Buying Pre-foreclosure - The Smart Way To Buy Foreclosures

Buying & Selling Real Estate

Buying Pre-foreclosure - The Smart Way To Buy Foreclosures

Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes

As I covered in

How To Break In To The Foreclosure Space

https://www.biggerpockets.com/forums/311/topics/1268537-how-... there are different kinds of foreclosures. The kind of foreclosures you want to chase will determine your strategy. I chose to chase Deed of Trust foreclosures.

Foreclosures are public notice. There are requirements to notify the borrower publically, in case the borrow has not received the notices.
There are lots of other reasons to post publically, as in alerting potential bidders and in trying to get the most people to bid to get the highest price. Some people have the misconception that the bank/lender gets all f the money from the Auction. That is generally not true. The opening bid is usually the amount needed to satisfy the Deed of Trust and the attorney's auction fees. The excess, if any, is generally held for the borrower to claim.

So, in most states, when a property goes through the auction, the subordinate liens are wiped out. (22nd mortgages, HELOCS, HOA liens)

However, when no auction is held, (you buy the property before the auction occurs) the liens survive and are still owed. So, it's important to know the status of the Title, any debts and liens and what will survive an auction, before deciding to buy before the auction or at auction.

One thing to keep in mind is that many homes in foreclosure get postponed. There are reasons for that. One trick is to track properties that have been postponed, and when they come up for auction again, they fall into a different category which most investors aren't tracking. You have the upper hand.

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10mo
Ken if there are junior liens on the property overage over what the first position lender goes to them next not the owner..

so in reality it goes.

1st position
2nd or junior leins
3rd liens if any etc.

then if anything is left goes to the owner. Correct ?
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JLH Capital Partners51 Review
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- Ken M.
  OP
  Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes
  10mo
  Quote from @Jay Hinrichs:
  Ken if there are junior liens on the property overage over what the first position lender goes to them next not the owner..
  
  so in reality it goes.
  
  1st position
  2nd or junior leins
  3rd liens if any etc.
  
  then if anything is left goes to the owner. Correct ?
  
  No, that is not correct in all states when dealing with Deeds of Trust. The subordinate liens (2nd position) get wiped out, unless a subordinate lien is the successful bidder. The 2nd has to be the winning bidder in order to protect the 2nd's interest or if there is a third, the third has to be the successful bidder for the 2nd to collect on it's loan.
  
  Your suggested sequence is true for instance, in Sheriff's sales in Arizona, but is not true in Deed of Trust sales in Arizona. As an example. A superior foreclosure does not wipe out a subordinate lien in a Sheriff's sale in Arizona. (Be aware, Sheriff's sales are different than Deed of Trust sales) One guy who recently won an HOA Sheriff's sales bid, did not realize that he bought the underlying lender loan and now owes the lender the full amount of that loan. The lender had a set period of time to file a claim with the court to collect anything and the date has passed.
  Plus the borrower was also in foreclosure on that loan, so the winning bidder now is the one in foreclosure. Foreclosure sales can be a "tricky wicket" if you aren't careful.
  
  The opening bid is usually the amount the lender is owed, plus foreclosure fees. So, if the 2nd does the foreclosure, it may say the opening bid is $65,000 because that is what the 2nd is owed, but the winning bidder inherits the debt for the $325,000 1st, which may or may not be in foreclosure. The owner still loses the house. Now, the property is no longer in the borrower's name and the 1st can call the "due on sale", forcing the winning bidder to pay of the 1st or go to foreclosure himself.
  
  Remember, this is according to each states laws of payoff, so each state has a sequence and is state specific. It also matters if it's a Deed of Trust or if it's a Mortgage or if it's a Sheriff's sale.
  
  Frankly, an HOA Sheriff's sale is treated much differently than a Tax Sheriff's sale.
  
  And, In fact, one strategy is to purchase a discounted 2nd from a lender, who believes the 1st will be foreclosed and the 2nd will be wiped out anyway. Then as the holder of the 2nd note, do the foreclosure on the 2nd and take over paying the 1st. That does not wipe out the first, since it's a subordinate note foreclosing on the first, but it could make it tens of thousands of dollars less expensive to own the property.
  
  The other thing to know is which states have redemption periods and which don't.
  
  0 Reply
- Jay HinrichsBusiness Member
  Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
  10mo
  Quote from @Ken M.:
  
  Quote from @Jay Hinrichs:
  Ken if there are junior liens on the property overage over what the first position lender goes to them next not the owner..
  
  so in reality it goes.
  
  1st position
  2nd or junior leins
  3rd liens if any etc.
  
  then if anything is left goes to the owner. Correct ?
  
  No, that is not correct in all states when dealing with Deeds of Trust. The subordinate liens (2nd position) get wiped out, unless a subordinate lien is the successful bidder. The 2nd has to be the winning bidder in order to protect the 2nd's interest or if there is a third, the third has to be the successful bidder for the 2nd to collect on it's loan.
  
  Your suggested sequence is true for instance, in Sheriff's sales in Arizona, but is not true in Deed of Trust sales in Arizona. As an example. A superior foreclosure does not wipe out a subordinate lien in a Sheriff's sale in Arizona. (Be aware, Sheriff's sales are different than Deed of Trust sales) One guy who recently won an HOA Sheriff's sales bid, did not realize that he bought the underlying lender loan and now owes the lender the full amount of that loan. The lender had a set period of time to file a claim with the court to collect anything and the date has passed.
  Plus the borrower was also in foreclosure on that loan, so the winning bidder now is the one in foreclosure. Foreclosure sales can be a "tricky wicket" if you aren't careful.
  
  The opening bid is usually the amount the lender is owed, plus foreclosure fees. So, if the 2nd does the foreclosure, it may say the opening bid is $65,000 because that is what the 2nd is owed, but the winning bidder inherits the debt for the $325,000 1st, which may or may not be in foreclosure. The owner still loses the house. Now, the property is no longer in the borrower's name and the 1st can call the "due on sale", forcing the winning bidder to pay of the 1st or go to foreclosure himself.
  
  Remember, this is according to each states laws of payoff, so each state has a sequence and is state specific. It also matters if it's a Deed of Trust or if it's a Mortgage or if it's a Sheriff's sale.
  
  Frankly, an HOA Sheriff's sale is treated much differently than a Tax Sheriff's sale.
  
  And, In fact, one strategy is to purchase a discounted 2nd from a lender, who believes the 1st will be foreclosed and the 2nd will be wiped out anyway. Then as the holder of the 2nd note, do the foreclosure on the 2nd and take over paying the 1st. That does not wipe out the first, since it's a subordinate note foreclosing on the first, but it could make it tens of thousands of dollars less expensive to own the property.
  
  The other thing to know is which states have redemption periods and which don't.
  
  your right now that I think about it. ergo the risk of doing seconds. Brain fart on my part I know better than that..
  Podcast Guest on Show #222
  JLH Capital Partners51 Review
  Website View Page
  1 Reply
- Ken M.
  OP
  Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes
  10mo
  Quote from @Jay Hinrichs:
  
  Quote from @Ken M.:
  
  Quote from @Jay Hinrichs:
  Ken if there are junior liens on the property overage over what the first position lender goes to them next not the owner..
  
  so in reality it goes.
  
  1st position
  2nd or junior leins
  3rd liens if any etc.
  
  then if anything is left goes to the owner. Correct ?
  
  No, that is not correct in all states when dealing with Deeds of Trust. The subordinate liens (2nd position) get wiped out, unless a subordinate lien is the successful bidder. The 2nd has to be the winning bidder in order to protect the 2nd's interest or if there is a third, the third has to be the successful bidder for the 2nd to collect on it's loan.
  
  Your suggested sequence is true for instance, in Sheriff's sales in Arizona, but is not true in Deed of Trust sales in Arizona. As an example. A superior foreclosure does not wipe out a subordinate lien in a Sheriff's sale in Arizona. (Be aware, Sheriff's sales are different than Deed of Trust sales) One guy who recently won an HOA Sheriff's sales bid, did not realize that he bought the underlying lender loan and now owes the lender the full amount of that loan. The lender had a set period of time to file a claim with the court to collect anything and the date has passed.
  Plus the borrower was also in foreclosure on that loan, so the winning bidder now is the one in foreclosure. Foreclosure sales can be a "tricky wicket" if you aren't careful.
  
  The opening bid is usually the amount the lender is owed, plus foreclosure fees. So, if the 2nd does the foreclosure, it may say the opening bid is $65,000 because that is what the 2nd is owed, but the winning bidder inherits the debt for the $325,000 1st, which may or may not be in foreclosure. The owner still loses the house. Now, the property is no longer in the borrower's name and the 1st can call the "due on sale", forcing the winning bidder to pay of the 1st or go to foreclosure himself.
  
  Remember, this is according to each states laws of payoff, so each state has a sequence and is state specific. It also matters if it's a Deed of Trust or if it's a Mortgage or if it's a Sheriff's sale.
  
  Frankly, an HOA Sheriff's sale is treated much differently than a Tax Sheriff's sale.
  
  And, In fact, one strategy is to purchase a discounted 2nd from a lender, who believes the 1st will be foreclosed and the 2nd will be wiped out anyway. Then as the holder of the 2nd note, do the foreclosure on the 2nd and take over paying the 1st. That does not wipe out the first, since it's a subordinate note foreclosing on the first, but it could make it tens of thousands of dollars less expensive to own the property.
  
  The other thing to know is which states have redemption periods and which don't.
  
  your right now that I think about it. ergo the risk of doing seconds. Brain fart on my part I know better than that..
  I was aware you knew that, we've had previous discussions, but for the lurkers I needed to be clear.
  1 Reply

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