auction sales

[Leila Moose]

Hi guys

I live in North Cal, been buying properties for a year, recently got interested in auction sales. I am hoping some of you could share some advice on how to buy from auction, (Trustee vs REO, tenant occupied vs vacant, etc)

what research should I do ? whats the best and most economic way to get prelim title report? Is getting the prelim title report going to help me clear out all the concerns regarding liens and second loans? any resources/books/classes that I should sign up for? Million thxs!

L

[Wayne Brooks]

Title searches, or any other search, are Not going to show you balances....only original amounts, when originated, and if they're in foreclosure.

[Brian Burke]

@Account Closed, title 'gotchas' could be IRS liens that you missed (or are in the name of a co-owner that you didn't see), subordination agreements that change the priority of loans, old unreleased deeds of trust (especially HELOCS that were paid off in a refi but not closed and reconvened and subsequently drawn back down), loss of legal access due to a license but no easement, unintentional land locking by leaving access out of the legal description, and if I sat here long enough I could probably think of 50 more. In your state you have to add to this list super-senior HOA dues and junior liens that don't get wiped out if the foreclosure suit isn't drafted properly.

I've personally witnessed each of the items I've listed and some of them are common.  I've personally suffered two of them (the two access issues) and they were expensive and complicated to fix and definitely an interesting lesson on the "one-in-a-thousand" scenario.  And a good number of the issues you may encounter wouldn't show up on any report you could buy. Another reason I don't buy reports to establish title. 

The reality is that if you want to buy at auction, you either need to be an expert at interpreting title or you need to buy in such volume that you can lose your entire investment on a deal here and there and not be wiped out. I  choose both.

[Account Closed]

@Brian Burke is there a way that i could research the bankruptcy file of the homeowner. I only saw a suggestion of bankruptcy on the comptroller website, but can i access it on a federal website since they filed chapter 11 ?

[Wayne Brooks]

Dexter, you can go to pacer.gov, open an account and get all your info for basically free.  But, you don't need it for auction buying.  You don't care what kind of, or if, they filed BK.. If the property is going to auction, it's irrelevant.

[Rodney D.]

Originally posted by @Brian Burke:

@Account Closed, title 'gotchas' could be IRS liens that you missed (or are in the name of a co-owner that you didn't see), subordination agreements that change the priority of loans, old unreleased deeds of trust (especially HELOCS that were paid off in a refi but not closed and reconvened and subsequently drawn back down), loss of legal access due to a license but no easement, unintentional land locking by leaving access out of the legal description, and if I sat here long enough I could probably think of 50 more. In your state you have to add to this list super-senior HOA dues and junior liens that don't get wiped out if the foreclosure suit isn't drafted properly.

I've personally witnessed each of the items I've listed and some of them are common.  I've personally suffered two of them (the two access issues) and they were expensive and complicated to fix and definitely an interesting lesson on the "one-in-a-thousand" scenario.  And a good number of the issues you may encounter wouldn't show up on any report you could buy. Another reason I don't buy reports to establish title. 

The reality is that if you want to buy at auction, you either need to be an expert at interpreting title or you need to buy in such volume that you can lose your entire investment on a deal here and there and not be wiped out. I  choose both.

Couldn't agree more!

Brian, Leila, or Jay  - in N. Cal, do you put down a deposit, or do you have cashiers checks covering your full bid amount at the courthouse?  Do you get a Deed after payment?

Here in Virginia / Maryland its usually 10% deposit or equivalent.

[Zaid R.]

Originally posted by @Jimmy Hong:

Well said @Brian Burke , when I was starting out, I was at the courthouse steps in Southern Cali every morning for 6 months. My biggest worry was title, so verified title on certain amount of properties I was interested in. At the end I did not end up buying at the courthouse steps because auction prices was not significantly lower than retail.

 I wanted to echo what Jimmy said. The last auction I was at was an auction.com trustee sale in los angeles county (norwalk). I want to say 85% of the properties ended up being postponed and the ones left people paid way too much for.

The biggest concern (other than the price) would be title issues. Unless you've been in the game for a while or have someone trust worthy that can walk you through it maybe your time would be better spent on other properties (like directly from sellers or the MLS)

[Brian Burke]

@Rodney D. you pay in full at the time of the auction. The deed comes in the mail in about two weeks. 

[Bill Larsen]

@Zaid R.

 Auction.com trustee sales tend to go higher than the pomona auctions.  We hit Pomona everyday and go to most of the auction.com auctions as well.   We buy 90% of our properties at Pomona. 

Understanding the title of the property is important and you can lose a lot of money if you're not careful, but it's pretty easy to be careful 

[Rodney D.]

Originally posted by @Brian Burke:

@Rodney D. you pay in full at the time of the auction. The deed comes in the mail in about two weeks. 

Brian, wow, lots of $$ to be carrying around!   - Thanks for the reply.

Curious tho, what happens when you bid successfully on a 2nd note/trust?  You pay off that 2nd note at the courthouse steps like you said, but do you have to pay off the 1st there too?   Do they announce the payoff?

Zaid,  I'm seeing 80% cancellations here too.  15 years in the biz and never seen em this high  - even during the last boom.

[Brian Burke]

@Rodney D. you can pay off the first later, but you should contact them right away. You don't want them to foreclose you out. You won't find out the balance until after you own the property so it's a guessing game.  Beware that after the mortgage crises some lenders didn't enforce their loans for YEARS so I've seen first loans with several hundred thousand in back payments that you would also have to pay.  Beware.

[Rodney D.]

Originally posted by @Brian Burke:

@Rodney D. you can pay off the first later, but you should contact them right away. You don't want them to foreclose you out. You won't find out the balance until after you own the property so it's a guessing game.  Beware that after the mortgage crises some lenders didn't enforce their loans for YEARS so I've seen first loans with several hundred thousand in back payments that you would also have to pay.  Beware.

Thank you sir!  That helps explain the EXACT scenario I'm seeing and discussing (heatedly?) in the following thread:

http://www.biggerpockets.com/forums/41/topics/1964...

[Brian Burke]

@Rodney D., that's funny...I missed that thread but I just scanned it.  Just a heads-up, the refusal of first lienholders to disclose the balance due isn't anything new.  I've been doing this for 25 years and I've never (even way back then) been able to get a lender to disclose the outstanding balance on a senior lien prior to owning the property (talking in terms of an acquisition at a trustee's sale).  In a conventional sale, the borrower is asking for the payoff balance and then giving it to the buyer (via escrow).  In a trustee's sale, the borrower isn't going to do you any favors. 

Back in the day, I used to just add 6 month's worth of payments to the original balance to get an approximation.  That was, because back then lenders would foreclose if you missed more than three payments.  These days, you see loans that haven't been paid on in five years and the lenders still haven't filed a notice of default.  It makes the acquisition of properties at trustee's sales of second liens a very risky business.  One that even a seasoned veteran like myself isn't willing to stomach in most cases.

[Rodney D.]

Originally posted by @Brian Burke:

@Rodney D., that's funny...I missed that thread but I just scanned it.  Just a heads-up, the refusal of first lienholders to disclose the balance due isn't anything new.  I've been doing this for 25 years and I've never (even way back then) been able to get a lender to disclose the outstanding balance on a senior lien prior to owning the property (talking in terms of an acquisition at a trustee's sale).  In a conventional sale, the borrower is asking for the payoff balance and then giving it to the buyer (via escrow).  In a trustee's sale, the borrower isn't going to do you any favors. 

Back in the day, I used to just add 6 month's worth of payments to the original balance to get an approximation.  That was, because back then lenders would foreclose if you missed more than three payments.  These days, you see loans that haven't been paid on in five years and the lenders still haven't filed a notice of default.  It makes the acquisition of properties at trustee's sales of second liens a very risky business.  One that even a seasoned veteran like myself isn't willing to stomach in most cases.

Brian  -- thank you again!  Its SO very refreshing talking with you and getting straight, experienced, answers, from someone who has/is experiencing the same situation!  I feel a little like Forest Gump... "mama always did have a way of explaining things so I could understand 'em"  lol.   I had feared I was missing something other investors knew but kept to themselves.

I recall trustees back in the 80's actually announcing the payoffs of the 1st in an effort to help us investors out.  I've been told they stopped this practice due to some disgruntled investors trying to wiggle out of a bad property purchase after-the-sale by claiming the trustee mis-represented the payoff figure.  In response, trustees don't say anything now.  Bad apple spoils the bunch scenario.

[Robert Taylor]

Hey, it looks like this topic came back from the thread graveyard as occasionally happens and is again alive and kicking!

Its also big day for me (or really yesterday) as yesterday was DAY #121 counting from the day that the deed was put in to my name, actually my LLCs name and I later heard that can be a red flag for the IRS, but assuming my record of being consistently quite accurate with my estimated "fixed up" sale price of any home needing anything from just cosmetics all the way to full gut n reno projects, assuming it works as it has been, this should be a very nice one for me.

I have to send another "thanks!" to @Wayne Brooksfor this one as well, as this was the first time I've pulled the trigger on ANY home where the prev owner had a personal (and very large $$!!!) IRS lien on him and between Wayne's answer to my slightly frantic call for advice back in Jan, which he quickly replied on and many other informative posts he's had, helped me get the guts to decide going for it. After auction price, back city taxes and that, I'm all into this one for about $600k and probably around $800k or so when all is said and done, so its not a $40k el cheapo by any means!! (our nearby counties auctions and when the maybe 20 various law firms in Milwaukee and Chicago that handle 99.9% of all sales, leaves us just 2 days to get the opening bid, narrow that WAY down to handful of potential buys, then research and decide)

I had three others (all around $200k all in, so not in this range, which is nearing top of this market) nearly done then anyway, so getting going on rehab here only now wasn't a big problem. I'll update when its ready to show, but its an incredible home, sort of a 4000+ sq foot castle on 2.5 acres in one of Milwaukee metro areas best, A+ prime residential areas, which has been HOT! 

Quick question for @Natalie M.- what ever happened with your potential mentor??? The "buys 2 or 3 houses a day" jumped out at me and made me wonder if he/she was legit or if that was SADLY, another BS artist, too many of whom still plague this biz! Even here on BP a while back, an out of town guy was spinning a yarn and offering to sell some guaranteed return partnerships or something along those lines, which #1 made me wonder if he'd already crossed the line into selling what IRS considers securities (which he sure did not!) and that can get those selling the unregistered securities into MAJOR hot water very fast and #2 he was from elsewhere, but talking about some unnamed partner or whatever here buying some massive # of foreclosures here and unless Mr Mystery buyer is invisible, I'm quite sure he doesn't exist as I'd certainly know anyone buying in the #s of separate properties this goof claimed and I don't!

I certainly hope he was either for real, or that if not, you split before he got into to your wallets!

[Natalie M.]

@Robert Taylor

I definitely don't think this guy was a BS artist because we literally watched him buy houses at the courthouse steps daily.  However, he did tell my husband that after bird watching for a certain amount of time, he would teach him the business and that never happened.  After we scoped out 120 or so properties for him, we requested to sit down with him and discuss next steps.  He kept telling us he would do this and do that, but never followed through.  He never asked us for any money.  What's even more crazy is he actually put money into us.  He bought us a GPS (which we really didn't need since the iPhone works just fine) and a big corporate looking printer to keep paperwork on hand so we could scratch out properties we viewed.  My husband tried to call him several times and never got a response.  Finally, he emailed him and told him that he wasn't holding up his end of the bargain.  The investor never responded.  I sure hope we didn't lose out on something great, but this guy started to get a bit fishy as time went on.

[Robert Taylor]

Well, good to hear you got a GPS, a big printer and whatever out FROM him and not the other way around Natalie, I was taken aback a bit by the "2 or 3 houses a day" part, unless he has a bunch of staff under him or somehow lined up the miracle home run property manager(s) and/or best contractors to handle every last detail, that would be quite the ridiculously fast growing empire to manage, heck just to close all of those sales you'd be spending the majority of each day at closings! (although you mentioned buying at court auction, which I do myself and still requires nearly as much work to get the deed) 

Good luck on everything though and glad to hear it didn't end up costing you, keep plugging away and you'll get there! I'm still learning lessons too after 10+ years!