Before you decide to bid, find hidden costs. For example, research the title to see if there are outstanding liens or other legal burdens. Should you win the auction bid of a home with such an encumbrance, you could actually be responsible for paying off the entire amount.
You could also be surprised by banks that loaned earlier mortgages to the homeowner. For example, if the third mortgage lender is conducting the auction, yet there are first and second mortgages still owed, you'll likely have to pay those senior lien holders over and above what you pay for the house. Always have the title checked before you attend an auction. You could also be responsible for back utilities.
Other warnings to keep in mind include the following:
- The home is unlikely to come with a warranty, so if there's a bad foundation or mold infestation, you have no legal recourse.
- If the owners or renters won't move out, it's up to you to evict them. And depending on state laws, if a lease precedes the date of foreclosure, a tenant may have the right to stay.
- In some states there's a period after the foreclosure during which the homeowner can redeem the property (right of redemption).