The auction process allows banks to relieve themselves of properties that they need to dispose of. An auction is the stage of the foreclosure process in which the default or pre-foreclosure process of the property has ended. The lender is now seeking to recapture its losses by auctioning the property in a public sale to the highest bidder.

The proceeds from the sale will be disbursed to the lender who initiated the foreclosure action, which in most cases is the lender holding the first mortgage. Once the first mortgage holder's position has been satisfied, any additional funds will be used to settle any other remaining obligations. If all encumbrances against the property are resolved, any additional funds will be disbursed to the homeowner.

Purchasing a foreclosure at auction is a great opportunity to buy houses at rock bottom prices, but you must be prepared. Consider the following:

• Before you bid on any auction property, it is paramount that you do a title search.
• You will also need to be prepared with financing in order to bid at the auctions.
• We highly recommend that you attend at least two auctions prior to making your first official bid.
• Be careful at an auction, as it is very easy to get caught up in the excitement of the bidding process and make a poor decision.
• If no one bids above the opening bid, the lender will take back the property at which point it becomes a Bank Owned or REO property.

Prior to the auction, the trustee establishes the opening bid. The opening bid is determined by totaling the remaining loan balance, court costs, interest and back taxes, legal fees and liens and judgments.

You are allowed to approach the auctioneer one at a time and give your name and discreetly show him the amount of your cashiers check or cash. The auctioneer will note your name and the limit of your bidding ability as evidenced by the cash or cashiers check you showed him. Bids over this recorded amount will not be accepted from you unless you show an additional check or cash during the bidding. Prior to the opening bid, the trustee will read aloud the legal description and terms of sale for each property.

If you submit the highest bid at an auction and it's accepted, you now own the property. At this point, you will be expected to make a deposit of 5 - 10% of the purchase price. The remainder of the purchase price will be required sometime between 24 hours and 30 days after the auction. The deposit is non-refundable and all sales are as-is and final.

Even though you are now the owner of the property; in some cases it may be possible for the owner to buy back the property. The period is called the Redemption Period which gives the original owner the opportunity to redeem himself. In most cases, this is unlikely to happen since he probably would not have defaulted in the first place, if he had the financial means to keep the property. However, it is important to be aware of this issue whenever bidding at an auction. The redemption period varies from state to state.