How Do Courthouse Foreclosure Auctions Work?

by G.K. Bayne; Updated September 26, 2017

Foreclosed properties that are sold on the courthouse steps actually comprise the second stage of the foreclosure process. The first step is called pre-foreclosure, and is when the bank or mortgage holder begins the steps to reclaim the property and assets. The final stage, post-foreclosure, happens after the auction, and occupies a specified time period before the highest bidder can actually take possession of the property.

Pre-Foreclosure

The pre-foreclosure process begins when the first payment is missed on a mortgage loan. The account is flagged and the mortgage holder watches the account for further late or missing payments. Once the account is deemed too delinquent, the mortgage holder begins the paperwork to have the property sold at a courthouse auction. This paperwork usually includes filing a notice of intent with the proper local authorities and placing an announcement in the newspaper that the property will be sold on a specific date.

The Courthouse Auction

In most states, the bidding on property sold at a courthouse auction may begin before the actual sale day. These extra days are added for first-time homeowners to place a bid on the property; if a bid received is high enough to satisfy the mortgage holder, it is accepted and the actual auction is canceled. If no bids are received during the pre-auction days, the property will then be sold on the courthouse steps. In some states, the mortgage holder has the right to specify the least amount of money he will take (called a reserve) for the property being sold. Often, an auction property will sell far below market value, thus making bidding at auction a favorite activity of real-estate speculators and other investors.

Post-Foreclosure

In more than 12 states, there is a waiting period before the high bidder can take possession of the property. This time is allowed so any taxes and other liens and sub-liens can can be settled before the sale is finalized. Many states will allow the original homeowner to repurchase the property for the price of the highest bid.

Disadvantages

While getting a prime piece of property at a lower price may seem to be a bargain, there are several factors to keep in mind. For one, the original homeowners may still be living in the home, and the new buyer may need legal help to evict them. Second, the former owners may have trashed the inside when they left, making remodeling or refurbishing the property more expensive. For foreclosures sold on the courthouse steps, an inspection of the property beforehand is not generally provided. The third disadvantage is that 100 percent of the cash price that was bid is due when the bid is declared the winner.