Experienced auction buyer looking for advice on how to deal directly with current homeowner about to lose their house at the auction

10 Replies

Between my brother (who is my partner) and myself, we've bought at least 40 properties (residential and several commercial properties) at our local sheriff's auction over the last 10 years. As is common with a lot of local auctions, here in Milwaukee County at least 90% of the properties going through the auction are bought back by the bank that's foreclosing, they've set the opening bid amount too high to make buying it at the auction make any financial sense to buy at the auction.

This also brings to mind another possible strategy, dealing directly with the soon to be former owner who's losing the house. Here in WI, the sale is not final when the house goes through the auction, it is finalized at a confirmation hearing, which is usually about 3 to 6 weeks after the auction date. So, for the house I'm interested in, it went through the auction today, March 17th but the sale won't be finalized until April 7th at the confirmation hearing. So, the soon to be former owner has these last 3 weeks to possibly save their ownership. Usually nothing changes and the sale goes through, although occasionally something happens, often its saved or at least put off when the owner files for bankruptcy, although if they're somehow able to come up with the money, they can save it that way, too.

I'm wondering if anyone here has had success dealing directly with the soon to be former owner of properties?

I have the cash to pay off what the amount was that the house sold for at the auction today. I know that you have to be careful when dealing with the owners, due to all of the "foreclosure scams" that have been done lately, but I'm simply looking to first get inside and see the house to make sure its still in decent shape and then to contact the bank to see how much I could buy it for or how much to pay off what they owe. I did find the owner on Facebook, so I have at least one way to contact him, it looks like they already moved out of the house.

Congrats on your success. Here most go back to the bank too.

When dealing with the homeowner, many are in denial. They think some white knight will appear and save the day. That's a fairy tale that just does not happen. But another problem is that they home owner owes more than the property is worth and they do not have the capability of bring cash to the settlement. So if they owe more than the property is worth, then there are only a few options.

1. Wait for the Sheriff sale to wipe out the first, second mortgages and other debt. The sheriff sale helps to make the property viable again but wiping out the debt.

2. The second option would be to work with the home owner to do a short sale. SS take time and often the sheriff sale is fast approaching and time is critical and there may not be enough time to effect the SS before the sheriff sale. Usually at large banks there are different groups handling the SS and the foreclosure, its not the same people.

I know how to do it here in CA, but it's different because we don't have a confirmation or redemption period. And no court case

I'm a little confused about the plan. If the property went to auction today and went back to the lender, that usually means the lender is owned more than its worth. And if not, why didn't you buy it? What's the plan if you contact the owner and arrange to make a deal with him? Were you planning to do a short sale?

@Account Closed -the reason why I didn't just buy it at the auction today was because I wasn't able to get inside and do any inspection at all. Being in WI at the end of winter, especially after the ridiculously cold winter we just had and seeing that it looked vacant, I was worried about freezing pipes or other winter damage if the heat had been turned off. Besides the regular DWV plumbing, the house has hot water heat, so those pipes and radiators could've been damaged as well, potentially causing HUGE amounts of damage. I'm hoping that by getting a hold of the owner and offering him some sort of solution, I can also get inside to inspect it.

As far as the opening bid amount at the auction, the vast majority of the time the opening bid is somewhere right around what is owed on the property, which is pretty much always more than its worth. Yet, for some reason, occasionally they will drop the bid down in price on certain properties and those are the few of them that are worth buying at the auction. I used to subscribe to a service that would list all the data on each property each week, including what was owed, but I dropped my subscription a while back and haven't renewed it yet, so I don't know what was owed on it.

@David Krulac-I did run title on the property and this was the first mortgage that was foreclosing with no other mortgages. Yes, I guess contacting the owner and seeing if they looked into doing a short sale at all would be a good idea and if they did, what the bank's number to buy it out was. I have the cash to buy it for what the opening bid was at the auction today.

If there's no chance of working with the current owner, then I'd wait until after the April 7th confirmation hearing and then contact the law firm handling the sale for the bank and see if I can get an offer in before the bank hands it over to a 3rd party asset manager who will hand it to a realtor to list on the mls. I know a guy here who's done that several times and bought properties before they were listed on the mls.

I guess what I'm looking for here is any advice anyone has on how to approach the owner. I found the guy on Facebook, so I could send him a message through Facebook to contact him that way. He's made recent postings, so he's active on Facebook, I was thinking that might be a less threatening way to contact him as opposed to sending a letter. I'm sure he's received a lot of letters recently regarding this foreclosure and other debts that he likely has as well, so I'd think that my letter would likely get tossed along with all the other ones.

The main issue I see is that if you do visit the property, and the price, plus any renovations, might be higher than what you'd be willing to pay. Then, if you do visit the homeowner, even if you preface it with caveats, they might still think there is some hope to saving their house.

The only way is if you really do have a deal, you can tell them that either they get forced out due to the foreclosure, and get nothing, or leave quickly by you paying it off and they get a little money out of it to help them move.

I've never been to a Sherriff's auction in Milwaukee and thought it might be interesting to see one.

Originally posted by @Robert Taylor :

As far as the opening bid amount at the auction, the vast majority of the time the opening bid is somewhere right around what is owed on the property, which is pretty much always more than its worth. Yet, for some reason, occasionally they will drop the bid down in price on certain properties and those are the few of them that are worth buying at the auction. I used to subscribe to a service that would list all the data on each property each week, including what was owed, but I dropped my subscription a while back and haven't renewed it yet, so I don't know what was owed on it.

Correct me if I'm wrong, because I don't know WI foreclosure. But in order to make a payoff doesn't the borrower owe the full amount of the loan, not the minimum bid set sale. When a borrower goes to pay off the loan before the arraignment, they can't use the minimum bid amount, can they? If so, you'd really need to know what the judgment amount is before you contact the owner.

Also, if the sale doesn't go through because you make a payoff, does that reverse or leave in place any other liens that were included in the foreclosure suit (judgments, jr. liens, etc)? Sorry for the questions, as judicial foreclosure is unfamiliar to me.

As for contacting the owner: if the property is empty, what solution is it that you are offering? If he's already moved, he doesn't need the time to do that. You could offer him a consideration payment to cooperate with your plan (make a payoff and get a deed) and see if he goes for it. But IMO there's not a lot of incentive there. Regardless, if the numbers are right, I'd contact him and tell him you'd like to make a deal about the house.

Seems to me the only real win-win is if you can do a short sale, create enough margin and pass on the homeowner some cash for keys.

Your negotiating leverage may only be avoiding the foreclosure hit on the credit history (10 years) as opposed to a short sale (3 years).

Kristine Marie Poe

K.. if the lender credit bids less than the mortgage they have set the price.

A lot of times this has to do with Mortgage insurance.

So for instance I am following a bigger than normal one right now. 1mil owed.. I talked to the bank and wanted to buy the note NOW and substitute trustee and I would take over... I wanted to offer 200k... However the bank even though owed 1 mil they would not discount that much.. They want to credit bid at the sale 650k.. So when they do that that will leave 350k in deficiency and since this is a west coast JUDICAL foreclosure then the deficancy will be 350k. So what I did was put in an offer on the Deficancy as the judgement debtor is good for the money.. So I would in essence take the banks position and chase the debtor for the 350k.. I would offer 50k in this instance. With the hopes the bank would just take the 50k and the property they foreclosed on.. No one will bid at the sherrifs sale for 650k..

Originally posted by @Jay Hinrichs :
@K. Marie Poe So what I did was put in an offer on the Deficancy as the judgement debtor is good for the money.. So I would in essence take the banks position and chase the debtor for the 350k.. I would offer 50k in this instance. With the hopes the bank would just take the 50k and the property they foreclosed on.. No one will bid at the sherrifs sale for 650k..

In this example, is the def. judgment you want to buy already a complete judgment that you can collect or foreclose on? Or do you buy the debt from the lender and sue the debtor yourself?

Kristine Marie Poe

I offered to buy the entire foreclosure now, however bank declined. So they will have a sheriffs sale in June. If the Trustor does not cure.. The sale will go through... At this date the bank says it will credit bid 650k... At that point they have no other recourse other than the land they took as collateral. However Because of the PG they will get a JUDGEMENT for the difference 350k. which is an unsecured judgment.. And because I know this particular company I believe through a lot of effort I can collect on that judgment at face.. However the bank in my hopes will just want to cut and run and sell me the judgment for 50k. The only way this company and individual gets out of it is by a chapter 7. Which I am willing to take the 50k risk.. For other reasons I would easily make us the 50k lost on opportunities this company then could no longer execute on because the principal has filed chapter 7. Obviously not your vanilla foreclosure but very common right now.. OUCH I can't remember the name but the investment arm of Lennar which has bought billions of dollars worth of bad paper is systematically working through their debt like this. I had an asscociate who lost a property that thought he was scott free only to get a judicial summons from these guys and he had to BK to get rid of it.

Thanks again for the responses everyone. I'm going to go down two different avenues here, I'm going to attempt to contact the current owner and also work with the bank as well. Technically, the bank doesn't yet own the house, that will happen on April 7th after the auction sale is confirmed by the court, which goes through probably 99.5% or more of the time. I just remembered I (or actually my brother) has a contact with a fairly high up guy at this bank, which is a pretty big bank, without that contact, I don't know if I'd get anywhere attempting to deal with the bank BEFORE they turn it over to a 3rd party asset manager who will simply list it with a local realtor. As I think I mentioned, I know another investor who has managed to snag a few properties by getting them before the bank turns it over to the asset manager.

I'm also going to contact the owner and go the route that @Brandon Lee

mentioned, that if we can get the bank to do a short sale, it will help to save their credit rating, or at least the hit won't be quite as bad. I think that's the only leverage I have with the owner, since it looks like they're already gone.

I'd be interested to hear if anyone here on BP has also managed to snag a property from the bank before it was assigned to an asset manager or listed with a realtor.

PS @Dawn Anastasi

if you'd ever want to check out a Milwaukee sheriff's auction, we can do a field trip sometime! They're somewhat interesting, especially if you have your eye on one or more properties!

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