Auction bidders need to know about any senior lienholders. You might buy a property that is still subject to other mortgages or liens and end up being in foreclosure yourself.
Bidders must have the discipline to set a maximum bid price and stick to that decision. In most cases, you must be prepared to present a cashier’s check just to bid, have substantial cash earnest money within a very short time afterward, and be prepared to close within thirty days or so.
To repeat the advice given to preforeclosure buyers: learn how to access your local real estate records in order to search for liens on property. You want to be able to easily and cheaply reject properties with too much debt or too many liens.
Next, shop the local title insurance companies for the cheapest rates for title commitments. Some properties that make your first cut might still have title problems. You want to minimize how much you will have to spend just to find out you cannot do a deal.
The following are the most popular strategies for successful bidding.
• Attend several auctions conducted by a variety of lenders and auctioneers. You are there for the education, not to bid. Learn the players and how things work. Eavesdrop on investor conversations or openly ask for advice after revealing that you are not a bidder.
• When asking for advice, start with an open-ended question such as, “What advice do you have for a beginner?” Then, keep your mouth shut and listen to the complete answer. Do not try to show off how much you do know, and do not try to steer the conversation to follow up on a comment. When the speaker is finished, ask any follow-up questions. In addition, ask some direct questions such as, “Do you focus on other stages of foreclosure, and can you tell me why?”; “What are your plans for the property, will you rent it out or sell it?”; and “Does this particular lender usually do a lot of foreclosures?”
• Choose a few properties on which to practice. Do everything you would do as if you planned to bid, including estimating value and establishing a minimum bid price. Go to the auction and see how the bidding reflects your own predictions. Follow up afterward to see what ultimately happens to the property, e.g., what price it sells for or what rent it commands.
• If you plan to buy rental properties, have some tenants already lined up. You might know someone in an apartment who would be willing to pay $1,200 per month for a three-bedroom, two bath home in a good school district. Go out and find such a property, and be ready to move your tenant in immediately. Bear in mind that any such tenant probably has a lease already. Do not pin your hopes on a potential tenant only to find out that he or she must remain in his or her apartment for another seven months after you buy the foreclosure house.