Let the home auction bidder beware

To critics, such mega-auctions are bad news for buyers, who often end up paying market or above-market prices for properties. But to Mr. Schack, these events don't necessarily spark excessive bidding wars.

As some close observers note, many attendees at both foreclosure and post-foreclosure auctions are onlookers with no plans to bid. And to Schack, those who do bid often have a strategy: "They set a top price in their mind before bidding. They don't want to go overboard on that, because they are there to get a deal."

Proponents of post-foreclosure auctions see them as safer venues for bidders than the foreclosure auctions that preceded them. That's because you're buying from a lender at a post-foreclosure auction. (At a foreclosure auction, you're buying from the official who conducts the auction.)

Auctioneer Tommy Williams, chairman and cofounder of Williams & Williams, a real estate auction company in Tulsa, Okla., lists several other advantages: Buyers get a clean, unencumbered title; they are given the opportunity to inspect the property before the auction; and they partake in a bidding set by market forces and competition rather than one in which the value of the property is based upon the size of the outstanding mortgage.

Some investors still prefer to snag deals early

For his part, though, professional investor Les Lazarus likes to land deals before they disappear. Thus, he prefers initial foreclosure auctions.

"It's like first come, first served," holds the investor from Franklin, Tenn. "First, there's the foreclosure auction." Then, once the bank takes possession of the property – if it isn't sold to a member of the public at the foreclosure auction – the bank will likely try to sell it on their own or through a real estate agent.

Then, if the property is still not sold, they'll take it to an auction. He says, "It's awfully hard to see something squeeze through all those steps and still be a good deal."

Nonetheless, observers agree on at least one key point: Participants, particularly at foreclosure auctions, need to do as much research as possible on properties before showing up to bid. And, before jumping into the fray, they need to have observed several prior sales to see how the process works.

"We seldom recommend that someone buy at their first foreclosure auction," says Mr. Sharga. "Or, if they do, they should work with a real estate professional to minimize the risk."

Before you bid, prepare

Participating in foreclosure auctions can be risky. So if you're thinking of buying a property at a foreclosure auction, attorney Scott Tross offers several tips to make the process safer and easier. Mr. Tross, a partner in the firm of Herrick, Feinstein LLP, wrote "New Jersey Foreclosure Law and Practice," published in 2001 by New Jersey Law Journal Books.

Tross suggests:

1. To find available properties, check the "legal" section of the classified ads in local newspapers. Some Internet sites, such as PropertyShark.com and RealtyTrac.com, also have listings.

2. Since you're unlikely to be able to inspect a property before a foreclosure auction, drive by it and observe it from the street.

3. Before a property is scheduled for a foreclosure auction, do a title search on it, which will reveal any existing liens on the property. As a rule of thumb, the buyer will have to pay all senior liens (those placed on the property before the lien being foreclosed upon at the auction). Senior liens may include the first mortgage on the property as well as any unpaid real estate taxes.

Junior liens (those placed on the property after the lien being foreclosed upon) will usually be extinguished by the sale and won't need to be repaid.

4. If you plan to bid on a property, bring cash or, preferably, a cashier's check. The amount must be enough to cover the down payment on the property, unless your state requires that the full sale price be paid immediately. Down payments run about 10 to 20 percent of the sale price.

5. Go to the auction knowing how high you will bid. Don't exceed that amount.

6. In many states, after you pay the down payment, you'll have a period of time – perhaps 30 days – to pay the remainder. Once you've paid in full, you'll receive the deed from the official who conducted the auction, and you'll own the property. That's the time to buy title insurance, which ensures that you'll get a clean, unencumbered title. (Note: If you don't pay on time, the property will be reauctioned, and you may lose your down payment.)

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