Penny auction (foreclosure)

A penny auction (foreclosure), also sometimes referred to as a sheriff's sale or a tax deed sale in some jurisdictions, is a public auction where foreclosed properties are sold, typically to the highest bidder. The term "penny auction" is misleading because properties are rarely sold for actual pennies; rather, the name reflects the potential for bidders to acquire properties at prices significantly below their market value, although this is not always the case.

These auctions are usually conducted by the county sheriff, a trustee, or a similar official with legal authority to sell the property due to the homeowner's default on their mortgage or failure to pay property taxes. The proceeds from the sale are used to satisfy the outstanding debt owed to the lender (in the case of a mortgage foreclosure) or the unpaid taxes (in the case of a tax lien foreclosure), along with associated legal and administrative fees. Any remaining funds, after all debts are paid, are typically returned to the former homeowner.

Participation in a penny auction (foreclosure) typically requires bidders to register in advance and often to provide proof of funds, demonstrating their ability to pay the winning bid. The auction process itself involves open bidding, with properties sold to the highest bidder at the conclusion of the auction.

It is crucial for potential buyers to conduct thorough due diligence before participating in a foreclosure auction. This includes researching the property's title, any outstanding liens or encumbrances, and its physical condition. Properties sold at foreclosure auctions are often sold "as is," meaning the buyer assumes responsibility for any existing problems, including repairs, back taxes (in some cases, despite the purpose of the auction), and eviction of any occupants. Buyers should also be aware of the legal requirements and potential risks associated with purchasing foreclosed properties in their specific jurisdiction.