This is bad news for a great many Americans, but it can be great news for the savvy buyer who seeks to maximize profits in a down market.  It is estimated that banks can make as low as 20 cents on the dollar in some markets and they are losing an average of more than $50,000 per foreclosure.  Again, bad news for the banks…but very good news for the savvy home buyer, investor, or international buyer.

Before a home actually goes into official foreclosure, many things can happen.  I will be discussing some of those options and detailing both the pros and the cons of these potentially money saving options to buyers.  First, we must look at what happens when a homeowner stops or can no longer make payments on a particular piece of property.  In today’s market conditions the banks are busy.  They simply cannot keep up with the workload and a home may go 3, 6 or 12 months before foreclosure actually occurs.  Prior to that, the property owner has a few options.  One of those options involves an auction.

You can get some fantastic deals at a home auction.  Auctions can occur both before foreclosure and after foreclosure.  Pre-foreclosure auctions are usually held by large real estate firms and can involve sellers ranging from individuals to large spec builders.  Post-foreclosure auctions are generally going to involve lending institutions and government entities.  In both cases you can certainly get a very good deal.  In fact, some of the best deals can be found at the auction house.  On average, the equity in an auction purchased home is 40%. However, there are certainly cons to this type of transaction.  One of the main problems with purchasing a home at auction is that you are buying the home “sight unseen”.  This means that you have never seen the house, have no idea what internal or external obsolescence may be present, or what condition the home is in.  Thousands of dollars saved on the purchase price, could now be thousands of dollars sunk into a money pit.  Some other considerations are tax liens and clouded titles on the properties that you may be responsible for dealing with.  Here again, more money out of your pocket.  If that is not enough…we have the added condition of cash only purchases.  You must purchase the home, or homes, in cash and be prepared to provide proof of such funds at the auction.  Hence, if you need financing – an auction is not for you.  If you have the cash, and the stomach, then perhaps this is a good option for you.  As with most investments – the higher the risk, the higher the reward…or the loss.

Our next topic of discussion will be the short-sale or "pre-foreclosure" sale.  CLICK HERE to go to the next page for Part 2.