What do I need to know to bid at a foreclosure auction in CA?

Question

The subject question is broad so let me clarify what I mean. I was at

investment meet up group and the organizer asked if anyone was interested in pooling money together to buy HOA liens at auctions. I am a real estate broker and have been in the business since 2003. I have access to MLS, title searches, etc. I've done short sale flips as is. I understand that liens must be paid off and a title search must be done etc. With that being said, this gentleman charges a $4900 fee to make the bid on your behalf and also supervises any of the rehab work (if it is part of the strategy) I've never gone to an auction before so this is still new to me.

I pool some money together from several investors, the HOA delinquency is $4973. This property has been postponed 3 times already. However, he told me lately since things keep getting postponed and there really isn't many auctions going on, investors that go to these auctions are now bidding and bringing the price up. When I went to the auction to bid that day, he instructed me to stand in the parking lot so the other investors wouldn't see me, and potentially try to play games because there happens to be a "secret club" of sorts. Old timers vs newbies sort of thing. I don't know if this is real or BS. Perhaps he just doesn't want me to see whats going on. But in this deal, he waived his $4900 fee and wanted half of the profits when we sold the property in 90 days. This particular property is a SFR and has 1 mortgage lien on it for $330k. No other liens. We plan to find a buyer as soon as we win the bid and sell it AS-IS. Profit could potentially be $250k-$300k. He wants 50% of that. Now the only reason I would pay that is because I need some hand holding for my first deal. I am in the business and can pick up fast. But is this too much that he is asking for?

Also, I am worried about not being able to talk to the 1st lien holder since the winning bidder is not on the loan. He says these lenders just want to get their money and not the home and he hasn't had any bank not willing to talk to you.

He uses some sort of database to be able to pull info on properties that are going to auction. Can someone help me by telling me what companies can pull this info? He said this is his deal that he brought to me and he needs someone to help him finance it, thus the 50/50 split.

Any suggestions or tips on bidding at auctions would be greatly appreciated.

Jennifer Silletto · Answer

@David Cheung his reasoning for not using his own funds is because he was/is wiped out from a divorce. I'm not going to judge or ask further details, who knows what the reasons are and they could be legitimate. I make good money but I also have a lot of expenses marketing and money comes in and it goes out. I am giving him the benefit of the doubt. But still making sure I am checking everything out that is how I found this site. Nothing you can't google, lol. Thanks for the input!

David C. · Answer

@Jennifer Silletto , you can use propertyradar aka foreclosureradar to pull all that info, very good tool to find foreclosure deals. A lot of the info are public information but the software does a nice job presenting it. If you need to track down all the liens, I am sure your title officer can help you.

For buying HOA liens, make sure you read the actual NTS doc as they might have sale time at some odd hour. I once missed it because foreclosureradar shown a different time vs the actual time on the same day.

The guy seems very shady from what you are telling me. If he is a seasoned buyer at trustee sale, why can't he pull 10-15k to do this on his own? It just doesn't make sense to me.

Jay Hinrichs · Answer

@Jennifer Silletto I get it ... my point is with this type of equity there will no doubt be intense competition.. the chance that you would get this for minimum bid would be remote. But if this person is saying you should do a pre foreclosure with the current owner... then you have those rules to follow.

also your right if there has been no payment since 2011 the unpaid balance is probably 30 to 40k at least

Jennifer Silletto · Answer

@Robert Chuang At first there was a $4900 service charge but no split of profits. The deal now is no service fee and a 50/50 split.

@Jay Hinrichs Just found out from this operator that the 1st lien has an auction date set for January 2015. The HOA lien auction has been postponed to 12/23/14. The NTS that was filed in 11/13 by the 1st lien holder showed a Final Judgement Amount of $337,629, so I'm sure if they have not paid since that date, the amount is higher. He said he thinks we should bring the loan current so we need another $7k-$8k. I don't know where he got those numbers from, because that isn't going to be the amount to bring the loan current if the original loan balance was $330k with a deed of trust recorded in in 9/12/11.

Even if we win the HOA bid, we can't sell for 90 days and 1st lien auction is in 1/15, I would think this will deter any other bidders. My sales comparables show the property's market value around $700k-$715k.

I don't mind paying someone what is fair, I guess what I am trying to find out is am I being taken advantage of? I actually am bringing more to the table, not just the financing because I too have been researching the property to find out what liens are on it and pulling up recorded documents and showing him and doing my own due diligence.

Jay Hinrichs · Answer

@Jennifer Silletto I would be pretty shocked if there was that kind of profit without massive competition at the auction... the other things this person talks about is the good ole boy club.. there might be offers of collusion and he uses your funds to get walk away money and does not want you to witness it.. he just comes back and says we lost..

your no wiser to what happened.

Jennifer Silletto · Answer

Hi Sean,

Thanks for the quick reply. There were so many things to mention that I forgot to mention that we were going to find an end buyer after we won the bid but would close escrow after the 90 day redemption period. That I do know. We decided that on this first one that we will not rehab the property and sell AS-IS. If successful and we do more then we may rebab when we have more funds. I just don't think I will use him after the first one.

Can you provide the links to any of the database services? You mentioned you did that?

Sean OToole · Answer

Hi Jennifer - definitely some red flags here. The 50/50 split between the operational partner and the money partner isn't bad in and of itself - that's the way a lot of operators got started, and even some experienced one's work that way.

A $4900 bidding fee sounds pretty high. County Records Research offered that service for a while (maybe still do) in So Cal at I think around half of that price. We considered offering it, but decided to stick to just being that database you referred to.

Secret club thing is BS - these are public auctions, and while there may still be some folks who try to play games and scare off newbies, there is no reason for you not to go and watch. You don't need to explain to anyone why you are there or what property you are interested in, and if you use this person you won't be bidding anyway, so there is not really any game anyone could play - at least not legally, and if it is an illegal game, you really don't want to play anyway.

I'm also a little concerned because you mention two things that are at odds with each other. You mention bidding on HOA liens, and then say "We plan to find a buyer as soon as we win the bid and sell it AS-IS." But that really isn't possible. HOA liens have a 90 day right of redemption in CA and there is no chance you are going to get a title company to insure a sale until that time period is up.

Finally, while your potential partner is right that many 1st lienholders are happy to keep getting checks, there are a couple of caveats. First, they won't likely talk to you, or provide you payment info as you are not the borrower. You may be able to get the borrower to work with you in making the payments (helps their credit), but you certainly won't want to do actually make a payment until the redemption period is up. In the mean time, the HOA sale does trigger the due on sale clause in the loan, and that mortgage holder doesn't have to accept your payments and can demand payoff in full. They can't just take the house, they'll have to foreclose, which gives you time to get it resold, and as such you'll probably be ok. But these are things an experienced partner should be making you aware of.

I'd demand the operator be a little more forthcoming if you are going to continue doing business them. I'd also get a list of past deals, and past money partners as references before doing business with anyone. They may be great, and if they are, they shouldn't have any problem answering all your questions.

Hope that helps.

Sean

Robert Chuang · Answer

It seems to me that he is asking too much. if he wants to play game with other investors, don't you think he will play game with you too? $4900 plus 1/2 of profit? Absolutely not kind of pie I would like. LOL

As far as the first lien, most likely you will have work it out with the first lien. I am not so sure about if you will get it free and clear (Most likely won't be).

You can use property radar to pull off foreclosure list in California and 6 other states I believe, it only cost 50 bucks a month.

I would be very cautious with this @Jennifer Silletto . Best of luck!

What do I need to know to bid at a foreclosure auction in CA?

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