From 2013 through 2016, Kim and I have rarely been the high bidders on a property at the foreclosure auction. Why the dry spell? Because the cheese has moved! For example, from 2007 through 2009, the best deals were found buying short sales. From 2010 through 2012, the best deals were found buying at the foreclosure auction. From 2013 through 2016, the best deals have been found by buying pre-foreclosures. Remember, the cheese is always moving. To be successful, you can’t keep going back to where the cheese was – you must go to where it is today!
Here are the basic steps Kim and I follow when bidding at the foreclosure auction. (NOTE: Be aware that each state’s foreclosure laws are different.) First, in Georgia, before a property can be auctioned for foreclosure, it must be advertised in the county’s paper of record for four consecutive weeks before the auction. Call your county’s Clerk of Court’s office and they will tell you in which paper and on which day(s) the “legals” (including foreclosure notices) run.
On the day the foreclose notices first run for next month’s auction, we buy that paper and transfer the foreclosure info in the paper – which is difficult to read – onto our Foreclosure Sheet – which make it much easier to read!
Second, using a county map, we mark the location of each property that’s advertised for foreclosure.
Third, we drive to each of the pre-foreclosure properties. Once there, I knock on the homeowner’s door. This isn’t easy. It’s not like knocking on a seller’s door. A seller is eager to talk to any potential buyer. With someone facing foreclosure, the house is being taken from him. This is a horse of a different color!
My approach is simple and straightforward. I ask if I can answer any questions about what happens next. The thing is, few know what happens to a homeowner after the foreclosure auction. Learning allows the homeowners we talk with to relax and make appropriate plans.
There’re two big advantages to knocking on the homeowner’s door before the auction. We’re able to better understand the seller’s situation and perhaps buy the property pre-foreclosure, and often we’re able to see the condition of the home’s interior and better estimate rehab and holding cost.
Fourth, with the properties we like, we do our due diligence. By this I mean we make sure which mortgage we’re bidding on, whether the property has a clear title and whether the property has tax liens.
Fifth, we determine our top offer price. This is the most we can afford to pay and still make our minimum acceptable profit after all holding cost and expenses have been paid.
Sixth, on the morning of the auction, we run by the bank and pick up our purchase money in the form of certified funds. Remember: When you buy at the foreclosure auction, you must have all of the purchase money with you – there’s no 10% down or proof of funds letter. It’s a cash-on-the-barrelhead transaction!
Seventh, when the bidding starts on one of our target properties, we bid up to our number and not a dime more. Never let yourself get caught up in a bidding war to prove your manhood. You’ll lose!
Eighth, if we’re high bidder, we’ll meet with the crier, hand over our money and tell the crier how we wish to take title. Our first call is to our insurance agent to get the property insured.
If we lose the bid, which is often the case, we say a few choice words and get ready for the next auction.
These are the basics of buying at the foreclosure auction. Before jumping into foreclosures, make sure you first get some solid, detailed, real-world instruction. A simple mistake can cost you tens of thousands of dollars!