Buying A Bank Owned Property By Online Auction

Dated: 06/06/2018

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Buying a bank owned property through an online auction is different than buying a property using the standard methods. Auctions have their own rules and regulations and the auction companies deal with the sale as a Transaction.  It’s just another sale, nothing personal.

All types of buyers are eligible to purchase a bank foreclosed property being sold by online auction.  Buyers who intend on making it their new home, Real Estate Investors, LLC’s or Corporations are all acceptable to make offers.  The auction companies want Ready, Willing and Able Buyers, and in return, the banks selling by auction usually are willing to sell for less money than a standard property sale.

Here are the “No No’s” when purchasing bank owned auction properties.

  1. No change in owner name on contract, you cannot FLIP these properties.

  2. No changing, or crossing out, on the Addendum provided by the Bank.

  3. No repairs to the property, even if your mortgage company requires them.

  4. No re-negotiation on price after signed acceptance contract by the bank.

  5. No sale of current home before purchase contingency.

  6. Must be pre-approved for financing or cash funds available prior to bids.

One of the major differences are the fees payable by the Buyers.  The auction companies have fees and charges that are required to be paid above and beyond the standard closing costs.  Auction premiums usually range about 5% added to the bid amount.  (If you bid $100,000 on a property, you are actually offering a bid of $105,000 including auction fee)  Some auctions do not require auction fees, so ask your agent to check before you make an offer.

Other charges are technology fees charged to the buyer at closing, these usually range from $299 to $399.   Both sides of the transfer tax is payable by the buyer, opposed to a standard sale where the buyer and seller usually each pay half.  (Montgomery County is 2% total and on online auctions wholly payable by the buyer)  Be sure to keep this in mind and ask your agent to provide a closing cost estimate including all of the applicable charges.

Speaking of real estate agents, the auction companies prefer for you to have an agent to make offers on their properties.  You will need to submit all of the documents needed and agents have access to the State of PA required forms and the bank addendums.  Ask if the agent is familiar with the bank owned online auction process, if so, they can explain how the process works and make offers for you on the properties.  And, best for you, the agent has to deal with the auction company and bank throughout the entire process to settlement.

You need to check to be sure if the auction company will be paying your agent a commission on the sale.  And, if not, you will be responsible to work with your agent to come to terms on their commission to represent you.  Most of the auctions do offer some real estate commission, but not always, check with your agent and have them include any charges on your closing cost estimate for EACH PROPERTY before you make offers, don’t assume they are all the same.  It’s not just one auction company selling bank owned foreclosed properties and each deal with them a little differently.

Do not assume also that all online auction properties will be vacant and available to view. The auction information will tell you if it is vacant and available for your agent to set up a showing.  Be sure to check if the property is currently “OCCUPIED”.  This means the bank has foreclosed on the property and now owns it, however, the prior owners or renters are still living in the property.  The bank will NOT evict the occupants, it is your responsibility to work out terms with the occupants or work through the eviction process.  These are purchased with no way to gain access to see the inside and can only be purchased with Cash funds.

Since the bank owns these properties, you will be buying from the bank and most are available for Title Insurance on the purchase and a Warranty Deed. (Sold to the buyer Free and Clear of liens or mortgages)  Make sure these are the terms of the sale before making an offer.  (It is highly recommended that you do NOT buy a property with a Quit Claim Deed.  This gives the buyer no guarantee of liens or claims to the property as the bank is just Transferring with no Warranty)  Buyer pays the cost of title insurance on the purchase and it is the choice of the Buyer for title company.  If your title company finds there are issues making it impossible to provide a standard title insurance policy, you can cancel the sale.

All of the properties are sold in “AS IS” condition.  The bank will not make any repairs, even if your mortgage company requires it.  The bank will not allow you to make any repairs prior to settlement.  You will be required to sign a Bank Addendum which will state all of the terms including “AS IS” purchase.  You can NOT change the terms of the Bank Addendum, the bank will void the contract.

Cash offers are the preferred method when purchasing through online auctions. Properties are usually available to be refinanced after settlement with certain types of financing.

Purchasing with a mortgage is possible, depending on the property condition.  FHA financing is usually not acceptable due to FHA conditions on repairs prior to settlement.  Conventional financing can be acceptable, if the utilities are available to be turned on for the appraisal.  Sometimes there are issues with the property, which is a problem with Conventional financing.  

Alternative local financing is available and sometimes the best way to purchase with a mortgage.  These local lenders require more downpayment and rates can be higher than standard mortgages. You can also refinance to conventional financing after purchasing, if desired.

There are lenders who will provide financing for the purchase and money to fix up the property added to the mortgage.   You still need to have money for downpayment and closing costs and some work starting money.  Rates are higher than standard mortgages and these are usually shorter term loans, ranging from 6 to 12 months and require refinancing or sale of the property.

There are NO lenders who will provide all of the funds needed to purchase with no money investment on your part as the buyer.  Letters from third party guarantors are not acceptable.

There are requirements for deposit funds immediately after the being the winning bidder on the property.  These funds are stated by the auction company, however usually never lower than $2,500, be sure to ask your agent.  These funds must be paid by Bank or Certified Check only and usually payable to the Title Company.  Proof of funds to purchase, via bank or investment statement, or pre-approval by mortgage lender are required.  

Cooperating with the auction and bank by returning all documents signed, providing proof of funds and bank check for deposit returned as quickly as possible takes the property off the market with you as the winning buyer.

Settlement is usually required within 30 days for cash purchases and up to 45 days for mortgage financed properties is standard.

It’s a different process, but with all of the information up front and knowing how the online process and how bank requirements work, help to make it a successful purchase and get a good deal in the process.

Hope this Helps

Kathy McKinney, Realtor

EXP Realty Llc, Limerick, PA

Office 888-397-7352 ext 729

Cell number 215-500-3424

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Kathleen McKinney

My experience level is at your disposal ! My background in mortgages and rock solid understanding of how to finance a home ... will benefit all of mymy customers! I exceed all my customers expectatio....

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