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How to Buy in a Foreclosure Auction

Unlike resales, HUD homes for sale don’t have a first come first served basis for considering offers. In fact, a HUD home isn’t even available to many buyers until after it has been offered to select groups first. Once it is offered to the general public, the buying process is based around an auction style of selling.

Bidding on a HUD foreclosure differs somewhat from the auction process for buying a bank foreclosure. After you have done your research and found a home that you would like to purchase, the procedure for submitting a bid is fairly simple.

This section covers the bidding process for a foreclosure auction or sheriff sale, from submitting an offer to the method by which the winning bid is determined.

Before you bid on a property:

Once you have located a property which suits your needs, the next obvious step is to make an offer. However, you should keep in mind that HUD homes for sale are sold in "as is" condition and no warranties are made with respect to any necessary repairs or renovations.

It is highly recommended that you spend the money for a professional building inspection before you decide to bid on a house.

Note: There is a loan program available through HUD, known as the 203(k) program, which lends money to HUD home buyers to cover the cost of repairs. The loan for repairs is figured into the mortgage on the home.

How do I submit a bid for a foreclosure auction?

  • If you did not use the services of a registered real estate agent to locate the property, you will need to find one to place your bid for you. HUD only accepts offers submitted through approved real estate agents.
  • Decide how much to offer. Take into account the type and condition of the property, the surrounding neighborhood, and the current market value. HUD will advertise the amount of the starting bid (the initial listing price) based on an estimate of the home's fair market value.
  • HUD will place the property on the market for what is called the Initial Listing Period. During this time, they will accept bids on the home. All bids are submitted by registered agents through HUD's electronic bidding system or via telephone.

How much cash will I need to have?

The minimum deposit required by HUD is normally $500. You will need to submit your deposit along with your offer.

What happens after I bid on a HUD Home?

All offers from potential owner-occupants will be considered before any bids from real estate investors are reviewed. Only in the event that no acceptable offers are made by owner-occupants will HUD give consideration to bids from real estate investors.

Priority is Given to Foreclosure Auction Bidders as Follows:

  1. All owner-occupant bids received in the first five days of listing are considered to have been made simultaneously. On the first business day following the initial five-day period, all offers are reviewed to determine which bid provides the greatest net proceeds.
  2. If no acceptable bid is received in the first five days, offers will be reviewed daily for the next five days until an owner-occupant offer is accepted.
  3. If no acceptable owner-occupant bid is received during this time frame, then the offers made by the general public in the ten-day period, including those submitted by real estate investors, are reviewed. The HUD computer system calculates the winning bid based on the offer which will net the highest proceeds.

Tip: Because HUD often picks up the tab for the broker's commission and closing costs, these amounts are deducted from an offer up front when a bid is being considered. If you choose to pay these costs yourself and include them in your offer, your bid will be more attractive and may have a better chance of being chosen.

Depending on various factors such as length of time on the market and current market conditions, the home may eventually be sold for less than the initial listing price.

What happens if I am the winning bidder?

If your offer is accepted, HUD will contact your agent, who will notify you. You will then have 48 hours to draw up and sign a sales contract; your real estate agent will assist you in submitting all necessary papers. HUD will then review the contract, and if it is approved, a settlement date will be set within 30-60 days.