An investor (who I will call “Phil”) recently contacted me with a situation that arises from his successful bid at an estate auction for a single-family home. Similar to most estate auctions, the auction participants had approximately one hour only to look through the property prior to the commencement of the auction. As you can imagine, this didn’t allow for a great deal of time to inspect the property, its systems, the grounds, etc.

Upon winning the auction, Phil was handed a two-page, pre-printed agreement of sale by the auctioneer with the material terms (price, deposit monies, date of settlement) hand-written into the blanks on each page. Having gotten caught up in the frenetic pace of the auction, Phil didn’t carefully scrutinize all of the terms of the Agreement of Sale. In his mind, he already was aware of the fact that he was purchasing the property “as is”, so what else did he need to worry about?

Fast-forward about ten days following the auction…Phil received a letter in the mail from the township Public Works Department. The letter advised that a representative of the department recently observed the need for 9 sidewalk blocks and 1 section of curbing to be replaced in front of the property—the current condition of the sidewalk/curb was a code violation. Phil became instantly enraged realizing that the required repairs would probably cost about $3,000.00. But, Phil had a thought…he was not yet the owner of the property, so he couldn’t possibly be responsible for the repair work, right?

So, Phil pulled out the Agreement of Sale that the auctioneer had him sign and he found the following paragraph:

“Seller represents that as of the date of the approval of this Agreement, no notice of any municipal, county or township authority has been served upon Seller or anyone in Seller’s behalf, including notices relating to violations of housing, building, safety or fire ordinances which remain uncorrected except as noted hereafter, and the Buyer agrees to assume all responsibility and will pay all costs for any work required to be done by any such authority for which a notice may be served between the date of approval of this Agreement and final settlement…” (Emphasis added).

Upon reading the language of the contract, Phil realized two things. First, this language was different than what Phil had seen in other agreements of sale. Secondly, Phil was clearly on the hook since the township notice was sent almost two weeks after the auction, which falls into the time period between approval of the agreement of sale by the Seller and final settlement.

How did Phil make such a mistake? He relied on what he had seen and known from the many investment properties he had purchased in the past. Most of the deals Phil had been involved in utilized the standard Pennsylvania Agreement of Sale, which requires the Seller to advise the Buyer of any notices of violations that are received prior to settlement AND the Buyer is given the option to void the contract if the Seller refuses to make the required repairs or issue credits.

The Agreement of Sale utilized by the auction company contained different language. The responsibility for violations falls to the Buyer for any notices that are received prior to settlement and the Buyer does NOT have the option to void the contract. This is a very significant distinction.

Unfortunately, the fast-pace environment that accompanies most auctions got the best of Phil. He didn’t take the time to slowly and carefully read through the Agreement of Sale and he missed some very important details of the transaction.

The lesson learned is simple: Take your time. Each deal is different. Don’t rely on what you have seen or read in the past. Don’t let third-parties rush you when it comes to signing on the bottom line…take a deep breath, slow things down and read through the contract before you sign!

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Tags: auction, auctions, foreclosure, real estate investing, real-estate-auction

I sat at a poker table and saw a Straight Flush be beaten by a Royal Flush. One of my friends told me of a convenience store clerk that refused to break a $20 bill without a purchase being made. To comply, my friend bought a lottery ticket and won $100,000. I jumped for joy as I watched the Minnesota Twins lose all three road games and come back to win the 1987 and 1991 World Series. I thought I would never see or hear about Dumb Luck as in any of those instances ever again.

Then one day…

Two years ago I was at the Travis County (Austin, Texas) foreclosure auction where both the foreclosure auction for unpaid mortgages and the Sheriff Sale for unpaid taxes were being held.

A mildly curious woman strolled over and asked, “What is going on over on this side?” I explained the basics of the foreclosure auction. She wanted to know how likely it was to make a higher profit with the foreclosure sale than with the tax sale. After explaining the differences and respective risks involved with each, the woman didn’t appear interested and even seemed somewhat annoyed that the foreclosure sale wasn’t a “sure thing.”

I asked her if she had any experience with the tax sale and she told me she had bought one property a year before at the Bexar County Sheriff Sale (San Antonio, Texas). I was curious and asked what she bought and how it worked out. She went on to tell me that she had bought just over a half acre of raw land (or a large vacant lot) in San Antonio for about $15,000.

She further explained that it had proven to be a headache for her because the property had some minor issues and that in the end it needed to be leveled. She shook her head and said that she wished she had known about those things before she bought the property. My eyes nearly popped out of their sockets and I quickly asked her, “Didn’t you research the property before you bought it?” She said, “No.” Shaking my head in disbelief, I asked why she hadn’t had the title researched, looked at the property in person or at least done some fact finding before her purchase. Her reply shocked me even more.

She told me that she saw that the property was located within the city limits of San Antonio and that of and by itself that would make it a good deal. Still shaking my head, I hesitantly asked her how much she had lost on it. She told me that she hadn’t lost any money and that she had done, “OK, I guess.”

After she bought the property, she had it inspected and she was told about the issues with the land and the substantial cost of the required corrections. She then had the property appraised. Rather than spend more money on it, she decided to sell it. However, she was quickly dismayed with how much she would have to discount it for a quick sale.

I clearly remember standing there, in utter amazement thinking to myself, “This woman has NO idea just how incredibly, unbelievably lucky she was.” To add to my frustration, she actually seemed annoyed with the outcome.

Yes, she had paid $15,000 for a piece of vacant land without doing any research whatsoever BUT that property just happened to be located a few short steps away from the world famous San Antonio River Walk! The land was valued at $1.5 MILLION DOLLARS!!! The woman was upset because after the necessary discount, she ended up selling it for ONLY $250,000 in CASH!

The woman thanked me for the information and strolled off not knowing that she was possibly the luckiest person the Bexar County auction had ever seen. As I mentioned above, I have seen Dumb Luck at the poker table, I have heard about Dumb Luck with my friend and the lottery and I saw Dumb Luck strike the Minnesota Twins…twice but I doubt I will ever hear about “investor” Dumb Luck comparable to this ever again.

Tags: auction, default, foreclosure, foreclosure-auction, land, mortgage, poker, sheriff sale, texas foreclosure

It’s been about 25 years since auctions were somewhat common in Colorado, but the high rate of foreclosures in the state has led to a new round of auctions scheduled next month in Denver.

According to the Rocky Mountain News, a Dallas company, Hudson & Marshall, plans to auction some 75 foreclosed homes.

The homes in auction, says the paper, are valued from about 25 thousand up to 200 thousand dollars.

Says one of the co-owners of Hudson & Marshall , Dave Webb, “There can be opportunities in a declining market.”  He tells the paper, “The lenders are motivated to sell. First time buyers who have been shut out of the market can find opportunities, as well as investors.”

Tags: auction, colorado, Foreclosures, housing, mountain, rocky

Since I’ve been focusing on foreclosures lately, I’ve been doing quite a bit of reading on the topic. I came across an interesting article today in the Lowell Sun that discussed the amazing story of a foreclosure investor in Billerica, Massachusetts, who bought a foreclosure home at auction and was unable to enter and inspect it prior to that auction. When he finally entered the home, he “discovered the former owner’s dead body, along with numerous semiautomatic weapons, ammunition and even a World War II-era bomb.

Police and the state’s bomb squad evacuated the neighborhood to allow the bomb’s removal. Ultimately, an investigation determined that the weapons were legally licensed and the bomb was inactive. However, as The Sun reported, the man was dead (inside the home) for “a bit of time,” according to Billerica Police Chief Dan Rosa.”

I’m not sure about you, but this story will make me think twice about picking up a foreclosure sight-unseen . . . until I get over it tomorrow. It is a pretty crazy story, though.

Tags: auction, billerica, bomb, dead, foreclosure, massachusetts

What is a Foreclosure?

A foreclosure occurs when a property owner cannot make principal and/or interest payments on his/her loan, typically leading to the property being seized and sold.

How does a foreclosure occur?

The foreclosure process is not very difficult to understand. There are several stages during which the homeowner has an opportunity to bring the loan current and avoid foreclosure.

After about three to six months of missed payments, the lender orders a trustee to record a Notice of Default (NOD). At the County Recorder’s Office. This puts the borrower on notice that he or she is facing foreclosure and starts a reinstatement period that typically runs until five days before the home is auctioned off.

If the default isn’t corrected (the loan must be brought current) within three months, a foreclosure sale date is established. The homeowner will receive a Notice of Sale, and this notice will also be posted on the property. In addition, the Notice of Sale is recorded at the County Recorder’s Office in the county where the property is located. Finally, this Notice of Sale is also published in newspapers local to the county in question over a three-week period.

The foreclosure Trustee Sale typically occurs on the steps of the county courthouse in which the property is located. The time and location of this sale are designated in the Notice of Sale. At the Trustee Sale, the property is auctioned in public to the highest bidder, who must pay the high bid price in cash, typically with a deposit up front and the remainder within 24 hours. The winner of the auction will then receive the trustee’s deed to the property.

What Happens at the Foreclosure Auction?

At auction, an opening bid on the property is set by the foreclosing lender. This opening bid is usually equal to the outstanding loan balance, interest accrued, and any additional fees and attorney fees associated with the Trustee Sale. If there are no bids higher than the opening bid, the property will be purchased by the attorney conducting the sale, for the lender.

If this occurs, and the opening bid is not met, the property is deemed a REO or Real Estate Owned. This typically occurs because many of the properties up for sale at foreclosure auctions are worth less than the total amount owed to the bank or lender.

When you purchase property at a foreclosure sale, all junior liens other than property taxes are wiped out. Priority of liens is determined by the date of recording. When you purchase a REO aka. Bank REO, you will typically receive the property with a clean title.

Learn How to Avoid Foreclosure from HUD.

Discuss Foreclosures at our:

• General Foreclosure Talk Forum

• REO Forum

Find Foreclosed Properties:

• Bank REO Listings
• Pre-Foreclosures
• Government Foreclosures
• Asset Management REO

Tags: auction, bank, default, foreclosure, interest, lien, mortgage, NOD, noticeofsale, principal, REO, sale, trustee