Government And Police Auctions

Foreclosure Auction Types And How They Work

Foreclosure auctions happen all the time, but unfortunately, not many people know what they are or how they work. Property that is repossessed by the bank because the property owner has defaulted on the mortgage or loan payments is often auctioned off by the bank. These auctions are called "Foreclosure Auctions."

Say a house has been repossessed by the bank because the homeowner either owed too much money in back-taxes or didn't make any mortgage payments. If there is still $150,000 left to be paid, that's what the bank will set as the starting price at the foreclosure auction. If there have been no bids, by default, the property is owned by the bank.

Let's say the example house was worth $350,000, with only the $150,000 owing for the mortgage. This is what the bank calls an "upside-down mortgage." What usually happens is that the value of the home is instead set as the starting price and because of such a high price, there are likely to be either very few bids or no bids at all. The bank will keep possession of the property until it can resell the home at a later date - usually for a loss of profit.

Please don't misunderstand. Foreclosures and the following foreclosure auctions don't happen because someone intentionally chose not to make their payments. Foreclosure can happen for any reason. Job loss, divorce, medical emergencies and death are just some of these unforeseen circumstances. Sometimes, even the terms of the loan result in foreclosure.

There are several types of foreclosures. One is called "Judicial Sale." This is where a judge oversees the foreclosure process. When a foreclosure auction is held for the property in question, it is done so under the court's supervision. This is available in every state and because of this, it is the most widely used method in a foreclosure. When the property has been sold, the proceeds pay first the remaining mortgage, then any other secured creditors (also often referred to as lien holders). Finally, if there is anything left, the former property owner is paid. Before any of this can happen, there is normally a short trial of sorts because it is a legal action.

"Foreclosure by Power of Sale" is another common type of foreclosing a property. Court supervision is not required. Where this type is available is a quicker way to foreclose. The majority of states do allow for this method. As with foreclosure by judial sale, profits first pay the remaining mortgage, then the other creditors and finally the former property owner.

Foreclosed property can be a great investment. The reason being is that banks only set the minimum bid for what is owed to them, so a bidder could purchase a property at a Foreclosure auction for as much as half the value!