BiggerPockets

Hi everybody,

House valued at 420K, going to be auctioned on 7/15. Starting bid 81.5K, yeah! A heck of a deal.

I feel i should go talk to the owner and try to get this house before auction day. I have no experience whit this...HELP!

I'd appreciate your advice, I am all ears. How should I go about this?

What is owed on the property? If its upside down, you are probably too late to stop it. You can approach the homeowner though. If they let you in, you'll at least get to see the inside of the property to help your bidding at auction.

Saad - No problem. I'll explain.

You said the house is valued at $420K and its going to auction. If the homeowner owes more on the mortgage than the $420K, then they are upside-down. For example, if the mortgage balance was $520K, then you would need to do a short sale or have the homeowner come with the additional $100K at closing to pay off the remaining mortgage balance. Since they are in foreclosure, I doubt they have the $100K, so you would need to do the short sale. Since the auction is July 15, you have essentially no time to do the short sale and the property will go to auction.

BUT, if the house is really worth $420K, and the mortgage balance is only $200K, then you can go to the homeowner offer them a cash deal and buy the house before auction. Or you can bring their mortgage payments current, and buy the property subject to.

If I were you, I would door knock on the homeowners home and see what their situation is. You may get the door slammed in your face or they may invite you in. If they invite you in, take notice of the condition of the place and talk with them about their situation. Maybe you can work out deal before auction if the numbers work, if not at least you'll know the condition of the property.

Lastly, you seem rather to new. I would caution you about buying your first property at auction. It is very risky. It can be done, but you may want to take a step back and see if you are really ready. A few folks on BP buy at auction so hopefully they pipe-in.

Things you'll need to know:

1. How much is the property worth after repairs (ARV)? You said $420K, how did you get that number? If your answer is zillow or county tax records, then you don't know the real value of the property.

2. How much are repairs?

3. How are you going to buy the property? Auctions typically require cash or hard money.

4. What is your exit strategy? Buy and hold, flip, wholesale?

I'll jump in and caution Saad to stay away from making any offers on this or any investment property right now.

Saad - If you're not sure what "upside down" means, you are not yet prepared to start investing. Please don't take this personally, because it is not.

Until you have a toolbox of knowledge adequate to help you understand all of the basics of real estate, lending, investing, etc., you're not ready to invest. Jumping in without that is a quick way to lose your money and to get yourself in trouble.

Here's what I recommend:
1 - Use this property as an example to learn from.
2 - Start reading these forums, the articles on the site, and our official BP blog, and suck up all of the free knowledge that it provides.
3 - Once you've got the basics, start asking questions about anything you don't understand.
4 - Start mapping out your plan of attack and write a business plan.
5 - Finally - once you do all of that, I believe you'll be in a position to consider buying properties at auction or otherwise.

Again, this post is meant to be constructive, not critical. The last thing we all want to see is another newbie getting fleeced.

Good luck!

I wanted to provide an update and a summary as a reference to all.
I saw the listing on Trulia, the listing did NOT provide the street number, just the street name, number of beds/baths and square footage.
Using Zillow, I found the street number because the house matched the beds/baths and square footage. I did a reverse lookup to find the phone number on Whitepages.
So I called the owners to get more information about the house, it turned out the owner had no interest in selling the house, it's no being foreclosed on.

I'm a relative newbie to foreclosures and am wondering about this situation. It would be a house for my fiance and I to live in.

The house has been listed as a short sale for almost 2 years. It's going to auction next week. It's listed at $218K but the agent says the bank won't take less than $215K and has turned down all but one offer in the last 2 years (which died since it took nearly 8 months to get accepted).

The other offers have all been about $150K, which is what the house is worth right now, it's needs a complete renovation, about $90K. I've been inside twice. ARV for similar properties is about $270K. Mortgage (2 of them) amount is $280K, bank is Wachovia. The listing agent says it's likely no one will bid at the auction and the bank will end up with it.

Theoretically, what would the bank bid? The amount that they're owed if they're the only lien holder? Then what would they do, try to sell it again for the amount they paid or..?

The house seems structurally sound, interesting architectural details. There's an underground oil tank. Owners had an ugly divorce, and stopped paying for insurance on the tank, among other things. Agent doesn't know the condition of it. House is filled with junk which the owners are unlikely to remove before the auction, so that's another expense.

I'm hoping to go to the courthouse and see what happens. Empty handed, of course, I'm in learning mode :)

Aly L: This sounds like it will be a trustee sale. If Wachovia has both mortgages, it is most likely the opening bid will be the amount owed on the first mortgage/D-T (I'm assuming its a 1st D-T foreclosure, you should verify this.) Like Jon says, the bank may discount the opening bid to get buyers. I've bought property both ways... at current lien 'payoff' value and "discounted." Any more, the second position lien holder generally doesn't compete at sale, so you may see a good deal on some property, but probably not this one from what you've posted. But you never know anymore without asking. The auction is next week, so check with the trustee. And there may be other liens (RE taxes, etc.) attached.

Example of a trustee that provides better than average sale information: http://www.brockandscott.com/bs_foreclosure_properties.aspx

Technically, the bank isn't "bidding" anything. They are trying to recover their debt. If NJ is like NC, if the property doesn't sell at foreclosure, the bank gets a deed (special warantee or trustee deed) and then try (again) to recover via an REO sale. The details are in your state law.

Concerning your post: "Do they then relist the properties with a realtor, similar to the short sale process, at what they think is market value and try to sell all over again?" More or less. There are more technicalities in there, but from the outside looking in, basically that's it.

Realtors can (and do) bid at these auctions. Just don't do what brokers here did... collude with other brokers to rig the bids.

Thanks everyone. I'll read as much as possible before Monday's auction.

Some brokers/agents don't play well with others.

Depending on how aggressive your state attorney general is... these RE brokers might actually get their wrists slapped and handed a fine. If it were me (unlicensed investor,) I would be in Central Prison on felony fraud, collusion, and conspiracy convictions. I do not partake in illegal activity since with sound investing practices there is no need;)

http://triangle.bizjournals.com/triangle/stories/2005/06/20/daily14.html