When a homeowner doesn’t make the necessary mortgage payments to the bank or lender, the house usually enters the foreclosure process. Potential buyers meet on the steps of the local courthouse to bid on the house at a public auction. If no one bids on the house, the bank or lender becomes the owner and the house is considered real estate owned or REO property. During several steps of the foreclosure process, interested buyers might purchase the house for less than the asking price.
During the first step of the foreclosure process, the bank or lender notifies the homeowner of the impending foreclosure. This document is called a Notice of Default and is a public document recorded at the county recorder’s office. The homeowner has a specified period of time to make the necessary payments. At this time, an investor may approach the homeowner about the possible purchase of the house. In order to prevent the foreclosure, the homeowner might sell the house at a discount.
If the homeowner doesn't make the house payments, a Notice of Sale is issued and the house is scheduled for auction. The minimum price at a foreclosure auction is usually the amount owed on the house. If the amount owed is less than the market value, a bid at the foreclosure auction might buy the house for a bargain price. Potential bidders must carefully read the auction rules. Often full payment in the form of cash or a cashier’s check is due at the end of the auction. House inspection is usually not possible, and the house is sold “as-is.”
If the bank or lender takes ownership of the house, a real estate broker is usually hired to sell the property. The house is available for inspection prior to a sale. If the bank wants to get rid of the house quickly, the selling price might be lower than market value. Potential purchasers may make a low offer, and possibly buy the house for a bargain price. Be prepared to present a counteroffer if the lender rejects the initial offer.
If the homeowner fails to pay the yearly property taxes for the house, the house may be sold at a public tax auction. Many states use auctions to collect the unpaid taxes. The county tax collector schedules the house sale at an online or live auction. The minimum bid is usually the amount of unpaid taxes plus fees and auction expenses. This is often less than the market value of the house. If the taxes are not paid prior to the auction, the home is sold, often for a bargain price.
Kim Dieter has taught agriscience classes, developed curriculum and participated in the school accreditation process at the secondary and community college levels since 1980. She holds a Master of Science degree from the University of California, Davis, in animal science.