Have you ever checked out the legal notices in your local newspaper and spotted foreclosed properties going up for auction? Usually, they request you show up with a check for $5,000 to get in on the bidding. If you see auctions like this in the paper, be cautious. It is probably not the best way for you to obtain property at a reasonable price. Why? Read on.

     The property is being auctioned because the owner couldn't pay his expenses. They got in over their head, made bad decisions, and they drowned in their debt. In many cases, ridiculous prices were paid for the property, which means that the mortgage could be as much, if not more than, the cost of the house. If the home owner wasn't paying their mortgage, then they probably weren't paying their property taxes either, which could easily be thousands more on top of the mortgage sale. There is also a water and/or sewer authority which may have the right to place liens on the property, and to top it all off, the property may be in disrepair from neglect. How well do you think they were taking care of a property they knew they were going to lose? It may actually end up costing you more than the property is worth!

     Here is my idea: In a weak housing market, there are lots of REO's (Real Estate Owned) properties that banks are selling. Essentially, they foreclosed and they have the property on the market to recoup as much money as possible. Banks don't want to own property, they want to hold mortgages and collect origination fees/interest. As a result, they want to get rid of the properties. My advice is to keep track of a handful of bank-owned properties in your area, then watch them for a few months. Sure, some will be sold in that time, but others will be consistently marked down. When this happens, make a solid offer below the asking price, and there is a good chance you will walk away with a bargain. Just a word of warning: Banks usually sell these houses "broom clean". There won't be any garbage around, but they could very well need serious cleaning, and may need lots of repairs. Use these factors to your advantage. If the property has been sitting on the market for months, pointing out the flaws could help you negotiate thousands of dollars off the price. Good Luck!