Training Call Buying At Foreclosure Auctions As Seen On Bob Diamond, Attorney Ed Diamond, MBA
How Do You Buy at Foreclosure Auctions? Get the Auction List Do your homework on the properties Show up Ready to Bid
Two Types of Foreclosure Auctions Two primary types of Foreclosure Auctions Trustee s Sales and Sheriff s Sales Trustee s Sale is a Non-Judicial Sale where the Trustee can sell the Property if Payments are not Made. No Court Sheriff s sale is a Judicial (court-ordered) sale - also the result of non-payment but prior to foreclosure auction there is a foreclosure lawsuit to get the court order
How Foreclosure Auctions Work The property is put up for public auction by the Trustee or Sheriff There is an announced or unannounced minimum bid called the upset price or minimum opening bid Bidders compete via voice and whomever is highest bidder wins. At that time they usually put up a cash deposit (certified check or cash) of a % of the bid or the entire amount (check the rules) You complete payment in cash and a deed gets recorded sometime later no conventional financing is available due to this issue
How Foreclosure Auctions Work The bidder is usually on his own to move the existing owner or tenants out of the property There are no guarantees of property condition, free and clear title or anything else. You must do your homework You must check occupancy, title and property condition before the auction. That is why you get paid
Where Do you Get the Foreclosure List? Do a Google search looking for the Sheriff if your sales are Court-ordered Judicial Sales, otherwise look for the Trustee websites Check your local newspaper they are always advertised in the legal section usually 3 times before the sale Stop by the Courthouse There are sometimes services that do value added to the list like pulling comps, taking photos and the like which is helpful. Consider subcribing
Where Do you Get the Foreclosure List? Lets go take a look on Google for a Foreclosure Auction
Why Buy at Foreclosure Auction? The pricing is good. Typically 70% - 82% of retail minus fix-up costs. Typically best pricing available given the amount of work you have to do Easy to do deals no homeowners to deal with, banks to negotiate short sales or REOs Can provide a very steady source of deals for you and your buyers
Where Do You Get the Money? Private Money / Hard Money is usually the source for the Funds You cannot get a regular mortgage for these transactions which reduces price of the asset most people refinance later once they get the deed from the auctioneer You may want to use a line of credit on another piece of real estate
When is the Money Paid? You will pay a cash / cash equivalent deposit at the time of your bid anywhere from 10% to full amount of your bid Attend a sale ahead of time and get the conditions of sale and ask the auctioneer Check with the Auctioneer if extensions are available they sometimes are
Items to Watch Out For Occupied properties Foreclosing Lien NOT in first position If any items are not being paid off at the sale IRS, real estate taxes, anything else Poor condition of the property
To Do List for Due Diligence View the Property inside if possible for condition and occupancy Pull a title report and verify the lien position of the foreclosing creditor first in time is first in line! Check on opening bid with foreclosing attorney or Trustee and verify property is going to be auctioned Calculate your bid amount and show up at auction ready to bid with your deposit
Due Diligence - Title Reports I typically get a Lien and Judgment search or Last Owner Search Verify the following: There is a purchase money mortgage with the current owners purchase or a large lien that looks like it is the entire purchase price That the first lien is foreclosing No IRS liens they will delay you If you see municipal liens make sure they are getting paid from proceeds of sale by conferring with the auctioneer This is not 100%! Most common error is bidding on a second position lien foreclosing
Due Diligence - Condition I look at each property by doing a drive by to verify Whether it is occupied if vacant how long vacant? Has property been vandalized? Look in windows Illegal to break into the property. Many people do anyway Talk to the neighbors to see what is happening Look carefully at the roof for sagging/uneven/worn out Look to see that window frames and door frames are square at corners Look at A/C compressors to see if they are present and accounted for There are no inspections in our area the outside and inside conditions are similar, but in Las Vegas they are not necessarily corresponding
Due Diligence - Pricing Pull comparables for properties you are looking at Call real estate for sale signs
Items to Watch Out For Environmental Contamination Do not buy commercial properties or anything that could have environmental contamination
Items to Watch Out For - IRS IRS liens are wiped out by a first in time lien IRS liens have 120 day redemption period but they would have to reimburse you for your bid plus interest at 10% - but not for repairs/improvements IRS will sometimes release it if you ask the Special Procedures branch You cannot sell or mortgage with a live IRS right to redeem hanging over your property
Items to Watch Out For Owner / Lienholder Redemption Owner and Lienholder Rights of redemption verify with local foreclosure or real estate attorney. Can be up to a year! If you have a right of redemption you may be able to purchase it from the foreclosed owner or lienholder through a quit claim deed If you are subject to a right of redemption you need to wait before doing renovations, trying to mortgage, resell or rent the property out
Items to Watch Out For Condo and HOA Associations Condo and association fees often have some protection up to six months check if you are buying one
Items to Watch Out For Occupied Properties Never get into battles with property owners or into a position where you have to evict them unless you get a screaming deal Offer cash for keys Don t rent back to them they will not pay you Vacant houses are better to buy
Items to Watch Out For Pre-Foreclosure Many States have rules when dealing with owners in foreclosure I suggest you skip dealing with them and stick to the auctions. Examples of States are California, Rhode Island, Maryland, Minnesota, Florida and many many more NO sale lease-backs with owners in foreclosure!!! If you are doing pre-foreclosures work with an attorney in your state who knows that legal area www.martindale.com
Why Buy at Foreclosure Auction at All? Great pricing Simple process Overall profitable way to invest
Forms You Will Use Auction Bid Calculator Flipper spreadsheet