1. The debt on the property is so high that if purchased before the auction there wouldn't be any profit potential.



2. The seller wouldn't sell before the auction

3. The seller can't be found

4. You have more cash on hand than time.

Anyone wanting to buy foreclosed properties at an auction should attend a few to get familiar with the way they work. They do present some great opportunities but some trappings as well. Some things you can expect are:

They are over very quick. You can be a few minutes late and miss it. Like any other auction there can be more spectators than qualified bidders so you can have the auctioneer verify everyone's qualifications by showing the required certified check before the auction starts. This way you know that the person you're bidding against is actually qualified to raise a bid and cause you to lose real money.

Any serious bidder must do thorough research on the financial situation of the property. You could bid up to $375,000 on a property valued at $500,000 and think you got a great deal then find out there was a $150,000 1st mortgage still in place. Knowing about this 1st mortgage you could verify your bid to be "above the 1st" and not "subject to the 1st" and so your bid would be from a base price over the 1st mortgage.

If you are the high bidder on a 2nd mortgage you can take over a 1st FHA or VA assumable loan. If the bank is the highest bidder on a 2nd they can substitute you and lend you the FHA money. The bank is usually the high bidder especially in states where auctions require all cash deals. Sometimes a private investor is the high bidder and sometimes the auction can be postponed all together.

Some things you need to know:

Depending on the state you are in, cash needed the day of the auction is 10% to 100%.

If you bid and win, then change your mind after putting down the deposit you can forfeit your deposit and be held liable if you change your mind.

Verify the bank's bidding instructions to the auctioneer because a lender may bid substantially less than the debt they are owed. The rules and laws vary from state to state but you can get much of the information on your local foreclosure procedures and bidding instructions from the sheriff's office or the court office clerk. Foreclosure properties can be a great way to make some very high profits in real estate in a short time but you must take the time to learn how to play the game and due the required research or else it can be a great way to lose money too!