Auction properties offer potential below-market pricing in exchange for compressed timelines and reduced due diligence. The financing challenge is fundamental: most auctions require the buyer to have funds available within 24 hours to 30 days, which is incompatible with standard mortgage closing timelines.
Types of Auctions and Their Settlement Rules
Courthouse steps and sheriff's sales (traditional foreclosure auctions) typically require payment in full on the day of the auction or within 24 hours. No mortgage lender can underwrite, appraise, and fund in that timeframe. These properties are exclusively for cash buyers. Online auction platforms such as Auction.com and Hubzu operate differently: some allow financing contingencies with 30-45 day settlement periods, particularly for REO properties. Read the specific terms for every auction listing before bidding.
Financing Strategies for Auction Buyers
- ✦Hard money or bridge loan: funds in 7-14 days; LTV typically 65-75% of purchase price; used for purchase at auction, then refinance into permanent financing after improvements or after hold period
- ✦Cash purchase with delayed financing exception: buy with cash, then apply for a cash-out refinance within 6 months of purchase. Fannie Mae's delayed financing exception allows a rate-and-term-equivalent refinance up to the lesser of acquisition cost or appraised value without a waiting period.
- ✦Pre-approved bridge with proof of funds: some online auctions accept a letter from a bridge lender as proof of funds for bidding purposes
- ✦Tax lien auctions: buying a tax lien certificate is not the same as buying the property. The lienholder must complete a redemption or foreclosure process to acquire the deed, which takes additional time and legal steps.
Title Considerations at Auction
Auction properties often carry title risks that would be found in a standard title search but that the buyer accepts without recourse in the auction. Junior liens may survive the foreclosure sale depending on how the foreclosure was conducted. IRS liens have a 120-day right of redemption after a non-judicial foreclosure sale. Tax liens may be senior to the mortgage being foreclosed. Many title companies will not insure auction purchases without a title search and attorney review. Always obtain a title search before bidding if at all possible, and budget for possible title clearing costs.
Aria at vicariointel.com can help structure post-auction refinance strategies, explain the delayed financing exception requirements, and identify hard money and bridge lenders for auction financing.
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