Seeking Guidance on Buying Foreclosure Properties

[Akila Baskaran]

Hi everyone,

I’m fairly new to real estate investing and looking to buy my first foreclosure property. I’d really appreciate guidance from experienced investors on the full process. Specifically, I’m trying to understand:

• How to properly check a foreclosure property’s condition, especially when interior inspections aren’t allowed before auction.

• How to research the title and any liens on the property—can I work with a title company before purchasing?

• What the full process looks like from finding a property through auction or bank-owned (REO) to closing.

• How to bid at a foreclosure auction, including what kind of funds are required and what pitfalls to watch out for. Can I use Xome.com to bid? 

• And finally, can I get advice or mentorship from experienced investors who’ve done this before?

Any tips, tools, or resources you’d recommend would be hugely appreciated. Thanks in advance for your help!

[Randall Alan]

Quote from @Akila Baskaran:

Hi everyone,

I’m fairly new to real estate investing and looking to buy my first foreclosure property. I’d really appreciate guidance from experienced investors on the full process. Specifically, I’m trying to understand:

• How to properly check a foreclosure property’s condition, especially when interior inspections aren’t allowed before auction.

• How to research the title and any liens on the property—can I work with a title company before purchasing?

• What the full process looks like from finding a property through auction or bank-owned (REO) to closing.

• How to bid at a foreclosure auction, including what kind of funds are required and what pitfalls to watch out for. Can I use Xome.com to bid? 

• And finally, can I get advice or mentorship from experienced investors who’ve done this before?

Any tips, tools, or resources you’d recommend would be hugely appreciated. Thanks in advance for your help!

 @Akila Baskaran

Hi Akila,

I know you say you are new to RE investing.  But I would suggest that Foreclosures are really not a great place for beginners to start.  The topic is really broad.. and you are basically asking for "tell me everything"... so I will start off by saying that there is no way we could ever tell you everything you need to know... its just too nuanced and too many variables to possibly explain in a post.  But I will try to tell you a few things to help. 

The answer to a lot of your questions is going to depend on where you are located.  I'm in Florida, so can't give you specifics on OKC, but can tell you the general basics based on where I'm at... which is pretty typical for many locations (but don't quote me for your specific one).

The first thing to know is that there are a few flavors of foreclosures.  Sometimes the word is thrown around a bit loosely... but in its truest form a foreclosure is handled by the courts.  The courts are not in the real estate business... so they have no interest or capability to show a property to let you inspect it.  Sometimes you can glean some information about what a property looks like on the inside from a previous sale's photos that might be floating around on Zillow, etc.  But typically you have no idea what the inside is like - as photos like those could be years old.  Who's to say whether there is an AC unit in the attic / closet, whether someone stole the appliances, whether the roof is leaking, or what-have-you.  The general rule is "expect the worst and hope for the best!"  This is why foreclosures sell at a discount compared to other sales channels.

I will tell you that I have put my face up against more than a few windows as I have walked a foreclosure property when I can tell it is vacant.  If a door is unlocked, I might have had a peek around?!?   But often times there is still a tenant living in the property.  It's a 50/50 role of the dice if someone in a foreclosure is going to be civil to you if you approach them about their house.  Maybe they will give you a tour... maybe they will tell you to go fly a kite (or worse).  I personally don't approach properties that are occupied.  

But if they are occupied, there is a better chance that they haven't been stripped like many might have if they were vacant.  

Some locations have auctions literally "on the court house steps'... in Florida it works more like Ebay... most counties use a company called "real foreclose".  You register to bid, and have to have 5% of what you want to bid on deposit with the company (ie. real funds).  If you have $5,000 on deposit with them you could bid up to 100,000 on a property.  If the property auction exceeds $100,000 you won't be able to bid again because you would be past your 5% on deposit.

In Florida, if you win the auction, you have to show up the next day with the other 95% in certified funds.  If you don't, you forfeit the 5% from your bidding account.  So there is no financing, or time to apply for a loan... it's pretty much an all cash deal.  

I've heard of other places actually doing a more typical 30 day closing where you might be able to line up financing... but have no personal experience in that method.

As for titles and liens... it's all on you to do your research.  You can pay to have a title company run a title search, but more often than not you can read the foreclosure documents and determine a lot of information.  Given the odds of actually winning a foreclosure auction, the idea of paying to have a title search done on multiple properties is generally restrictive.  I've done it once when I was pretty serious about a purchase... but otherwise I do my own courthouse research by reading the foreclosure documents (online in my state).  A real title/lien search is going to be more thorough in all likelihood.

The most important piece of information is "who is the one foreclosing?" It could be anyone... a 1st position lender, a 2nd position lender, an HOA suing for their HOA fees, a 3rd party where a borrower pledged their house as collateral on a contract, etc, etc.

The biggest thing to know is that senior positions survive less senior positions. So a first position lender will typically wipe out lower position liens. There are exception though... municipal and federal liens typically survive. So if an HOA is suing for their annual fees, and you win the auction, there is likely still a multi-hundred thousand dollar loan on the property from the lender in first position. Again - you are playing with 'big financial numbers' and unless you really understand what you are doing, you could get yourself in a really awkward situation where you win something only to lose it to YOU being foreclosed on by someone else with a more senior position... so be very careful! I see people all the time bid on HOA auctions thinking they bought the property for $10-20,000. Then they find out that the mortgage on the property survives and have that 'oh #*$$#" moment.

Another thing to know is that auctions frequently cancel at the last minute because someone will do something to protect their property.  For instance, if someone files for bankruptcy, the sale will be canceled pending the bankruptcy.  Sometimes buyers will catch up the payments at the last minute to get the lender to cancel the foreclosure.  There are other situations where a potential buyer may catch up the borrower in a side agreement to buy the property at a discount.  So don't be surprised to see many auctions get postponed or cancelled. 

I googled OKC foreclosures and found this site which looks like it has the basic rules for bidding in your area, etc:

https://docs.oklahomacounty.org/sheriff/sheriffsales/

That same link also has another link to all the current available properties.

Happy to answer more specific questions, but hopefully some of that helps!

Randy