A few years ago I was in the office, when the receptionist said a gentleman was on the phone and had a question about the house he bought at the auction that day, and asked if I would talk to him.
I picked up the phone and asked what I could help him with.

Finding Great Deals at Foreclosure Auctions

The man said he bought a house that day and wanted to know when he would be able to go into the house and start working on it. I verified which auction he bought it at (Foreclosure or Sheriff sale) and told him that as long as the house is not occupied, he can enter the house right away but, it would be a good idea to wait a few days. This was to make sure the previous owner didn’t file a last minute bankruptcy — the Trustee would inform him if that happened.

The man got excited and went on to tell me that he got a “sweet deal.” I asked him what the numbers were and he told me that he bought a house that was worth $450,000 for $67,000.

My eyes grew very wide and I quickly asked him if he had done research on the title before he bought it? His response was that it was his understanding that the auction wipes out all junior liens so he didn’t see why he needed to research the title.

I remember shaking my head in feeling sorry for him and said, “I’m sorry Sir. I’m pretty sure you just lost $67,000.”

Be Sure You Know What You’re Bidding on at Foreclosure Auctions!

The man shot back in a loud voice, “What!? How do you assume that with what I have told you?” I replied by saying, “You bought a property in what I am assuming is a nice part of town for fifteen cents on the dollar or 85% equity, right?” He said that was correct. I continued by saying, “Can I assume that you were the only person who bid on the property?”

He paused a few seconds and cautiously said, “Yeah. How did you know that?”

I answered by saying, “There are a lot of investors down at the Dallas auction that aggressively bid up to seventy five cents on the dollar all the time but, not a single one of them bid against you on a house that had a huge equity spread. The reason they all passed on it which allowed you to buy it uncontested is because it’s a second lien. You are now responsible for the first lien which is likely close to 80% of $450,000.”

There was a silence on the phone for several seconds until the man responded by simply saying, “S*%#.”

I told him to call the trustee right away and pray that the previous owner filed bankruptcy and if they didn’t beg the trustee for mercy, ask if he will refund your money and explain that you made the bid without knowing you would be responsible for the first lien.

He said he would call right away and said he wished he would have talked to me before he went to the auction.

The man called me the next day and unfortunately, he said the trustee said he was sorry but, he couldn’t deem the sale invalid at that point and suggested he call the 1st lien holder and find out if they will do a short sale.

The man told me that he couldn’t come up with the amount of money it would take to satisfy the first lien and his credit wasn’t strong enough to get a loan for it.

Surely, that was the most expensive mistake that he had ever made but, entirely avoidable.

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Tags: 2nd mortgage, foreclosure-auction, Foreclosures, lien, mortgage

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

Since I got into this business in 1999, my main focus has been on pre-foreclosures. As many investors that have worked in that field know that it is a highly competitive business. The TV infomercials paint a picture that is often times not accurate. TV wants new investors to believe that there are tons of these properties to be had and all you have to do is go to the auctions, bid on them and PRESTO! You have yourself a great investment property!

Is it occupied or abandoned?

When a student of mine seeks my opinion of a prospective house, set to go to the auction, my first question is always the same…. “Is it occupied or abandoned?” What difference does it make? If it is occupied, all that you need to do is evict the previous owner and on you go…Right? Not always.

In the State of Texas, the average percentage of homeowners who are in pre-foreclosure, that have abandoned their homes is 15% (+ or – 2% monthly).
Do the math on this one. If a given County has 1,000 houses posted for foreclosure in a given month, then that means that about 150 of them are abandoned. So if you buy one of those at the auction, you can get started right away since you have full access to the house with the previous owners gone. You can wholesale it, if you like. Maybe you want to rehab it and then sell it? Some look to use it as a rental. The options are all there because there is no eviction needed.

Heed Caution When Considering Occupied Foreclosure Homes

This brings me to the story I would like to share. This is what happened to one of my students, after he bought an occupied house at the auction. The student, Bill, had told me a lot about the house he ended up buying. The problem was, Bill couldn’t give me any information about the interior condition of the house because the owner (before the sale) would not talk to him or let him see the inside. All of his numbers, etc., were nothing but projections to me.

I told Bill to offer the homeowners $1,000 cash if they can be out in a week. $750 if they can move in 2 weeks and $500 if they leave in 3 weeks. Guys, keep in mind, this is TEXAS! We can legally evict someone in about 21 days. If you are in Minnesota or California, it could take more than three months.

The homeowner refused all of his offers. I told Bill to go ahead and evict her.

Two and a half weeks later, he had won his eviction case and now only had to wait for the 5-day appeal period to expire & he expected to have her out in a week.

That is when all Hell broke loose.

Bill called me on the phone and he was frantic. He told me that the previous owner had appealed the case. That was a first for me. In all of my time in the foreclosure business, I had never heard of anyone appealing after the judge had ruled against them. It was pointless…Or so I thought. In Texas, after the judge rules in favor of the investor (or landlord), a tenant has 5 days to appeal it to the County Court…BUT…In order to do that, the tenant is required to post a cash bond. The amount is supposed to be equivalent to two months rent (or two mortgage payments), plus any court costs. In Bills case, the amount was about $3,300.

If any of you reading this don’t see the stupidity of the tenant, let me tell you why it is so unheard of for a tenant to appeal. They CAN’T WIN! No homeowner that has been lost their house to foreclosure, will win. All the appeal will do is delay when they have to move. The previous homeowner had to put up $3,300 for the right to stay in the house for a month or two longer. Once they lose at the County, the $3,300 is gone and they have to move.

The reason Bill was beside himself (in addition to the previous owner appealing) was because they DID NOT HAVE TO POST THE CASH BOND! Bill said that they had filed a “Pauper’s Affidavit” and asked me what it was. I had no idea. I asked around and no one could tell me what it was or why the owner didn’t have to post the cash bond. I finally called a Law Professor at the University of Texas and he said the following:

“Ah yes! The Pauper’s Affidavit! To put it simply, this person was supposed to post the cash bond but, the Pauper’s Affidavit allowed her to side-step it because she has the right to a fair trial. If she can’t afford the bond, then it would seem she wouldn’t get her fair trial.”

Here is the best definition I found for what a Pauper’s Affidavit is:
“A pauper’s affidavit is a sworn statement stating a person does not have sufficient funds to pay court costs for the filing of a new civil case. A judge must enter an order determining poverty.”

When the case reached the County, it was ugly but it was over fast. The County Judge was all over the previous owner. He wanted to know why she thought the outcome would be any different with the County Court? He told her that she lost her case in the JP Court and unless she could tell him one good reason for her appealing her loss, other than just to stall moving out, her quest ended right there!

And so it was over for Bill. Sort of.

Even after going through all that hassle, she refused to move and it took a Writ of Possession to finally put her out of the house. THEN…When Bill went to the house the following day, he discovered the A/C condenser had been stolen. The police found the unit…Two blocks away…In the woman’s PICKUP! Her legal problems continued from that point but, Bill finally had his house!

From the date he bought the house at the auction, until the day he gained legal possession of the property…Just under FOUR months had passed! Let me remind you that he paid cash for the house and having $100,000 sit dormant like it did for that long, really hurt his bottom line. Just to gain entry, was four months! After all that headache and financial burden, Bill came to me and asked, “Hey Jim, what could I have done differently?”

My answer was painfully simple… “Buy an abandoned house, Bill!”

Tags: abandoned, foreclosure, foreclosure-auction, occupied, pre-foreclosure, preforeclosure

Auctioneer Hudson & Marshall of Texas Inc. announced today that they will be holding an auction to market over 300 REO (Real Estate Owned) homes in the Detroit area on Saturday, January 20 and Sunday January 21, 2007 at 1:00pm at the Hyatt Regency Dearborn.

All properties are sold “as is” and interested buyers are encouraged to visit all properties beforehand. Buyers can view an entire listing of properties online at http://www.hudsonandmarshall.com. Winning bidders will be required to write a check for 5% of the purchase price or $2,500, whichever is greater.

Do you feel the froth of investors closing in on the Motor City in a few weeks? The great thing about this auction is that the auctioneer will be allowing potential buyers to scoop up properties prior to the auction through their website, which also lists full details on the properties.

Note: The valuations on these properties range from around $5,000 to over $300,000

Tags: dearborn-michigan, distressed-homes, foreclosure, foreclosure-auction, income property, real estate, real estate investing, real-estate-auction, real-estate-deals, REO