The Risks of Purchasing a Home through a Mortgage Auction

Purchasing a home through a mortgage auction can be a great way to find an amazing deal on property. Houses that have gone through foreclosure are sometimes sold with incredible discounts at auctions. When a bank owns a property, they will do whatever they have to do to get rid of it because they lose money when they hold on to the property. Banks usually sell at very low prices in an effort to get the home off the books as fast as possible. While it can be a good way to invest, there are a few risks associated with purchasing a home through a mortgage auction. Here are a few things to watch out for. 


One of the most dangerous things associated with auctions is that you can sometimes overpay for the home you are purchasing. Anytime you are bidding against someone on an item, you have a tendency to overbid. You get into the heat of the moment and then before you know it, you're bidding just to win the auction. Once you start bidding on something it's hard to stop because the competitive factor takes over. You don't want to walk away from the auction empty handed. This leads to many people paying more than they want for a foreclosed house. 

Before you go to the auction, make sure that you have a spending limit. Get the information about the house before the auction and decide how much you are willing to spend. If the auction reaches that limit, do not bid any higher. Bring someone with you and have them stop you from paying more than you should. Be sure they understand your limit and can stand with you so that you do not overbid. 

House Problems

Another risk associated with buying a house through a mortgage auction is that sometimes the houses have significant problems. Many times with mortgage auctions, you are forced to bid on something that you really don't know that much about. There could be something fundamentally wrong with the house that you do not know about. The bank that owns the property might not be familiar with the property either. You could have problems with the foundation, toxic gases in the house or any other number of problems. Cosmetic problems are to be expected. You'll probably have to change out the carpet and repaint regardless of which house you get. However, any time you run into major problems that are unexpected, the house could cost more than it's worth. These situations have caused many investors to get in way over their heads. It helps to know everything about a house going into a deal. However, sometimes with auctions, this is not possible. 

Title Problems

When you buy a house, you want to make sure that you are the sole owner of the property. You want title that is clean and has no problems associated with it. However, sometimes, this does not happen. You purchase a house through an auction only to find out that the title had problems with it. Someone may have placed a mechanic's lien on the house and now they want their money. You may be forced to sort out all kinds of problems about who really owns the house. Be aware of this before you go into an auction and use a reputable title company that can help you clear up any issues quickly and efficiently.