Bidders May Require Cash or Certified Funds to Purchase Properties

For one thing, the qualifications for bidders often require sufficient cash or certified funds to pay the purchase price on the spot, or within a short period of time. It is seldom possible to take out a mortgage to purchase properties at a foreclosure auction. You’ll have to get in touch with the official who conducts the auctions to find out what the requirements are. And it’s a good idea to attend an auction just to observe how things are handled before bidding at one yourself.

Properties in Poor Condition

Another pitfall is that the foreclosed properties are often in bad condition. Bidders at foreclosure auctions buy these properties “as is” and are often unable to inspect the property before purchasing it. Appraisals are usually based on the appraiser’s examination of the outside of the home, only because the borrower is usually still living in the house. If the borrower isn’t in the house, then it could be in an even worse condition because it has been abandoned and left unsecured. Finally, borrowers who leave a house after a foreclosure sometimes vandalize the home or remove fixtures and equipment. An abandoned foreclosure property could be gutted. What looks like a bargain might actually be a bad deal, once you get a look inside.

Redemption

Finally, some foreclosure sales are subject to redemption by the borrower. That means the borrower can pay the buyer the purchase price, plus some costs and interest, and the buyer is forced to give the property back to the borrower. In cases like that, the buyer loses the use of the purchase money and sees only a nominal gain for the trouble.

Buying a Property Purchased by Lender

Buying a property at a foreclosure auction is different from buying one that has already been purchased by a lender as part of the foreclosure process. Once the lender reacquires the property in a foreclosure it is called an REO (real estate owned). These are usually cleaned up and marketed by lenders who would prefer not to keep them and may offer a discount.

You should consult a real estate lawyer if you are considering buying a foreclosed property.