Courthouse Steps: Auction Buying Guide
Courthouse steps auctions are the original foreclosure sale format. The property is auctioned on the steps (or in the lobby) of the county courthouse by a trustee or sheriff. These auctions happen on fixed schedules and offer some of the best deals in real estate because the competition is limited to investors who show up in person with cash. If you are willing to do the research, bring the funds, and accept the risks, courthouse auctions are one of the most direct paths to below-market properties.
How the process works
The foreclosure auction is the final step in the non-judicial foreclosure process. Here is the typical sequence:
- The lender files a notice of default after the borrower misses payments
- After a waiting period (varies by state), the lender files a notice of sale specifying the auction date, time, and location
- The notice of sale is published in a legal newspaper and recorded with the county
- On the auction date, the trustee or auctioneer reads the legal description and opens bidding
- The lender typically submits a credit bid equal to the outstanding loan balance (they do not need to bring cash since they are owed the debt)
- Third-party bidders must bid above the opening bid with cash or cashier's check
- If no third party bids higher than the lender's credit bid, the property goes back to the lender as REO
- The highest bidder receives a trustee's deed and owns the property
What you need to show up with
- Cash or cashier's check: Most auctions require immediate payment or payment within a few hours. Some states allow a deposit at the auction with the balance due within 24-48 hours. Verify your county's specific requirements.
- Identification: Valid government-issued photo ID
- Entity documentation: If bidding through an LLC, bring the articles of organization and operating agreement showing your authority to bid
- Research folder: Your pre-auction research on each property you plan to bid on, including your maximum bid for each property
Pre-auction research
Your research determines whether you win or lose at courthouse auctions. For each property on the auction list:
- Verify the outstanding debt: The opening bid is typically the loan balance plus accrued interest, fees, and auction costs. Some lenders bid less than the full balance to attract bidders. Verify the estimated opening bid from the trustee's published notice.
- Estimate ARV: Run comps on renovated properties in the area. This is your ceiling for the property's potential value.
- Estimate repairs: Drive by the property and estimate the exterior condition. Assume the interior needs at least a moderate rehab unless you have evidence otherwise.
- Check for junior liens: Second mortgages and HELOCs junior to the foreclosing lien are wiped out at auction. But if a junior lien holder is foreclosing, the senior lien survives and you inherit it. Know which position is foreclosing.
- Check for IRS liens: IRS tax liens survive foreclosure and give the IRS a 120-day right of redemption after the sale.
- Check occupancy: Is the property occupied? If so, budget for the eviction process and timeline.
Bidding strategy at the courthouse
Courthouse auctions have a unique dynamic:
- Many properties receive zero bids: Properties where the loan balance exceeds the market value (underwater) will not attract bidders. These go back to the lender as REO.
- The best deals are quiet: Properties with minimal competition offer the best margins. If 10 investors are bidding on the same property, the price will be pushed to near market value. Look for properties that other investors are ignoring.
- Speed matters: Auctions move quickly. The auctioneer reads the property description and opens bidding for each property. If you are not ready when your target property comes up, you miss it.
- Auctions are cancelled frequently: Borrowers can stop the auction by filing bankruptcy, paying the arrears, or negotiating a loan modification with the lender. Do not count on any specific property being available until the auctioneer calls it.
The 70% rule at auction: Your maximum bid should be ARV × 70% - repairs - your profit margin. If the opening bid exceeds this number, walk away. There will always be another auction next month.
Post-auction steps
- Record the trustee's deed: File with the county recorder to establish your ownership
- Change the locks: If the property is vacant, secure it immediately
- Serve eviction notice: If occupied, begin the legal process to remove the occupant
- Inspect the interior: Conduct a thorough inspection and finalize your rehab estimate
- Obtain insurance: Insure the property immediately. Your existing investor insurance agent can usually bind coverage same-day.
- Decide your exit: Wholesale to another investor, rehab and flip, or hold as a rental. Your actual interior inspection may change your original plan.
Wholesaling courthouse auction properties
You cannot assign a courthouse auction purchase because there is no purchase contract to assign. However, you can buy the property at auction and immediately wholesale it through a standard sale to your investor buyer. The process is:
- Win the auction and record the trustee's deed
- Market the property to your buyer list using outreach tools and a marketing package
- Sign a purchase agreement with your buyer
- Close through a title company
Your profit is the difference between your auction purchase price and the price your buyer pays. Have your buyer identified before the auction if possible to minimize your holding period.
Related articles
- Buying at Real Estate Auctions
- Wholesaling Pre-Foreclosure Properties
- Wholesaling Bank-Owned REO Properties
- Proof of Funds: What Buyers Need