Real Estate Deal Analysis & Advice

How to Avoid Competition & Find Deals by Purchasing Before or After Sheriff Sales

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sheriff-sale

Although I've taken courses on how to buy deals at the sheriff sale, I must say with full disclosure that I've never attended a sale. Usually, my firm and I are at the other end of that sale, represented by our foreclosure counsel whom we've provided with bidding instructions to represent our interests.

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I remember when I took one of those courses on buying assets at the sheriff sale, my buddy, the instructor, asked what I was doing there, and I said, “I want to know what you guys do and think at the sale.” He laughed and proceeded to give me a lot of great information. He covered not only what to do at the sale as an investor, but also some things to do prior to getting to the sale. Also, he described how things worked in the county where I’m from, which was helpful since the process is often county-specific.

It was this discourse with him that really made things click for me. Although many people find good deals by attending the sheriff sale, I realized that other strategies could be employed as well, such as purchasing prior to or after the sale.

To be quite honest, I was never really a big fan of bidding war situations. Whether it’s going to a foreclosure, attending a tax sale, or having multiple offers submitted on a rehab deal, bidding wars are never fun. I’m always wondering if I paid too much. Instead, I prefer off market deals — or even more so today, just buying the non-performing note.

Non-Performing Notes

For me, although there can be multiple buyers bidding on notes, it seems that there are fewer players in the space, especially with larger-dollar trades. Larger outfits who are purchasing institutional loans from banks need to be vetted and deemed compliant.

But when you’re buying the note, it seems that you’re ahead of the people bidding at the sale, the rehabbers, and even the “I buy houses” folks.

Once you buy the loan, becoming the lender, you would be one of the first to know if that property was to go to foreclosure or be sold. For example, if it's a vacant first lien and the homeowner has no interest in keeping the property, the more common exit strategy may be though the property (i.e. foreclosure, deed in lieu, or REO). As the first lien holder, you would be the one driving that process.

Besides buying the non-performing note, here are few other strategies for avoiding competition as much as possible, whether you’re buying before, at, or after the sale.

find-a-mentor

Buying Before the Sale

Another strategy that is often overlooked is buying the asset prior to the sale through the bank’s foreclosure attorney. We’ve been able to pull this off on several occasions, especially when our attorney, who is representing us as a junior lien holder, reaches out to the counsel for the senior lien and suggests that they save the time and money of going to the sale and just sell the asset to us for the opening bid amount.

Bidding at the Sale

When it comes to attending the sheriff sale, we’re more concerned with controlling the sale than with simply bidding at it. When our strategy is to take the property back, our attorney would start the bid off at a higher number. If that’s not our strategy, he/she may start it out at a lower number (that still protects our interests as the lien holder). There are a few considerations, though, including what we think the property is worth, what it might sell for as an REO, if we need to recapitalize, etc.

If you're showing up to bid on a property, it's important to do your due diligence ahead of time and know the maximum amount you're willing to bid. You may want to look at the title, as well as the ARV (after repaired value), which may be tougher to nail down.

If the bank doesn't know how much the property is worth due to faulty data or if they need the asset off of their books, it may be a good opportunity for the real estate investor, especially if not too many other bidders show up to the sale.

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Purchasing the REO

Of course, the other option is to just buy the REO (real estate owned) property from the bank.

This strategy tends to make more sense to me, especially since I can usually get inside the property to get a better idea of actual rehab costs (you normally can’t get into a property that you’re bidding on at the sheriff sale). Also, I’m getting an insurable title and often the ability to get a reduced or re-issue rate on the title policy as well.

The only challenge with trying to buy the REO is the bank is sometimes slow to respond (as they are always trying to encourage multiple bids). They always want your "highest and best" offer, and it's really all about what they will net on the deal. They like a solid deposit (often at least $2,500 for investors), and they prefer to close quickly with as few contingencies as possible.

For me, I would do whatever possible to facilitate the deal going through. For example, I would try to get to know the listing agent, as well as make it easier for him/her to sell to me by showing that I understand the process for REOs ahead of time. Another strategy I utilized as a licensed realtor was to provide the bank with more incentive to accept my offer by foregoing my commission on the deal, as that would increase what they net from the sale.

I’m sure there are many other strategies for avoiding competition, whether you’re purchasing before, at, or after the sheriff sale. And so, I’d love to hear a few from the BiggerPockets community.

When is your favorite time to find a deal? Or what are some of your favorite strategies to beat the competition in your market?

I’d love to hear your thoughts with a comment!

Since 2007, Dave Van Horn has served as president and CEO of PPR Note Co., a $150MM+ company managing funds that buy, sell, and hold residential mortgages nat...
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    Sharon Vornholt from Goshen, KY
    Replied almost 4 years ago
    Great information Dave. I’ve always been a fan of off market deals myself. Bidding wars aren’t my thing either. -Sharon
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied almost 4 years ago
    Thanks Sharon! And amen to that. The best to beat the competition is to not have any! Best, Dave
    David Krulac from Mechanicsburg, Pennsylvania
    Replied almost 4 years ago
    Hi Dave, Nice article. As you know I am a fan of Sheriff Sales, Tax Sales and public auctions too. Perhaps it has something to do with how I got started in real estate buying my first property from the state highway department at a live auction. (I talked about that purchase on Bigger Pockets Podcast #82). Or perhaps it has to excitement, adrenaline, and split second decisions of the auction fever. I bought over 200 properties at live auctions. One time I bought an entire subdivision at a Sheriff Sale. At a Tax Sale I bought an abattoir among other purchases. Once when I asked a tenant prospect why they were moving they told me they were about to lose their home, which had been inherited debt free, to foreclosure. They gave me the keys and the point of contact at the bank and I tried to buy the property. The bank wanted too much. then it went to Sheriff Sale and I went to the Sheriff Sale and wanted to bid but the bank opening bid, though less than they previously told me they would accept was still more than I wanted to pay. Then the property was listed by the bank through an REO broker. Now the price was lower the two previous attempts and I succeeded in buying the property and got paid a commission. So maybe that proves your point. Best wishes, David Krulac
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied almost 4 years ago
    Thanks for chiming in David! Glad to hear you’ve had so much success with this strategy!
    Katie Rogers from Santa Barbara, California
    Replied almost 4 years ago
    “they were about to lose their home, which had been inherited debt free, to foreclosure.” If the home was debt, what happened that made subject to foreclosure?
    David Krulac from Mechanicsburg, Pennsylvania
    Replied almost 4 years ago
    It was the family home, they had been the only owners. When the adult child inherited the home it was free and clear, but they subsequently refinanced and put a mortgage on the property. when they didn’t pay the mortgage, the bank foreclosed on the home.
    Jacob Murphy Contractor from Cincinnati, OH
    Replied almost 4 years ago
    Good article Dave, I definitely would prefer to hunt these buyers down before the sheriff sale. I notice that properties going to the tax sale will suddenly be withdrawn within a few days of the sale. Huge tax bills suddenly get paid. I doubt the home owner came up with cash that quick, somebody is snagging the deal beforehand so they don’t have to go through a bidding war. Good tip on contacting the bank foreclosure attorneys, I’ll have to try that.
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied almost 4 years ago
    Thanks Jacob! And that’s actually a common occurrence at tax sales, but the principle is the same either way – get ahead of the competition while you can. Best of luck with the FC attorney strategy. – Dave
    Ray Morris Jr. from Jacksonville, Florida
    Replied almost 4 years ago
    Great article. Although I’ve purchased notes before, I’ve never bought any non-performing notes. I think that’s a win-win strategy. I could potentially restructure the note or foreclose and have a chance to get the property.
    Steve Burt Consulting from Fort Worth, TX
    Replied almost 4 years ago
    If a tax lien has already been sold at the sheriff’s sale, is it possible to still purchase the NPN? I am wondering if it is then possible to buy the note and exercise redemption rights or if there are other avenues to make this work
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied almost 4 years ago
    Hi Steve, This is a good question. The answer varies greatly depending on the location so I actually ran it by two different attorneys (one in Colorado and on in NY) to get their feedback. But to answer your question, yes, you can buy the note. In a Non-Judicial State like Colorado there is a lengthy redemption period (3 years). You must wait for the end of that redemption period, file for a Treasurer’s Deed (which takes 6-12 months), then you would have to evict the Homeowner. This process can take over 4 yrs. from the date of the tax sale. At any time during the redemption period, the homeowner can redeem (which usually happens over 90% of the time) and you are left with the states’ tax lien return (usually 8-12%, varies between states but Colorado is 10%) So in this scenario you’d probably be better off buying the Mortgage from the bank/investor and FC yourself and reinstate the taxes if you have to because it’s a Corporate advance that is reimbursable. In a Judicial State like New York, you can still buy the loan after the tax sale. To do so, you would have to wait for the 2 year redemption to end (which varies county to county). However, if you were to subsequently pay off the tax sale amount you are only doing so for the benefit of the owner of the property. One avenue to consider is that in New York, tax liens are foreclosed in many counties like a mortgage foreclosure and they are processed through the courts in around a year as they are not mortgage foreclosures and are not subject to the settlement requirements associated with mortgage foreclosures. (i.e. HAMP notices) It is then possible to bid at the tax foreclosure sale and receive a referee’s deed to the property free and clear as the bid amount will be sufficient to pay all the outstanding taxes. Some NY referees allow a credit bid of the mortgage amount but others require you to pay the entire amount of the bid and then have the overage of the moneys available after payment of all the taxes on the property placed into surplus and the money goes back to the note holder after a proceeding is brought to remove the funds from surplus. As you can see from these two examples, there’s a lot of information that can vary needed for a strategy like this, so I would suggest talking to an attorney that operates in your state. Best of luck. – Dave
    Daniel Breslin Flipper/Rehabber from Chicago, IL
    Replied almost 4 years ago
    I was never a fan of bidding war situations”. Great mindset for buying assets Dave. Only time I am a fan (I’m sure you are too) is when I’m SELLING assets!! Thanks for the article Dave!!
    Sam Wilson Specialist from Memphis, TN
    Replied almost 4 years ago
    Great article. We have purchased solely at the courthouse. This is a viable strategy if you work in outlying counties like we do. We all know each other at the auctions, and there is a nice give and take with us all as we don’t poison the well from which we drink. However while we’ve purchased in metro areas, it is a bloody shark-fest with big backers that we simply can’t compete with. All that being said, the foreclosure market is drying up for now. And we’re beginning to implement a lot of your above strategies in order to acquire more deals. I think you’re spot on that this is the way to go. I heard an old investor say one time at an auction, when we were getting to the postponements, “Now we’re getting to the good stuff…” Which I found intriguing at the time. Now I know what he means. He was going after and acquiring all those before they made it back to the auction block. Brilliant.
    Deanna Opgenort Rental Property Investor from San Diego, CA
    Replied about 1 month ago
    In Jan of 2020 I made my first "upstream of an auction" purchase. It was one heck of a wild ride! Property going to auction on a 2nd, owner agreed to sell 12 days before auction. I tried to get a realtor to handle the deal, but none of them wanted any part of it, because of the deadline. We finally did a quit-claim deed 5 CALENDER days before the auction (did I mention that there was a 3 day weekend in there?). Anyhow dealing with the foreclosure lawyer's office was when I began to suspect that someone had purchased the note with the idea of getting the property -- the lender NOT want to allow me to pay off the note and fought it like crazy. I would never have thought it would be so hard to get someone to accept $!!!. It turned into a "Blue's Brothers" style battle literally on the courthouse steps (minus the car crashes & music LOL). They finally backed down & postponed the auction to give me time to pay (though they dragged their feet on that too-- didn't give me the payoff amount until 20 hours before the deadline). Side note; ANY "interested party" has the right to "redeem" (pay off) the note by paying the loan amount (plus expenses) up until the auction actually begins. The payer doesn't get the property, but the lender no longer has a claim on it. This is true in ALL 50 states. In this case I had already purchased the property from the owner. Had the lender gone to auction, we would have been going to court. CA courts take a dim view of willful misbehavior on the part of professionals who should know better.
    Deanna Opgenort Rental Property Investor from San Diego, CA
    Replied about 1 month ago
    BTW -the lawyers office tried to play dumb on the right of redemption. They kept trying to say "pay off", I kept insisting on using the word "redemption". It had to do with the timeline of when I could demand a payoff amount number (which would have needed to be 10+ days earlier) vs my legal RIGHT to redeem the property until the moment the auction started. We were stuck in a crazy Catch-22 loop of "I want to pay off the loan" " You can't pay it off. We don't know how much the EXACT amount is". The one smart thing I did was right BEFORE the scheduled auction time I said to both the auctioneer was "so what you are saying is that the lender is refusing to accept any amount of money in order to allow me redeem the property before the auction".