Buying a Home at Courthouse Auction

Q. I am interesting in buying a  home at a local courthouse foreclosure auction. I don’t want to spend more than $125,000. What’s involved? Can you find a good deal at one of these auctions?

A. You can pick up a great deal at an auction—if you do a lot of research (due diligence) in advance, and don’t get emotional.  Just realize that seasoned investors often cherry-pick most of the best properties and try to make a deal with the owner before the property hits the courthouse steps. You’re playing in the big league here, so tread carefully!  You should find a good Buyer’s Agent who’s experienced with foreclosures and have them represent you.  The fee that you will pay the Buyer Agent is small in comparison to what you could lose!

Still, some bargains do make it to the auction.  But before you bid on any, I suggest visiting a few courthouse sales to familiarize yourself with the process and players.  Also, please note that many of these auctions are now being held online rather than on the courthouse steps, so check with the Clerk of Court for specific guidelines.  In the Sarasota, Manatee & Charlotte County areas, you can find such sales listed in the classified section of the Suncoast Business Review newspaper, which is published weekly, or on the Clerk of Court’s website.  In Florida, sale notices must be published in a newspaper for 2-3 weeks, with the last ad occurring no more than seven days prior to the sale. Or, you can subscribe for a fee to one of the numerous foreclosure websites like RealtyTrac, but that can get expensive.

When you’ve located a few properties that match your specific desires, look up their addresses on websites like Zillow.com to see what home values are in that specific neighborhood - since you’ll have to pay more in costs and repairs than you would in a regular sale, you generally don’t want to pay more than 70% of market value. Although you probably won’t be able to get inside any of the properties to conduct a professional inspection, at least drive by to check-out their condition(s) and surrounding neighborhood.

More importantly, search courthouse records to see what liens have been filed against these properties, and who has initiated the foreclosures.  Usually, it’s the first lien holder such as a bank, but not always, since in Florida junior lien holders—with the exception of the tax lien holders—are wiped out in the final sale.  If a second lien holder is initiating the sale, you may have to pay off a hugh first lien, in addition to the auction price, so be very careful and do your homework, or you can lose your shirt!

Understand that after all this research, the properties you want may never make it to the final sale.  In Florida, as in many other states, homeowners have up until one business day before the auction to stop the sale by paying all  fees incurred and back mortgage payments.

If any of your selected properties do get auctioned, set a firm limit to what you’ll bid on each home, and don’t let other bidders (who might even be straw men working for the sellers) push you beyond it.  If you’re successful, understand that you are buying the property “As Is,” that you will be paying all closing costs, and that you won’t get the keys immediately. In Florida, courts must ratify all sales, a process that takes at least  several weeks. You’ll then be given  a few more days to close, and to start proceedings to evict the old owner or tenant, if necessary.  Backing out of the deal at any point after the hammer comes down in an auction is possible, but very expensive:  You’ll have to forfeit your escrow deposit, and the property will be resold at your expense.