"Auction the house" is not quite right as spoken by the the title company, but there has to be a Trustees Sale which is similar to an an auction. In Arizona a Trustees sale is "our way" of proceeding with a foreclosure, and since your father transferred title - it is the only way to recover the property.
As with all things, there is a proper procedure and notices must be filed...yada, yada, yada. Since it doesn't sound like you are at all familiar with the process, you should have an attorney handle it for you.
If you need an attorney recommendation, message me through Trulia or my website.