A house just popped up in my farm area that is being sold at IRA auction next month. In order to bid, I need a cashiers check for 20% of my bid amount on site the day of the auction with the remainder to be paid within 30 days. If I plan to finance the purchase how would I go about getting the cashiers check to bid on the day of the auction? I have pretty good idea of ARV based on comps in the area and I can estimate the rehab with a cushion since the open house isn't until the day of the auction. With all this I can obviously come up with my maximum possible bid amount, but if I don't want to pony up the cash for a bid deposit how would I get a cashiers check? Would a hard money lender possibly issue a check for 20% of my max bid amount? If I was outbid, I would simply return the check and if I won I would have 30 days to either find alternate financing or get another check from the hard money lender.
I do probably have enough cash for the 20% down but I would need to take a 401K loan to get it so I'd rather bid with borrowed cash and take the 401K loan once I knew I had the deal wrapped up. Thoughts? Is it possible?
No, no onw will lend a deposit, it's not secured. More importantly, if the IRS is foreclosing a lien, you don't normally get clear title, just the owner's "interest" (equity) in the property. The IRS is just like any other lien holder....first in time-first in line. By the way, is this the one with the pink mud room and the green pool? Looks in rough shape. It's not my area, so I'm not a bidder.
Yeah that sounds like the one.
Also just reread the terms of the auction and you seem to be right about the possibility of additional liens. How would one go about verifying the title before bidding?
They have a phone number for questions, and a title search is imperative.
IRA? I thought the Irish Republic Army had pretty well gone underground.
IRS auctions, like many others, are really the realm of the cash buyer. They only auction the rights and interests of the tax debtor and it's not uncommon that there is another or other persons on title that could conceivably be your real estate co-owners.
If you are the successful bidder, you then need to wait out the redemption statute as debtor may redeem. Once you've got past that hurdle you still have any co-owners to deal with.
How do you clean up that mess? Absent everyone smiling and getting into agreement, it will require an involved legal suit called a partition action. It's typically lengthy and expensive.
Surprisingly, people pay more than you'd think at these sales. I have not been involved with an IRS sale since the 80's however even then, during a stagnant real estate economy both nationally and locally in CA at the time, people were paying 75% of FMV. For all the problems and issues, I thought that was too much unless I could control anyone else on title's interest and assemble the two. Never did that, but that was my best plan.
So, yes, I'd say you'd need to do your title research first. I didn't mention the possibility of any existing liens superior to the IRS lien that might remain...
County records show a few other parties to the property so I'm probably going to step away. I think I'll still go the day of the auction and take a look and see what it sells for just for kicks. It's a shame though, this could be a really good flip if the price was right. I hate to see good real estate go to waste.
We provide the IRS with title searches prior to their foreclosure process on these properties being foreclosed on for not paying federal taxes. The title searches normally come back ok. Each property is unique so I would suggest getting a title search to verify if there are any liens in front of the FTL's. Often times there are junior liens that should be extinguished through the foreclosure process. I know MANY people who have gotten great deals on these properties. Normally they are cash buyers.
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