How to Buy Foreclosed Properties


Housing prices may have fallen dramatically in the last few months, but there is an upside. Thrifty house hunters can bid on foreclosed homes at auctions around the country, and possibly save money in the process.

Buying a home through an auction may be new to you. Here’s a quick guide to how you can get your next home for less.

Step 1: Find out where to look.
You can find a foreclosure auction online or in the real estate section of your local newspaper.

One place to start is the U.S. Department of Housing and Urban Development. You can find HUD home auctions on the federal government’s web site. Although you can search for free, HUD requires that first-time homeowners consult with one of the department’s counselors before they begin the bidding process, and that all bids are submitted through a real estate broker.

Commercial auctioneers such as the Real Estate Disposition Corporation, or REDC, also provide state-by-state listings of auctions. With REDC you’re able to bid on property yourself, but  you will have to pre-register on the company’s web site in order to attend an auction.

You can also purchase foreclosed homes on the FDIC’s web site.

Step 2: Find a home to bid on.
Set a price that you can afford to bid and make a list of the things that you are looking for in a home. Once you’ve decided where you want to live and the kind of house you are looking for, you can modify your search.

Step 3: Inspect the property.
If you’re going to put money into a house, it’s a good idea to see what you’re paying for. Potential buyers should understand that many of these properties are sold “as is.” Moreover, professionals such as Bill Staniford, CEO of, a real estate data site, say there’s a chance the homes you’re considering may be damaged, so it’s important to visit a home, and give it a thorough once over before bidding on it.

“You have to take the ‘human element’ into account,” says Staniford. “The previous owner could have turned violent and ruined the house the day before the auction. You have no idea what they were going through.”

Step 4: Start thinking about your bid.
Keep track of properties you’ve seen and be sure to include what you liked and what you disliked. Separate the ones with more positive reviews and then talk to a real estate broker about crafting your bid. 

Step 5: Get financed.
Now that you’ve found the property that you’re going to bid on, you have to make sure that you’re able to get it at the auction. Having a cashier’s check made out to you is the first part.

Most auctions, whether they are run by banks or by a third party auctioneer, require that you have a cashier’s check for 10% of your bid on hand, in order to get in.

You’ll also need to secure a bridge loan. Successful bidders only have 30 days to come up with the remaining 90% of their bid, and no bank is going to be able to turn that kind of money around in such a short time, according to Staniford.

Bridge loans are not difficult to get. Sites such as and can put you in touch with a lender in your area. However, the interest on this hard money loan could be as much as 25%. You won’t have to resign yourself to paying outrageous interest rates on your home loan, though.  Once the sale is complete, you can refinance your home through a bank and pay off your bridge loan.

Step 6: The auction.
The auction itself can be jarring. You can find yourself in a room full of screaming people for hours.

“Auctions are emotional,” says Staniford. “People get caught up in the challenge.”

Keep your mind on your property. Arrive early, leaf through the auctioneer’s brochure and wait until your property is called.

Keep your cool. Think before you raise your hand to signal a bid. If someone makes a higher bid on a property, let them. It’s better to lose out on a foreclosed property and find a new one than to exceed your budget and lose your financing.

Step 7: Completing the sale.
If your bid is accepted, you’ll likely be whisked off of the bidding floor and into a financing area. While there, you’ll meet the owner of the property and provide them with all of your financial information including where you work, how much you make, how much you have in your bank account and the entity that will finance your purchase.

Step 8: Closing.
Though buying a home at auction may be a little bit unorthodox, the closing generally isn’t.

Your attorney will still have to consult with the bank’s attorney and transfer the title before you can move in. You may have gotten a house for a song, but you’re not going to get a break on the closing and legal fees.

Keep in mind, if sometime between the auction and the closing, you want to back out of the deal, you’ll be able to, though not without consequences.

“You’re not required to buy the house,” says Brian Tracz, a New York-based attorney who specializes in real estate. “The question is whether or not you’ll be get your [deposit] money back.”

Tracz says that the terms of sale in the brochure probably indicate that you’ll lose your deposit if you back out of the deal, but you should always check them yourself before you start the bidding process.


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