Foreclosure investors often make the decision to do their own bidding at foreclosure sale auctions.The general misunderstanding about the nature of foreclosure sale auctions is that the foreclosure investor actually bids on the property when in fact what he bids on is the mortgage itself.

The mortgage is also called a liens. What this means is that even though an investor wins the bid on a mortgage at a foreclosure sale auction, he may never really acquire the property.

Many parts of the USA give the homeowners their last chance to save their home. It is called a redemption period and can last anything up to a year. If they can raise the money to cover what is owing, they get the property back and the highest bidder is no more.

What are the different types of mortgages or liens that the foreclosure investor should be aware of?

• The senior lien is the first mortgage. This is the loan that the homeowners signed for to purchase the property. Owning the first mortgage or senior liens will give the foreclosure investor the best chance of eventually acquiring the property.

• The junior lien is usually a second mortgage or a home equity loan. It is any other loan the homeowners had approved using the property as collateral. There can a number of junior liens and they take low priority on the totem pole and are often erased from the books during the foreclosure process.

• A tax lien is a claim against the property for unpaid state property taxes. The state property taxes has priority over everything else. A tax lien remains in place after foreclosure. If the tax lien is for unpaid state property taxes,the buyer is liable for this lien. If the lien is for income taxes, then that is another kettle of fish and the foreclosing attorney needs to deal with this.

Novice foreclosure investors should probably consider attending half a dozen foreclosure sale auctions before actually bidding at one. The investor then not only learns the process but also is able to identify the competition. It is wise for the investor hold off bidding at foreclosure sale auctions until he fully understands the process and knows what he is buying.

At the auction, the foreclosure investor has the opportunity of purchasing a controlling interest in a property without having to deal directly with the distressed homeowners who understandably are often in an unpleasant emotional state at this time.

It is important that the investor does as much research on a property as possible because buying at an auction presents the investor with a number of other challenges.

• The investor must be aware that depending on the number of real investors at the auction he may face some stiff competition. The investor should therefore set a maximum price he can afford to pay for the lien and still make a 20% profit . The investor must then be disciplined enough to stick to it. It is all too easy to get caught up in the frenzy and excitement of an auction.

• The investor may not have the opportunity to thoroughly inspect the property and therefore should be prepared for properties that are sold as is in less than peak condition requiring some maintenance or costly repairs.

• If the investor plans to bid at an auction it would be wise to take a cashiers check as a cash payment is usually required at the time of purchase.

• When purchasing a mortgage in a state where there exists a mandatory redemption period, The investor should be aware of the financial consequences of waiting out this period before seeing a profit.

• The opening bid at an auction is normally the minimum bid calculated to cover the money owed on the property plus attorneys fees and whatever else. If no one offers a high enough bid, the bank takes possession of the deed and transfers the property to it Real Estate Owned (REO) department and prepares the property for sale.

There are risks an investor must take bidding at auctions. Only by being thoroughly prepared going into an auction can an investor confidently purchase the deeds to properties that are almost certain to make a profit.