An Austin home buyer’s guide to foreclosed homes, real estate auctions, and related topics.

Turn on the evening news on any given day, and there’s about a 50/50 chance you’ll hear a story about the record number of home foreclosures in the United States. In fact, foreclosures in Austin and elsewhere in the country have reached an all-time high at the time of this article (November 2007).

Much of this can be attributed to the subprime lending tactics of mortgage lenders, but consumers bear some responsibility as well. In the past, many Austin mortgage lenders made subprime loans to people who probably had not business buying a home (from a financial standpoint at least). Of course, the buyers themselves should have done their homework to see how affordable (or unaffordable) their payments would be. So both parties had a role.

But it’s not the point of this article to place blame on the number of Austin foreclosed homes — or to place of any kind, for that matter. The purpose of this article is to educate you about the process of buying a foreclosure property in Austin, Texas.

Saving Money by Buying Foreclosed Homes

As you might have guessed, the number-one reason that people buy foreclosure homes is to save money on real estate. When Austin homes go into foreclosure, there is a chance they will end up in a public auction. Savvy investors who understand the process can often purchase foreclosed homes at an Austin real estate auction and pay much less than the true market value in the process.

But to understand how this all works, we have to take a step back and examine the basic foreclosure process in Austin — as it applies to you, the potential buyer.

The Austin Home Foreclosure Process

Foreclosure takes place when a homeowner can no longer make the mortgage payments on a home. The overall process can take up to five months. During this period of time, the homeowners will have chance to avoid home foreclosure altogether through a variety of options, such as reinstatement, refinancing, repayment, etc.

But sometimes the owners simply cannot afford to pay their mortgage anymore. It’s an unfortunate scenario, but it’s one that happens daily in Austin. If the homeowner is unable to work with the lender on a payment plan, or some other option for avoiding foreclosure, then the will foreclose on the home and the property will start down the path to a real estate auction / public sale.

The Real Estate Auction

When it becomes clear that the homeowner cannot afford to keep the home, the mortgage lender will file a default notice against a homeowner. This is the first official act in the foreclosure process, and it means the homeowner is no longer making mortgage payments. After the notice of default, there is usually a three-month period that leads up to the official notification of real estate auction.

During this three-month period, the homeowner may continue to try and get caught up on payments to avoid home foreclosure. If they are unable to do so, then a real estate auction is likely.

At least 20 days before the scheduled date of auction, a notice of sale will be posted for public viewing. The goal of this notice is to put the word out about the real estate auction and increase the chances for a quick sale at the auction.

The Purpose of Home Auctions

Keep in mind that Austin mortgage lenders are not in the business of managing and selling homes — they are in the business of selling mortgage loans. So when lenders foreclose on an Austin home they want to sell the property as quickly as possible. Of course they want to recoup the money owed to them in the process. But lenders do not usually consider a real estate auction to be a profit opportunity. They just want to sell the home to get it off their hands — and off their books.

In Austin, public auctions for foreclosure properties usually take place at the county courthouse. And like any other form of auction, the home will go to the highest bidder. Profits made from the sale (above and beyond what is owed to the lender) will typically go toward paying off lien holders, if there are any, and to the original borrower.

Austin Real Estate Auctions - Tips for Home Buyers

The starting price for a foreclosed home at an Austin real estate auction will normally be based on the amount that is owed to the lender, plus any expenses the lender has incurred. From an investment standpoint, this is the attraction of Austin home auctions in the first place. You can often get a home in an auction for less than you’d pay for that home on the regular market.

Now we get to the issue of financing. Before bidding on an Austin foreclosure home at a real estate auction, you need to have your financial ducks in a row. The financing requirements will vary from one auction to the next, so you’ll need to do some homework in advance.

As with many other types of auctions, the most common financing “rule” for home auctions is that you have the money in hand so you can provide the funds upon successfully bidding. When you think of it from the lender’s perspective, this only makes sense. The last thing the lender wants is to put an Austin home up for auction only to have the top bidder fall through with the financing. They would have to do the process all over again, or else contact other bidders.

Lastly, you should realize that many foreclosures homes sold at public auctions in Austin are sold “as-is” with no guarantees or warranties. So if you ever have the opportunity to inspect a foreclosed home before the auction (even if it’s just a quick walk-through), take the opportunity to do so. Otherwise, just remember that you get the home you bid on, and nothing else in the way of warranty.

Conclusion - Learning About Austin Foreclosures

This article is just an overview of the basic foreclosure process in Austin, buying a home at a real estate auction, etc. If you are serious about buying foreclosed homes and attending public auctions, it’s in your best interest to conduct further research on the subject:

Books and articles help, but there’s no substitute for talking to somebody who has been through process repeatedly (such as a real estate agent or an investor).

Good luck with your Austin real estate purchase and home auction adventures!