Investor · Atlanta, GA · Member since 2013 · 212 posts · 107 votes
Has anyone successfully used hard money to fund a foreclosure purchase on the courthouse steps? Are hard money lenders typically willing to finance such a purchase, given all of the unknowns/variables? Any thoughts, stories, or lender recommendations would be much appreciated.
Unless you have a really, really good relationship with the hard money lender no. They want to know the value of the property, know what the rehab expenses will be, and have your money for the difference between the price/rehab and the percent of ARV they are lending.
None of the hard money lenders I have worked with would consider such a loan,,but again, if you really have a great reputation with a hard money lender you can ask.
They always want an exit strategy,,with what you talking about there are too many unknowns
Unless you have a really, really good relationship with the hard money lender no. They want to know the value of the property, know what the rehab expenses will be, and have your money for the difference between the price/rehab and the percent of ARV they are lending.
None of the hard money lenders I have worked with would consider such a loan,,but again, if you really have a great reputation with a hard money lender you can ask.
They always want an exit strategy,,with what you talking about there are too many unknowns
I think the only way it might be possible is if you have a local HML who "preapproves" you up to a number (price) on a specific property and personally attends the auction with you. Not sure how they do the auctions in GA, but in my state, its different from one parish (county) to the next. You have to have certified funds at the moment of sale or the latest is by 2PM on the day of sale. No time for any ordinary financing process.
If you're experienced buying at auctions and are willing to buy with all of the usual unknowns, this may be doable. For the average investor, I would recommend against trying it. You normally can't get into the properties to know what you are buying. Besides, in my hot home market, there are advanced pros who buy at the auctions and lots of people who just pay too close to retail for any investment profit potential.
@Robert Leonard Appreciate the response. Georgia requires certified funds immediately at the close of the auction. I do regularly buy at the courthouse; the issue here is that the property I am currently looking at is higher dollar than my typical deal, so have to come up with additional funding. My inclination was too many moving parts and nonrefundable, upfront fees with hard money (especially considering there is no guarantee of being the high bidder). Private money looks to be the only feasible option.
@Account Closed , I have been approached about such a scenario and it was very difficult to come to terms. The investor who approached me had other property which they owned free and clear. What we decided on was a limit to which I would provide funds against the existing property. The potential borrower was not successful at the auction.
It is actually a fair amount of work. I had to evaluate a situation which was far from certain to occur and, as I suspected, didn't. It was an interesting problem and I enjoy working out new situations but I would be unlikely to do it again. One exception would be if the borrower were an investor I knew well and, preferably, I had already done several deals with. Another would be if the property was in an area where I was interested in acquiring more rental property and the property was inspected beforehand so I was sure the target price represented a great deal.
This is something I have done a few times before with success. Send me some details of the potential deal and exit as well as some of your past purchases and results.
yes, I would also be surprised if a HML would approve a purchase via such auctions. They will generally require their own subject-to appraisals as well, which would require time that you would not have to do the necessary evaluation. When it comes to purchasing properties on the courthouse steps, in my opinion, its a risky move. You have to deal with issues like liens and making a purchase on a property you have not had to chance to thoroughly inspect to get a more accurate rehab budget. We make sure that any property we buy or sell has a clear title and estimates from professional contractors before moving forward.
@Account Closed , yes some private lenders and hard money lenders fund foreclosure auction purchase. I am a private lender myself and I can fund bidding at auctions for 66% of your bid price. This means you have to have some skin in the game. Also, I fund rehabbers who bid at auctions with experience. I require at least 5 HUD settlement statements (meaning, you should have done at least 5 deals before I am comfortable with you).
@Account Closed
When it comes to purchasing properties on the courthouse steps, in my opinion, its a risky move. You have to deal with issues like liens and making a purchase on a property you have not had to chance to thoroughly inspect to get a more accurate rehab budget. We make sure that any property we buy or sell has a clear title and estimates from professional contractors before moving forward.
@Tim Fergus Thanks for the response. I wholeheartedly agree, the risk related to the unknown condition of the property is certainly greater (although I disagree about lien risk, it's not all that difficult to run a title search). But so can be the returns. There is much less competition than fighting for properties on the MLS, no closing costs on the buy, and an immediately "closing." It's definitely not for everyone, though.
@Account Closed , yes some private lenders and hard money lenders fund foreclosure auction purchase. I am a private lender myself and I can fund bidding at auctions for 66% of your bid price. This means you have to have some skin in the game. Also, I fund rehabbers who bid at auctions with experience. I require at least 5 HUD settlement statements (meaning, you should have done at least 5 deals before I am comfortable with you).
@Wendell De Guzman Interesting, good to know. What would the terms be, as far as nonrefundable fees/points if you commit the capital, but the bidder doesn't win the subject property? Is there an upfront charge or no?
The only practical way to get a HML to fund foreclusure auction purchases is to provide them with alternative security before the auction. Even with a really good lender relationship, they will never comfortable funding foreclosures this way, imo.
The other thing you might consider is that even though we bought most of our foreclosures at auction in Vegas, we've bought nothing this way yet in Georgia. When we checked those auctions out a couple years ago with a view to buying, it was obvious they were ringed and never bothered after that, sorry to say.
The other thing you might consider is that even though we bought most of our foreclosures at auction in Vegas, we've bought nothing this way yet in Georgia. When we checked those auctions out a couple years ago with a view to buying, it was obvious they were ringed and never bothered after that, sorry to say.
@David T. How are things different in Georgia compared to Vegas that made you question the process as a whole? I agree with you that there is bid rigging going on, at least on a small scale, the Feds recently busted a ring of guys with side agreements not to bid on particular properties.
But I've still had success buying at auction and feel like it's one of the few pockets of value left, at least where I focus in Fulton and northern DeKalb. I guess you're having enough luck on the MLS or with off-market properties not to need to go the auction route?
GA Properties are generally much older than Vegas and therefore pose a much higher risk to buy uninspected through a foreclosure auction. Also it is much easier to buy outside of auction here.