The Process of Funding Foreclosures Auctions?

[Juan Reyes Jr]

Hello Everyone,

I'm thinking about purchasing a foreclosure in Oregon at an auction. This would be my first fix and flip. I don't have all the funds in my bank account so I'm thinking of using a Hard Money lender.

My questions are:

What would be the process of getting a loan on an auction house?

If you do get the funding from the hard money lender, what happens if you're not the winning bidder on the property?

Thanks in advance,

Juan Reyes Jr.

[Richard Balsam]

Please don't think of using a hard money lender for the following reasons:

1. You get charged points as soon as you obtain the funds ( 3-4-5-6% of the loan amount + interest). The lender will demand this as a condition of the loan. 

2. You have never stepped foot into the homes being foreclosed upon. You have no idea of the condition inside. The condition will determine the repair budget needed, which you needed to know ahead of time to give the hard money lender a budget plan of action for your project.

3. No guarentee that you will be successful at the auction. Even with all the research going into the value of each home, "good homes" can either "fall off" the auction list and not go to the steps at all, get bid up to ridiculous levels, (which I see in every auction I attend), or the bank may actually open the bid at too high of a level for you to want to buy the home ( for example- if the bank has a 2nd mortgage on the property as well as the 1st, or the crier is actually crying for multiple lien holders together).

Meanwhile - given the above, if you borrowed the funds and never used them, you owe the points back to the hard money lender - assuming he lent you the funds to begin with. Remember- he performed by lending money, and if unsuccessful- you didn't.

Hard money should only be used in wholesale deals with large amounts of equity, that you can inspect prior to purchasing, have time to develop a proper SOW (scope of work) detailing costs and expected completion date with all the subs needed. 

It's smart to think of ways to afford a house - but throughout the country, at the auctions, even experienced investors walk away ( like myself) when they see trouble brewing in bidding too high, hedge funds buying homes at all costs, etc. The comment I hear at the auctions after a bidding war takes place to stupid levels: "well- there goes a one time investor - he'll learn the hard way". Just be careful out there. Wholesale deals will be much cheaper, and allow you time to think and plan your next move - raise funds, etc. Good luck with your future investing!