How to Buy Foreclosed Homes at Auction

by Robert Donovan and Stephanie A. Chisholm

First-time home buyers with tight budgets take heart. By finding a foreclosed property, you can often buy a lower-cost house with little cash down.

What's a foreclosure? Foreclosures are simply homes that have been repossessed by the bank or by a government agency. Because the bank or agency is usually eager to unload the property, and because foreclosures tend to need significant repairs, there's a real opportunity to get a great deal -- provided you are willing to invest some hard work.

Where do I find one? Most real estate agents have listings of foreclosures. Properties offered by the Department of Housing and Urban Development (HUD) and by the Veterans Administration (VA) will be advertised in the real estate section of the newspaper. HUD places its own for sale signs on open-listed homes as soon as the contractors have completed their initial inspection. Once a buyer's contract has been accepted, a sold sign is placed in front of the property.

How do I buy it? Making an offer on a foreclosure differs from making an offer on a typical property. HUD and VA homes require a written bid, and except for those homes offered through exclusive listing contracts, HUD sells homes only through sealed offers. You can use most any HUD or VA approved real estate agent to help you submit one. For bank foreclosures, the procedures may vary. Auctions are usually advertised in the newspaper with specifics as to how much of a deposit will be required by bank check to secure the bid the day of the auction.

Can the buyer make more than one offer? Yes. Multiple offers can be made, but only the offer producing the highest net return to HUD will be considered. If a prospective owner-occupant submits offers on more than one property, the first offer producing the highest net return will be accepted.

What is a Public Sales Offer Opening? Both brokers and prospective buyers may attend the public opening of envelopes received with offers on HUD homes. New listings are open to offers for ten days. Offers are accepted up to the date and time shown in the ad. The following business day, HUD will open the offers at either the local HUD office or a location announced in the newspaper listing. HUD will announce the terms of each offer made on the property. All offers will be reviewed and a decision will be made within 24 to 48 hours.

How do I close on a HUD home? After notification by phone that your offer has been accepted, your local HUD office will mail you a copy of the accepted contract and a contract acceptance letter. You have 30 to 60 days to complete the necessary details for closing. Once you are ready, you must notify HUD with a closing date. Closings are usually held at the local HUD closing agent's office.

What will HUD pay for? HUD may pay customary seller costs at closing, including delinquent water and sewer bills, prorated taxes, and any home ownership dues related to HUD's ownership. In addition, certain financing and closing costs designated by the buyer may include loan origination fees, discount points, appraisals, surveys, updated title evidence, and credit reports.

How is HUD paid? HUD will only accept certified funds or their equivalent at closing. If funds for closing are being wired from a bank, they must be available in the closing agent's account prior to closing.

Can HUD help renters become owners? HUD will credit owner occupants an amount equal to two monthly rental payments not to exceed $1,000. In order to qualify for this credit, the purchasers must include a copy of their current rental agreement with the submission of the sales contract.

What are the drawbacks? Foreclosures are usually sold "as is." That makes it even more imperative that you carefully inspect the home in advance. First, learn the market thoroughly. Then, figure out what repairs on the foreclosure may cost by obtaining a bid from a contractor. In some cases, when you add the cost of the repairs to the purchase price, you may not end up with the value you bargained for.

A foreclosure can offer a way to get your foot in the home ownership door. With good research and sound professional advice, the door is yours to open.

For a list of foreclosed properties, call HUD national headquarters at (202) 708-2720.

Robert Donovan is Deputy Director with the Hartford HUD office, located on Main Street in downtown Hartford.