First and foremost, talk to your lender and determine what you can realistically afford to pay for a home. Because of the short escrow period (30 or 45 days), you must be pre-qualified for a loan before you can buy property at a HUD auction.
"Start working early," stressed Sue Troxcil, loan officer at Western Cities Mortgage Corp. "There are a lot of programs out there. Even if your credit is not perfect, you may still be able to set up financing. It will just take longer."
Once you have an idea of how much you can afford to spend, study the free auction brochure and pick out several homes that meet your space and location needs.
While the Los Angeles HUD office requires you to work with a real estate broker, it's optional in Orange and Riverside counties, but it's a good idea in any case. A broker who knows the area and the current market value of similar homes will help prevent you from overvaluing the property.
Next, with your broker, carefully check out each home that interests you. Auction properties are open for inspection 10 days before the sale. Because the catalogue pictures can be deceptive, an on-site survey is crucial to making an accurate evaluation of needed repairs and any zoning or code violations.
"Some of the homes we saw, all they had were walls," Eldaa Rivera said. "And even though you look, you don't know if the electricity or water works. These problems really concerned us."
Although HUD will not pay to turn on the utilities, it is sometimes possible to arrange to have them switched on for a couple of hours at the buyer's expense, Cobb advised.
Cobb, who himself lives in a HUD home, added that if there are serious reservations about a property's condition, it could be worthwhile to hire a professional inspector, who, even if the utilities are not working, may spot foundation and structural problems that would otherwise be missed.
After deducting the estimated cost of repairs and remodeling from the market value of the property--and remember to include the time needed to complete them in the equation--you should have a fairly good idea of what it is worth to you.
Because Bell works for a Pasadena social service agency and does not want to commute, she chose to bid on only one property--the sole house up for auction in nearby Altadena--but the odds for a successful bid are better if the buyer is able to be flexible about location.
Although properties are available throughout Southern California, the selection in some areas is limited. At a Los Angeles County auction, a number of homes were for sale in Lancaster, Palmdale, Pomona, Long Beach, Carson and Compton, with relatively few in Pasadena, Canoga Park and Torrance.
The Riveras were fortunate in that they both worked in the Riverside area, where there is a larger selection of properties. Their new home is 10 minutes from Eldaa's job as a health educator for Riverside County and 15 minutes from Victor's work in shipping and receiving at Target stores.
HUD holds free pre-auction buyer awareness seminars to help familiarize prospective buyers with the dynamics of the auction. Bidding, financing and closing procedures are gone over in detail. Although attendance isn't mandatory, it's a good place to ask any last-minute questions--and you may be surprised at what you learn.
During a practice bidding session at one seminar, for instance, everyone laughed when the auctioneer managed to sell a $20 bill for $25, but he effectively made his point: The competitive spirit can suck you into an impulsive bid if you're not alert.
On the day of the auction, bring a letter from a HUD-approved lender stating that you have pre-qualified for a specific mortgage amount. You'll need this to register as a bidder. If you plan to bid on an uninsured property, you must provide a letter stating that you have sufficient funds to pay the entire purchase price by the time escrow closes.
You'll also have to bring $1,000 earnest money in the form of cash, cashier's check or other certified funds, which will be forfeited if escrow fails to close. Investors who intend to purchase more than one property must present $2,000 for each additional property.
After you have registered, you'll be handed a large white card with a number written on it. This bidding card is raised to place bids during the auction.
Once bidding gets under way, things move quickly--a property is sold, on the average, every 2 minutes. "The average consumer is so much more educated about government programs that the competition at HUD auctions is stiffer than it was a few years ago," Cobb warned. Still, most brokers agree that the properties generally sell for under-market value.
As each property comes on the block, the auctioneer announces its address and, to avoid confusion, a large video screen displays the catalogue photograph.