There are a lot of misconceptions about what someone who has lost their property to foreclosure goes through. In the public’s eye, these people have been kicked out on the street with nothing and completely ruined by debt. This simply isn’t true. The actual process is very similar to bankruptcy auctions, though there are some crucial differences to make sure you understand.
A homeowner can either choose to sell their house in a foreclosure auction or submit themselves to bankruptcy. In the case of a foreclosure, they will lose their property and potentially owe taxes on any outstanding balances. They usually have between 6 months and 2 years from the date the original property lien was established to pay it off. If they cannot pay the full amount, they will lose the title to the property and it will go up for auction.
Bankruptcy is a lot like this except there are no hard deadlines. They can file any time before their assets are repossessed or sold by another party, though typically there is some overlap here. The big difference between these two processes is the assets. In a foreclosure, you are only bidding on the property itself. This can be any number of things but in most cases is your house or condo, though it could also be storage units, boats, vehicles, or anything else that you own.
The biggest difference is that during a foreclosure auction, the investors are legally entitled to bid on the property. This means that, unlike bankruptcy auctions, foreclosure auctions are not governed by state laws like the Federal Trade Commission’s (FTC) “Cooling-Off Rule.” In a foreclosure auction, it is legal for bidders to communicate with each other and even work together to drive up the prices of certain lots. In a bankruptcy auction, this would be considered collusion and is not allowed.
The FTC’s “Cooling-Off Rule” requires that all bidders in foreclosure auctions must wait at least 3 days before bidding again on the same property during the sale. This rule was implemented to prevent investors from artificially driving up prices with quick bids after the house was foreclosed.
It is at these auctions that homeowners can sell their property to avoid foreclosure. However, this doesn’t mean that every home auction automatically qualifies as a foreclosure auction – there are many other factors involved before it can be declared one.
Despite its similarities with foreclosure auctions, bankruptcy auctions are different. This is because they are used to sell off assets in bankruptcy cases – deeds of trust are not considered assets most times, but the property they secure most certainly is.
Interest rates also play a vital role in determining whether or not an auction is indeed a foreclosure auction. If the interest rate does not equal or exceed 5 percent for 30 of the most recent 60 months, it cannot be considered a foreclosure auction.
