Sometimes you will still see those infomercials on Saturday morning touting how you can buy a house for just a few dollars by buying foreclosed properties. The reality is, it isn’t that easy, glamourous or that cheap, but if you’re interested in pursuing auctioned foreclosed properties, here is where to find them, how to buy them and the risks involved.
Types of Foreclosures
- A Pre-Foreclosure is when the homeowner has not paid their mortgage payments and notice has been delivered to the homeowner that foreclosure proceedings will begin.
- Foreclosures are when properties have been repossessed and are auctioned for sale.
- In Thurston County, Washington, there is also an annual Foreclosure Tax Sale that happens in January.
There are also other distressed properties that sometimes get lumped into the term foreclosure but they are not foreclosures. These are:
- Bank-owned properties also known as REOs (Real Estate Owned)
Bank-owned properties are listed by real estate agent and Realtors like myself can represent you as the buyer. The home-buying process for bank-owned properties is the typical process with a few exceptions but overall, you can tour the property, inspect the property, write up an offer with contingencies, and you finance it just as you would in a typical, non-distressed sale.
- Short-sale properties are when the seller owes more than they can sell the property for in order to pay off their mortgage. In a short-sale situation, the seller needs to get permission from their lender to sell short.
Short-sales are also listed by real estate agents and I can represent you as a buyer. The process of submitting an offer are the same but one of the bigger differences is not only does the homeowner negotiate the terms of your offer but so does the seller’s lender. It is this negotiation that can take months.
I represented a buyer on a short sale and it took almost a full year for our offer to get reviewed and accepted by the seller’s lender. That is the extreme but back in the early 2010s, the average time it took short sales to close was about 3-6 months.
Where to Find Foreclosure Listings and other Distressed Property Listings
You can find pre-foreclosures and foreclosures on www.realtytrac.com and also on Zillow. With pre-foreclosures, these properties are not listed for sale and they may never be for sale. Homeowners can make up the missed payments and keep their homes.
Since pre-foreclosures are not for sale, buyers would contact the owners directly and negotiate a purchase.
Foreclosures at auction will provide you with the details of that particular auction firm’s process, bidding requirements, deposits, and payment instructions.
Bank-owned properties and short-sales are listed by real estate agents so you’ll find these types of listings on your favorite brokerage site like coldwellbanker.com.
For the Thurston County tax sale, click here for listed properties:
https://www.thurstoncountywa.gov/treasurer/Pages/foreclosure.aspx
What to Expect when Bidding on an Auctioned Foreclosure Property
Every foreclosure listing will have different bidding requirements and processes because different auction houses will be handling the sale but the common things to be prepared for are:
- Expect to deposit a fee before being able to bid on a property – this can be a few hundred dollars or a few thousand dollars.
- Expect to pay a fee to the auction firm on top of the sales price. This could be a percentage of the sales price or a flat fee.
- If you are the winning bidder, you need to pay for your purchase in cash, in full within a few days.
- There is no purchase and sale agreement, which means there is no negotiations, no contingencies and no financing.
The Risks of Buying an Auctioned Foreclosure
You’ve probably already guessed one of those risks and that is you are buying the property in as-is condition. There is not an opportunity to inspect the home let alone being able to see the inside of the property. And please don’t go to the property to peek in the windows; that is trespassing and that is illegal. It could also end very badly for you if there are people living in the home and you trespass onto their property. You will have no idea about the condition of the property and you are buying blind.
There may be liens on the property that either are not readily discoverable or are not paid off at the time of the sale. This is usually the job of a title company but when you are buying an auctioned foreclosure, you won’t have a title company researching and providing an insurance policy.
In fact, if you think you are going to flip the property, you may not be able to do that for at least three years because a title company may not offer insurance.
Auctioned foreclosure properties typically have damaged chains of title and there could be several third-parties that still have a claim or interest in the property that would make the property very difficult to insure from a title perspective.
If the auctioned property is occupied, that has additional risks and problems. Currently with Washington State’s eviction moratorium now extended to the end of March 2021, you won’t be able to evict the occupants or at least not be able to do it easily.
Conclusion – Get A Real Estate Attorney
If you are interested in buying auction foreclosures, please seek the advice of a real estate attorney. Auctioned properties may have more risk than benefit and a seasoned real estate attorney can help guide you if you decide to pursue an auctioned property. If you need help with finding an Olympia-area real estate attorney, let me know and I can send you my list.