Auction

What it is

An auction is how the county or the bank sells a property where someone stopped paying. Two main flavors: tax auctions when property taxes go unpaid (after several years of delinquency, usually three to five), and foreclosure auctions when the mortgage defaults. You show up at the courthouse, you bid, you pay cash. No inspection. No financing contingency. No walk-through. Just a property description and whatever you could find by driving by.

Ross’s honest note: “I don’t have any real experience with tax sales, foreclosures, tax auction. Tax auctions are kind of like foreclosures, except for it’s not the lender foreclosing. It’s that the people owed taxes back taxes.” The government doesn’t care about the equity. “They’ll just take the exact amount that they’re owed.” That’s where the deep discounts come from.

Why it matters

Auctions are a channel for cheap inventory, and the discount comes from the risks other buyers won’t take. You can’t see inside. There can be tenants, squatters, or holdover owners. Title can be clouded. And in a lot of states there’s a redemption period where the original owner can come back, pay what you paid plus interest and penalties, and get their house back. “I’ve seen this happen. Tens of thousands of dollars down the toilet.”

If you rehab during redemption, you can lose the house and the improvements. The law typically doesn’t reimburse you for money you spent fixing it up, or for the time, stress, and opportunity cost of having your capital locked in the deal. Experienced investors use auctions; newer investors get crushed.

How it shows up

The research happens before the auction. Drive the neighborhood. Pull a title report if you can. Skip-trace the owner. Set your max bid the same way you would on any other house: ARV times 0.70 minus rehab. Stop bidding when you hit the number.

Respect the redemption period. Don’t pour money into rehab until it expires, or negotiate directly with the former owner to waive their right of redemption (a strategy Ross calls redemption hacking: find the previous owner, partner up, cut them in). In Tennessee the tax sale redemption is one year. “Depending on where you live, that could be 60 days, could be one year, or it could even be 3 years, like in Alabama.” Some states have no redemption at all and the house is yours clean the day you pay.

Ross stays in his own backyard: “You want to pick a couple and get really good at them.” Auctions are a specialist lane, not a first-deal lane.

Related

foreclosure, redemption period, redemption hacking, max allowable offer, title company