When a home goes into foreclosure, the bank holds an auction where investors can show up and place a bid on the home. You can get a steal of deal at an auction, but there can be some major consequences. Buying a home at an auction probably isn't the best idea for a novice home buyer.
Here's Why...
Liens can become a major problem. If the home owner had two mortgages, and only defaulted on one. The other mortgage is still binding to the property.
The auction officials aren't obligated to tell you about a second mortgage, and you will have to pay off the 2nd mortgage immediately after purchasing the property. This scenario happens more often then you think.
Unpaid taxes could result in IRS liens, which will need to be paid. The IRS doesn't mess around, and will go after their money. When purchasing at an auction you usually don't have much time to do title work, which could result in an expensive mistake. People who can't pay their mortgages, usually can't afford their taxes either.
Some states give the home owner a specified time to reclaim the property after auction. Of course, this doesn't happen often, but it does happen. The home owner has to pay whatever you paid at auction, and if you made any improvements or upgrades to the home, you can kiss that money goodbye. (Check with your local real estate professional for your states guidelines.)
Buying at auction is riskier then buying a home through a normal process. Whether it be buying from a home owner, or buying bank owned (REO), you will have an inspection period. You're allowed your due diligence, and can back out of the contract if you don't like something about the homes condition.
When buying at auction, you're pretty much buying a mystery box. Unless you were lucky enough to view the property before auction, as most the time you just get to see the outside, you really don't know what you're getting on the inside. Home owners that get evicted due to foreclosure aren't happy campers. They like to take anything of value, and will damage the property on the way out. You won't know, until you have bought the property, if this is the case.
Buying at foreclosure auctions shouldn't be taken lightly. Yes there is the potential of a great deal, but make sure you're well educated on the process. You need to be careful, because you can lose a lot of money, and unlike in a regular transaction with an agent, no one is going to be negotiating on your side.
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