Buying Foreclosures at Auctions

Ok -- I've never bought one at an auction, but here's the scenario for me:

I know of a house that is in foreclosure right now. Owners have stopped making payments... I already tried to do a short sale with the lender, but they won't accept my very reasonable offers.

At this point I want to buy it at the Sherriff's auction when it goes up...

Questions I have:

- What determines how high the lender will bid on it? I know the owner is upside down on it right now.... So will they bid it all the way up to what's owed!?

- How do I find out when it's coming up for auction? Right now it's in the process of being foreclosed on.

- There is both a first & 2nd on the property. How is this going to impact the auction?

Cheers,

- Hakrjak

from what I have seen, the attorney from the bank shows up and holds is hand up bidding until the bid reaches the amount owed. Now in todays environment, has that changed? Not sure.

Yeh that's what I was thinking. It would just be a waste of my time to go to the auction if they want to do that, because the amount owed is like $30k more than the property is even worth. lol

-Hakrjak

I only have experienced in Larimer county. Chances are if its upside down they will list it that way at the auction. You are better off waiting. Most likely no one will bid on it in any case.

To find out when contact El Paso county trustee http://elpasopublictrustee.com/

If the first is being foreclosed on the 2nd will be wiped clean at the auction. An option you have is to find out who owns the 2nd and see if you can't purchase that for from them for pennies on the dollar.

Example. 200,000 mortgage on properties.

150k First
50k 2nd.

You purchase the 2nd for 15k. File your intent to redeem and redeem the property by paying off the first. Total Input 165k on 200k property. Very simplified, but you get the idea.

08 redemption period just changed this year in Colorado so all the 08 properties will be coming up sometime in April.


Hakrjak, I can go into specific Colorado foreclosure info if you wish, just let me know.

I've been to alot of these. Sometimes the bank will bid up to the amount owed, other times they don't. There doesn't appear to be any rhyme or reason to it. The only way to find out is to show up at the auction and be prepared to bid. Its definitely worth going to find out. In Ohio the sheriff's department in each county maintains a list of upcoming sales on its website. The listing will include the sale date and time, a list of addresses, and the appraised value of each one. Hope this helps.

Howdy, I bought a foreclosed house last October at auction in San Francisco Bay. Here are a few points (my ‘Top 10 list’) you might consider that I deem essential:

1. Location
Peterson Air Force Base did well last round of BRAC. There is no guarantee in life it will do so well next BRAC round in 2010. Likewise, what little I know of Colo. Springs is that the Res RE market is fairly strong. Again, that is subject to change. Bid accordingly.

2. Research the title yourself. Many title companies right now are ether compromised, overworked, or simply under duress. You are buying ‘as is’, including un-seen liens and clouds.


3. This is important and not on many people’s radar right now: Make sure that those foreclosed won’t fight the foreclosure. Judges in Fl. and Oh. have stopped foreclosure proceedings on the grounds the bank could not prove ownership.

4. Has the bank holding the 1st filed a Notice of Default yet?
If so, has it been recorded? [Try to find the lag time between action and recording in your county]. What was the family’s reaction to the filing? (Were they served by the Sheriff?). Homes are emotional. Make sure that the guy getting foreclosed isn’t likely to knock on YOUR door in six months, brandishing a weapon, asking for HIS house back.

5. Financing
You state it will be a ‘Sheriff Sale’; in your county is that a
TRUSTE SALE
BANKRUPTCY SALE; or
REAL ESTATE OWNED PROPERTY ?

[In California a ‘Sheriff’s’ sale typically refers to foreclosure and sale by the county, very different than a REO foreclosure].

Also, makes a difference on how much you might need to put down and finance. I had to put down 5% upon winning bid and close in 30 days. Some lenders were sketchy on loaning for a foreclosed house purchase and my sense this is much more true today. I would make sure you could buy the house outright (cash) in case your financing falls through. Can’t stress enough the fear and uncertainty in the banking system right now; try to line up backup financing if you can’t swing the deal on your own in full, or line up a buyer.

6. Make sure the Forgiveness of Debt is not a taxable event to you. Understand the new IRS code and Colorado law, or find someone who does.

7. Home inspection
You likely won’t be able to enter the home after you purchase. Suggest you understand extremely well the deferred maintenance on the house. Only takes a couple items like a HVAC failure and foundation problem to turn your profit into loss very quickly. If the family couldn’t afford the mortgage, they likely weren’t maintaining the house. [and many newer homes were built poorly, so learn and understand the home’s integrity]. Most inspectors don’t cover/understand lead, asbestos and mold. Figure that one on your own.

8. Comps
Use the last five years of comparable figures to project the price trend line out for two years; that will show you where the city is in the 7year RE trend. Bid accordingly.

9. If the Bank uses an auction house/broker that requires a fee of 5% or more, I’d pass.
Our house was brokered by Williams and Williams, they did not charge a percentage fee, just a 3% fixed rate upfront. They were the only entity the bank would talk to. W&W would only talk to me, they would not talk to my lender. Can’t imagine what any broker would do that is worth 3%, not too mention anything over that. Some of the auctions by other firms require 10% above the winning bid.

10. Know all the numbers (understand the position of every party)
In my case the bank started the auction at 50K when they held the 1st position for 348k. They accepted 198k, for a loss of 150k. The second was already closed out for their 52k. There was no bank lawyer present shilling. However, I did find out who the bank’s appraisers were. Try to find them in advanced, helped me a little bit, even if you just read their body language.

Other Thoughts:

Not sure that the house won’t sell at auction. My home had quite a bit of interest, over 15 bidders from an even larger crowd.

Try to understand the competitor bidders and get in their head.
Don’t get auction fever. Set your reserve and don’t go over that.
Don’t pay too much. Learn some auction techniques. Near the end of the auction you might be able to either trick the shill into balking (you win), or overbidding (they don’t pay and you then counteroffers to the bank [for another 3% less!).

Good luck.

Bilgefisher:

Lots of folks are having problem negotiating with, or even reaching/conversing with, an empowered bank employee. Why would the bank entertain redemption on the second with any more favor than the banks (in general) are currently giving short sale offers on the first? I understand your strategy, just not how to make a compelling argument - much less get a foothold or audience, with the second positon.

I understand your point, but thats exactly how the investors I work with do it. They flip 15-20 props per year. Yes they have an in at the banks. Relationships that they have built up over the years. Hakrjak may not have those ins, but he buys enough Real estate to have some contacts (I would imagine). I don't believe that because some people are having trouble negotiating that everyone is having trouble negotiating with the banks. My very first flip the 2nd was worth 8k. We picked it up for 3k. Then we bought out the first through redemption. We had first priority to the prop.

Example. Lets say someone purchased the prop at auction. We file our intent to redeem and purchase the property out from under them. Now we do have to pay what they bought it for at auction, so if the prices go high then we pass on the property and eat the 2nd. Thats the risk. If we do plan on redeeming and we know someone is going to try and purchase it at auction, we let them know. It saves both parties a headache. We pay slightly less and they don't have the property snatched from them.