbishment than they saved by buying at auction.
Another problem is that foreclosure auctions require full payment at the time of sale in cash or cashiers checks. Property is also sold 'as is', with no legal recompense if you find any nasty surprises after the sale. If you attend an auction and no-one else puts in a bid, it may be a sign that other buys have noticed something wrong with the property that you missed.
Auctioned property also comes without title insurance. It is up to you to carry out a title check to make sure that no other outstanding loans are secured on the property. You should also ensure that all tax liens on the property have been paid. |f you fail to take these steps, you may become legally responsible for the previous owner's debts.
You should also consider the current occupants of the property. If they won't leave voluntarily, they must be evicted, which can be a long and drawn out process. In addition, some states allow the owners of foreclosed homes to buy back their property at the same price as the winning bid for up to year after the auction.
If this doesn't put you off, you can find notices of public foreclosure auctions on the foreclosure websites, in local newspapers, or by inquiring at the local county courthouse. Note that auctions may be cancelled at short notice following pre-foreclosure sales or debt renegotiation between the lender and the current owner.