How Do You Evaluate a Foreclosure Auction Property Before Bidding?

[Anwar Akobir]

For investors who focus on distressed or foreclosure properties, how do you evaluate whether an auction property is worth bidding on? I’m interested in hearing what steps or criteria you prioritize before taking action.

[Fernando Alonso]

Actually, Anwar, it really depends on where the auction is taking place, what kind of auction it is, and what type of property you are looking at. Each state has its own rules, different lien hierarchies, and its own way of treating debts, and even counties within the same state can have very different procedures. That's why the first step is always to understand exactly which auction you are dealing with. A mortgage foreclosure, for example, requires you to check every possible lien because many of them can survive the sale. With a tax deed, on the other hand, the main concern is municipal liens since mortgages are usually wiped out. HOA foreclosures are another situation altogether because mortgage liens typically remain. In contrast, private auctions can sometimes lead to a clean title transaction, though that still depends on the terms.

The type of property also plays a big role. In the case of condos, you need to be alert to HOA debts, upcoming special assessments, possible building violations, and any restrictions on ownership or rentals. With single-family homes, the issues are different, you carry the full burden of maintenance, so the physical condition of the house, along with any municipal violations, becomes a much bigger factor.

In the end, for me it always comes down to three essential considerations before bidding: understanding the market conditions surrounding the property, knowing which liens or debts you would inherit, and being clear about the physical condition of the property and the repair costs you might be facing. When you weigh all three together, you can decide whether the property is truly worth bidding on.