How Does Proxy Bidding Work at Foreclosure Auctions?

The foreclosure auction is when one property-ownership story ends and another begins. If you want to bid on a little slice of the (temporarily repossessed) American dream but you can't make it to the auction yourself, you may still be able to participate through proxy bidding. Proxies bid on properties on your behalf.

The auction is the final step in the foreclosure process. When homeowners quit making their mortgage payments, the lender eventually takes ownership of the property, evicts them (if they're not gone already) and puts the house up for auction. Some foreclosure auctions are held live -- perhaps on the steps of the county courthouse or maybe in a less picturesque place, while others take place online. Proxy bidding is possible in both settings if it's allowed at all -- a matter that is up to the company or agency conducting the auction.

Live foreclosure auctions may allow proxy bidding only by in-person proxies. In this situation, if you can't attend the auction yourself, you hire someone to go for you as a proxy. That person then bids according to your instructions.

You tell the proxy the maximum you're willing to pay for a given property and provide any other instructions for bidding. The proxy keeps bidding until you hit your limit or you get the property. Many companies offer proxy bidding services, or you can send someone you trust.

In some live auctions, the auctioneer may serve as your proxy. In this situation, you tell the auction company how much you're willing to pay, and the auctioneer automatically bids on your behalf.

Say you're willing to bid as much as $100,000 on a particular house. If the current high bid from the live crowd is $70,000, the auctioneer will raise it to, say, $71,000 for you and then call for new bids. If someone bids $75,000, the auctioneer bids $76,000 for you. This goes on until you either get the house or you hit your limit and someone else wins the auction.

If you use auction websites to buy stuff besides real estate, you may already understand how proxy bidding works in online foreclosure sales. In online auctions, the website itself acts as your proxy. You tell the site how much you're willing to pay, and the site automatically bids on your behalf.

Sites typically have a set policy for how much they'll increase bids by, such as $100 or $1,000. If you set a limit of $100,000, the current high bid is $80,000 and the site increases bids by $100, then the site will automatically enter a bid of $80,100 for you. Competing proxy bids in online auctions can drive up the price almost instantaneously. If you've got two proxy bidders, one of whom is willing to pay $90,000, and one who's willing to pay $95,000, the property is guaranteed to go for more than $90,000.

The winning bidder at a live foreclosure auction is typically required to pay for the property on the spot with a cashier's check or other secure payment instrument. If you're using a proxy bidder, you'll have to work out the logistics with the proxy in advance.

In automatic proxy situations -- either involving a live auctioneer or an online site -- the auction company will set rules for payment. This could include putting down a deposit before the auction. Auction companies may also charge a separate fee for providing proxy service, which they may require you to pay in advance.