Are you thinking about buying at a foreclosure or bankruptcy auction? This article is designed to provide you with the details on how bankruptcy auctions work and how they can get you the best deal on foreclosed property. Specifics may vary from auction to auction; however, the following information includes helpful and important guidelines from which everyone can benefit.



Bankruptcy auctions can be a good place to find assets or property at a value lower than the appraised value. Property that goes to auction as a result of foreclosure or bankruptcy can be anything from a home, land or commercial business. Here's how it works:

In addition to the auctioneer, there are usually several people involved in bankruptcy auctions. The person who currently owns the property up for auction (the property owner) is usually there at the auction. Any lien holders that have loaned money to the property owner to secure the asset(s) will also be present. Other interested parties (that would be you) who are interested in buying the asset being auctioned are also there to place bids.

When the asset being auctioned goes up, anyone present can bid on it, including the owner. Let's say, for instance, that the asset is a home. The original owner secured it through a lending company (the first lien holder) for $500,000. A few years later, the owner took out a second mortgage through another lending company (the second lien holder) for $100,000. Now, the unpaid balance of the asset is around $550,000 including both liens. The property goes to auction when the owner can no longer make payments or cannot afford the loans.

Most property owners who are present do not bid in the auction. The lending companies are looking to receive the amount owed to them for the property but the owner is not willing to or cannot pay that amount. The property owner is allowed to bid but it would not make sense for them to bid the full amount, especially if it's more than they can pay.

The lien holders will probably bid in the auction. Why? They are trying to recover the amount owed to them! If the value of the property is less than what they are owed, the lien holders should bid up the asset. However, if the only other bidder present is the property owner, there is no point in bidding above the value to the lien holder. This, of course, is different if there are other bidders who are not the property owner.

Interested parties can bid as they wish - they're there for one purpose and that's to get the property at the right price, whatever that may be. Sometimes a bidder can get an asset, like a home, at a great price! So, even though foreclosures and bankruptcy auctions can seem daunting at first, once you understand the process and are familiar with who the bidders are and what they're trying to achieve, you'll be able to seek out good deals and capitalize on them.