Mortgage Paid Off at Closing

• Some auctioneers agree to auction a property as long as the current bank loan or mortgage is paid off at closing. For example, Absolute Auctions in New York allows a seller to auction a home as long as all outstanding debts are paid at closing and the seller provides an insurable title to the buyer. If the title is not free and clear, back taxes are owed on the property or there is a judgment on the property, the down payment is refunded to the buyer. According to the Absolute Auctions website, closing usually takes place within 60 days after the auction ends.
  
  

Mortgage Paid Off Before Auction

• Some auctioneers require a free and clear title before they auction a property. According to the Auctionarium in California, auctioneers will not auction a property that has an outstanding lien or an unpaid mortgage unless the seller has the cash on hand to pay off the debt. The Auctionarium requires that all liens against the property be paid in full prior to the auction date.
  
  

Seller's Risk

• If a seller chooses to auction a property that is still partially secured by a bank mortgage, the seller must be willing to take a loss if the winning bid does not cover the outstanding mortgage. Because an absolute auction does not include a reserve or a minimum bid on the property, the seller must pay off the remaining mortgage regardless of the final selling price. Once the auction ends, the seller cannot back out of the deal.
  
  

State Laws

• Some states have laws that protect buyers at real estate absolute auctions. For example, Ohio laws stipulate that a financial representative must guarantee the satisfaction of all outstanding liens after the auction ends or at the time of closing. The representative must guarantee the mortgage payoff without regard to the highest bid amount or the identity of the winning bidder.