Foreclosure Auction Advice

8 Replies

First time poster here at Bigger Pockets and I have a rather basic question which has vexed me for some time. Want to see if anyone can shed some light on strategies to use in foreclosure auctions.

It's common sense to expect some sort of discount when purchasing foreclosed properties at an auction. You aren't able to view, or inspect, the property and most of them are in variable sets of disrepair. Compound that with the fact that you need to come with cash/certified check to these auctions (at least in our county) and you have to further research potential title defects and/or building department/code violations I would think that you'd need to purchase these buildings at 50%-70% (complete off the cuff estimate) on the dollar to make this kind of venture profitable.

That being said, currently every single property that I see is being foreclosed on for a ridiculous sum (most at least double the assessed value of the property), and it appears as if 98% of these properties are won back by the Plaintiff (the Lender).

Is this just a national problem, which make foreclosure auctions more difficult to maneuver? I've been watching for a couple of months and I just don't see where the value is.

I wanted to research these auctions, and then get involved, but it seems to be a gigantic waste of time and effort, for something that you are going to be outbid for anyways.

Any advice?

Thanks in advance!

Most auctions in my area (Lee County, Florida) are the same way. I don't even mess with them. For me they take too much time to research title, only to find out they've been canceled. It's not something I trust a VA to do. I'm connected to title companies but I can't be asking them to run title for properties I usually don't buy.

@Brent Thurn   I think you need to be looking everywhere.

MLS, Craigslist, 3rd Party auction sites, Judicial Auctions, FSBO signs/websites.

Best of Luck!

You attend the auctions on the chance that a property is offered at a price you feel is worth buying. There will be people with cashiers checks and a laptop pulling up a spreadsheet on each property with a price they will pay. Banks have a BPO and an account of what they're owed plus fees for each property. They usually offer the property for the latter at auction but not always, sometimes the former, sometimes, it appears, the former with a distressed discount The buys are when the loan amount is low, but most of these have had numerous offers from investors, and when the bank offers with a discount low enough to make it a good buy. Then you bid against the guys with the spreadsheet. It is really something you have to put some time into knowing there may or may not be a payoff. In a hot market you may need quite a bit of luck.

Thanks Brit, that's what I figured. I've seen next to no situations where the foreclosed value is less than the assessed value. And the few that are get bid up to probably 85%-90% of ARV (not enough margin to make it worth while).

I figured this would be a more national problem though, because if homeowners had any equity in the property they would sell it on their own accord instead of allowing the property to be foreclosed upon.

Are there many deals out there in other locations?

I'm curious.

Assessed value has no bearing on Market Value so not sure your gauge is producing good indications.  In Florida in most counties that assessed value lags a year behind the actual market value due to the timing of assessment by the property appraiser office.  

The property is foreclosed on the sums due under the note terms to the Mortgagee.  This number in most of all foreclosure auctions situations will always be higher than the property value since, if the sums due were less than the property value often times the borrower would simply sell the property and not go through foreclosure.  

The properties that revert back the Mortgagee are because an acceptable bid was not delivered at auction.  The Mortgagee sets a minimum bid prior to auction, it is not disclosed to the public.  The bid is the lowest amount the Mortgagee will take to satisfy their interests in the property.  The Mortgagee is entitled to set the minimum bid all the way up to the entire amount due.  Some counties have minimum requires for how low the number can be as well.  

Any title company, agent or alike can run a title report for you, sometimes referred to as an Ownership & Encumbrance report which usually costs around $100.  That is a report made for the purpose of reviewing title.  That is not the same as what is implied above with using a Title Commitment as the title report.

@ Dion maybe I wasn't describing myself properly. I'm fully aware that assessed value and market value aren't the same thing (and assessed value is most likely going to be less then market value, especially considering we are in a rising market). I'm also aware of how the foreclosure process works.

My question was if anyone is having success out there right now, with finding properties in this climate considering the foreclosed amounts are usually way higher than what they are worth? I use the assessed value as a very rough indicator to see if there is any shot in bidding on a property, but 99/100 times I see foreclosed values at 2x assessed value (which is likely it won't be in the same ball park as market value either).

I was just curious whether that was the confined area that I am in, or whether it is a nationwide issue. It doesn't make much sense to do any homework on these properties if you know that the Plaintiff is going to want close to market value for them to stop their bidding.

@Brent Thurn ,

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Originally posted by @Brent Thurn :

I was just curious whether that was the confined area that I am in, or whether it is a nationwide issue. It doesn't make much sense to do any homework on these properties if you know that the Plaintiff is going to want close to market value for them to stop their bidding.

Yogi Berra had it right. Regarding the courthouse steps, 'Nobody goes there anymore. It's too crowded.'

Each cycle is different. Contrarian theory suggests to sell when there is an abundance of motivated buyers (like now) and buy when no one in their right mind would ever invest in real estate (2008-2010).

Respect the cycles.

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