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Foreclosure processAuction

Foreclosure Auction

Also called Sheriff's sale, Trustee sale, Courthouse auction

In short

A foreclosure auction is the public sale of a property after a borrower defaults, where the highest bidder buys it, usually with cash and as-is. If no one outbids the lender, it becomes bank-owned.

Who runs it
A trustee, sheriff or referee
Payment
Usually cash or certified funds
Condition
As-is, often no interior access
If unsold
Lender takes title (REO)

Where it fits in a foreclosure

Foreclosure Auction belongs to the auction stage.

  1. 1Missed paymentsThe owner falls behind; the servicer sends notices and may offer workout options.
  2. 2Pre-foreclosureA notice of default or lis pendens is filed. The owner can still sell, catch up or negotiate.
  3. 3AuctionThe property goes to a public sale, usually for cash, as-is and often without an inspection.You are here
  4. 4Bank-owned (REO)If no one outbids the lender, it takes the property back, clears most title issues and lists it.
  5. 5ResaleA buyer or investor purchases, repairs and occupies, rents or resells the home.

How the auction works

The sale is held at a set date, time and place, either in person, often at the county courthouse, or online. The lender usually starts with an opening bid, frequently a credit bid up to the debt owed. Bidders compete in increments, and the highest bidder must pay in the form and time frame the sale terms require, which can be the same day.

What you get, and what you do not

  • No inspection. You usually cannot see inside before bidding.
  • No contingencies. Financing and inspection contingencies are generally not allowed.
  • Possible surviving liens. A foreclosure generally wipes out liens junior to the foreclosing loan, but senior liens, such as a first mortgage when a second is foreclosing, and certain tax liens can survive.
  • Occupants. Former owners or tenants may still be living there.

After the sale

The winning bidder receives a trustee's or sheriff's deed. Some states require court confirmation or allow a post-sale right of redemption. If no third party bids above the lender, the property reverts to the lender and becomes REO. Rules vary by state, so check local procedures before bidding.

Example

Setting a maximum bid

An investor estimates a home's after-repair value at $300,000 and repairs at $45,000. Applying a target like the 70% rule gives a maximum of $300,000 x 0.70 - $45,000 = $165,000. The lender's opening bid is $150,000. The investor bids up to $165,000 and stops there, rather than getting caught up in the room.

Foreclosure Auction vs. REO / Bank-Owned Property

Foreclosure Auction

A foreclosure auction is the public sale of a property after a borrower defaults, where the highest bidder buys it, usually with cash and as-is. If no one outbids the lender, it becomes bank-owned.

REO / Bank-Owned Property

An REO (real estate owned) or bank-owned property is a home a lender took back after it failed to sell at foreclosure auction. The lender then sells it, usually through a real estate agent.

The differenceAt a foreclosure auction you buy from the trustee or sheriff, usually with cash and no inspection. An REO is bought from the lender after an unsuccessful auction, usually with financing and an inspection available.

Frequently Asked Questions

Related terms

Opening BidForeclosure processAn opening bid is the first bid at a foreclosure auction, usually placed by the lender. Other bidders must exceed it to buy the property; otherwise the lender takes it back.Credit BidForeclosure processA credit bid is a bid at a foreclosure auction that the lender places using the debt it is owed instead of cash. The lender can bid up to the amount of its debt without paying any money.Notice of Trustee SaleForeclosure processA notice of trustee sale is the public notice, in a non-judicial foreclosure, that sets the date, time and place a trustee will auction a property to repay the defaulted loan.Title SearchTitle & legalA title search is a review of public records to confirm who legally owns a property and to find any liens, judgments, easements or other claims that could affect ownership.After Repair Value (ARV)InvestingAfter repair value (ARV) is the estimated market value of a property once planned repairs and renovations are complete. Investors use it to decide how much to pay for a fixer-upper.TrusteeForeclosure processIn real estate, a trustee is the neutral third party named in a deed of trust who holds legal title for the lender and can sell the property at a trustee sale if the borrower defaults.Right of RedemptionForeclosure processA right of redemption lets a foreclosed homeowner reclaim the property by paying the full amount owed, either before the foreclosure sale or, in some states, for a set period after it.LienTitle & legalA lien is a legal claim against a property that secures a debt. It must usually be paid off before the property can be sold with clear title, and the creditor can force a sale in some cases.

Learn more in the knowledge base

How Foreclosure Auctions Work: A Guide for First-Time BiddersGuide · 8 min readA foreclosure auction is the public sale where a lender's collateral is sold to repay a defaulted loan. Rules on notice, payment, title and redemption are set by state law, and buyers usually pay cash for a home they have never been inside. This guide explains how the process works so you know what you are bidding on.Researching a Foreclosure Property Before the AuctionGuide · 6 min readAt a foreclosure auction you usually buy as-is, unseen and without contingencies, so research done before the sale is your only protection. This guide covers how to confirm the sale details, check title and liens, estimate value and repairs from the outside and turn it all into a maximum bid.Auction Day Bidding Strategy for Foreclosure SalesGuide · 6 min readAuction day is where your research turns into a binding purchase, so preparation and discipline matter more than tactics. This guide covers what to do the night before, how bidding works in person and online, how to stick to your maximum and what to do right after you win or lose.
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Disclaimer: The information on this page is for general educational purposes only and is not legal, financial, tax or investment advice. Laws, lending rules and market conditions vary by state and change over time, and any figures shown are estimates. Before you buy, sell, finance or bid on a property, consult a qualified attorney, financial advisor, lender or licensed real estate professional about your situation.