The general process is that the owner gets a “notice of default” and given 90 days to bring payments up to date. If the owner doesn’t “cure” the loan, the bank repossess the house by suing and the court or a trustee auction off to the highest bidder (the exact method of disposition may vary by state and by county), and that is the public auction.

The highest bidder must offer a bid above what the bank is owed on the property, then make a deposit (non-refundable) between 10 and 15 percent and arrange the rest of the finance within 30 days.

In many cases, a bid that’s over the outstanding mortgage is much higher than the house real value.

Risks: publicly auctioned homes are sold “as is,” and there’s usually limited or no opportunity to check the property, such houses many times are fixer-uppers. Another thing that sometimes happens is that the homeowners take out their frustrations and damage the house.

Other problems may occur, like unpaid taxes and other liens against the property. Back taxes are considered “super liens” that must be paid off by whoever takes ownership of the property.

Bank-owned sales (REO) foreclosure investing – learn now!