How Do Foreclosure Auctions Work? A Plain-English Guide

A foreclosure is the legal process a lender uses to take back a property when the borrower stops making mortgage payments. The loan is secured by the house, so the lender can force a sale to recover what it is owed. Each state sets its own rules and timeline.

The difference is who runs the process. In a judicial foreclosure, the lender files a lawsuit and a court orders the sale, often carried out by a sheriff ("sheriff's sale"). In a non-judicial foreclosure, the mortgage or deed of trust gives a trustee the power to sell the home without going to court ("trustee's sale"). Which one applies depends on the state and the loan documents.

The property is offered to the public at a set time and place, in person or online. Buyers who have registered and met the sale's requirements make offers, and the highest one that meets the lender's minimum wins. The lender often makes an opening offer close to what it is owed.

What each sale asks of a buyer is set by the seller and the state. Ask a Vihara advisor about the terms of a specific property, at no cost.

If no offer meets the lender's minimum, the lender takes the property back. It becomes real estate owned (REO), also called bank-owned. The bank then sells it later, often through an agent or an online platform such as Vihara. Many buyers prefer bank-owned homes, because the bank has usually had time to deal with some title and occupancy issues first. (What a bank-owned home is)

The main risks are buying a house you couldn't fully see, and buying problems that come with it. Check these before you settle on a number:

1. Condition. Homes are sold as-is. You may only see the outside, so budget for the worst parts of the house, not the best.
2. Title. Liens and claims can follow a property. Get a title search from a title company or a real estate attorney.
3. Occupancy. Some homes are still lived in. The rules for occupied homes differ by state, and they take time.
4. Your own number. Work out the most you will pay from repairs, holding costs and what the house is worth after work, and stop there.

Yes. You don't need to be an institutional investor. Most first-time buyers start with bank-owned homes, because the process is calmer and there is often more information about the house. Our first foreclosure guide walks through the steps.

Look in three places: your county's court or sheriff notices for judicial sales, the trustee notices recorded in your county, and online platforms that bring bank-owned and distressed homes together. On Vihara, every property shows its starting price next to an estimate, so you can see the deal before you decide. Find a property deal on Vihara.

Government-owned homes are listed separately on HUD Home Store, and Fannie Mae's homes on HomePath. USA.gov lists other government property sales.