Is prequalification necessary to purchase a foreclosure?
Foreclosure auctions take many forms and range from old-fashioned hammer banging on the courtroom steps to electronic sealed-bid auctions. What they all share in common is a desire to avoid time-wasters. If you are serious about bidding on a foreclosure property your financial preparations need to be scrupulous.
County Court Auctions
When a foreclosure is filed in the County Court and a judgment is made, the court will order a public auction of the property. The auction will be carried out by a nominated referee who is normally a court-appointed attorney. The auctions really do take place on the courtroom steps or at a pre-specified location.
To participate in the auction you will need to show the referee that you are sincere about paying. This means that you will need, on your person, a Money Order, a Certified Check or a Bank Check to the value of 10% of your maximum bid which you will use as your down payment. It is advisable to have incremental checks available as you may win the property for a lower figure and the balance is better in your bank account than in the attorney’s account. You could wait up to a week to get your change back.
In such a public arena you will have to be careful that, in declaring your bid value to the referee, you don’t give your competitors an insight into your bidding strategy.
After the auction you will have thirty days to settle the full amount for the property. This is a realistic timescale to organize financing however it would be prudent to have a mortgage or loan pre-qualified with a lender so that you can just have the paperwork rubber-stamped. You don’t want any delay as you risk losing your deposit.
HUD and VA Auctions
The US Department of Housing and Urban Development (HUD), the Department of Veteran Affairs (VA), the Federal National Mortgage Association (Fannie Mae) and many more governmental agencies sweep up foreclosure properties across the country which have been tied into their mortgage guaranty schemes. These foreclosures are advertised on the internet and are auctioned electronically though a nationwide network of registered real-estate brokers.
In order to bid on a property you will need to place “earnest money” with the broker. This varies from case to case but can be $500 or $1000 depending on the value of the property. A HUD auction is conducted over a ten day period and all bids are classified as being made simultaneously. When you are successful in winning a property you will complete a contract package with the broker which must include a pre-qualification letter from a lender.
The settlement date can be a lot more relaxed than other types of auction; anything up to 60 days. So you have plenty of time to organize your finances but a little preparation will give you time to shop around for the best deals. Seeking a loan of this magnitude at short notice can be a stressful activity and mistakes are often made when there is too much haste.