Buying from an auction.

11 Replies

Hi everyone, just curious as to how many people pick up SF from auctions like hubzu, auction or tax sales at courthouse. Is this too risky? Do the prices get driven up to retail prices? I am inn Houston and the market seem pretty competitive.

Hi Ryan,

I've purchased 3 properties at auction. I've bid on many more though and usually they end too expensive so I just let it go. Set your max bid and don't go over that, that's the key! Also make sure you know what you're getting. Do a walk through at minimum if possible. 

My very first purchase I lost the auction because I hit my cap. The buyer backed out and they offered it to me instead of putting it back on auction. They asked for a final bid from me and I stuck with my cap price. They sold it to me for that price. I've had that happen twice now where I didn't offer what they wanted but still ended up buying it for my price.

My most recent was 2 months ago, so deals are still out there if you find them. There's also a lot of non-deals, so be strong.

Allen

Allen Maris, Real Estate Agent in CA (#01918765)

@Allen Maris , what advice can you offer on researching the title, potential liens, etc. on these properties?

Originally posted by @Leigh Ann Smith :

@Allen Maris, what advice can you offer on researching the title, potential liens, etc. on these properties?

 Hi Leigh Ann,

I may have misunderstood the question, but I was referring to purchasing these at auction after the foreclosure as a straight REO, and at that point the property has been cleared of the liens. They also go through an official title search as part of the closing like a standard purchase.

I think the auction process like Williams & Williams, Auction.com etc has been a way for banks to try to get their properties the most exposure and on the open market instead of dumping blocks of them to investors for a large discount. Since I'm not a big enough investor to buy 20-30 properties at a time, I've had to resort to this tactic when the deal is right.

If you're wanting to do a prelim title search, your title person can do a quick search for very little time and money (maybe even no charge if you're a repeat customer).

Since I'm not an attorney, here's what my interpretation is. In CA, since most people now are getting a deficiency judgement waived, the redemption period isn't allowed. To compound that, most banks are paying the full price at the foreclosure auction, which shortens any redemption period down to 3 months. I've been seeing most of the assets sitting at the bank for 3-6 months before they get around to selling.

Allen

Allen Maris, Real Estate Agent in CA (#01918765)

I have purchased 3 properties at the Harris County Tax Sale so far. I agree with a lot of what @Allen Maris said above. Don't go over your max bid that you predetermined and practice patience. It took me 6 auctions to win anything. Unlike what Allen is doing, you have to know what you are doing when you are bidding at a tax deed auction. I highly recommend sitting down with a real estate attorney before you get going on this strategy as he/she can save you from making some costly mistakes. That being said, I am finding it a good way to get undervalued properties in a hot Houston market. 

@Allen - There is no redemption period in a non judicial foreclosure. None at all. There is also no deficiency after foreclosure (In California), none at all (And no need for deficiency judgment waiver). There are very very few exceptions to that but for most of us civillians, California's, "Single Action" applies.

And to clarify a common misconception, Banks don't "Pay" full price at foreclosure sale. They don't pay a dime at sale. The foreclosing entities does what is called a credit bid. It's simply an accounting methodology and there are actually no funds transferred between any parties. The only bank that would EVER actually go to sale with money would be a junior lien holder trying to bid to protect their lien position and keep from being wiped out (I do it daily when I'm the junior lien holder).

And while I agree that it can take months to get the foreclosed property on the open market, it's not because they are just sitting there. We have to make sure there are no tenants, if there are, we are screwed for the term of the lease. We have to make sure we get an inspection, find out what's wrong with the property, see if it's economically feasible to rehab the property, ensure we are compliant with all local/state rules regarding REO property, register the property if applicable, ensure health and safety issues are addresssed (Toxic DDT Landfill?), arrange for someone to clean it out if its a dump (It usually is), get bids for repairs, approve bids for repairs, get repairs, re appraise the property, then list it with a local agent.

That doesn't happen in two weeks.

I purchased a couple from the "court house steps" (the Internet these days) this week. Prices get bid way up on some but others go for great prices. There's a lot of auctions everyday and depending on how many you want to research and be prepared to bid on you can find some deals. The most desirable proprieties in the most desirable areas will be the highest competition. If you're not comfortable doing your own title research then you're probably not ready for these type of auctions, you can make huge mistakes and lose a lot of money very quickly (see the posts on here about people that accidentally bought 2nd's and HOA foreclosures without knowing what they were doing). If you want to bid on 10 properties/day you'll spend a fortune on title searches if you're paying a title company.

Originally posted by @Ron S. :

@Allen - There is no redemption period in a non judicial foreclosure. None at all. There is also no deficiency after foreclosure (In California), none at all (And no need for deficiency judgment waiver). There are very very few exceptions to that but for most of us civillians, California's, "Single Action" applies.

And to clarify a common misconception, Banks don't "Pay" full price at foreclosure sale. They don't pay a dime at sale. The foreclosing entities does what is called a credit bid. It's simply an accounting methodology and there are actually no funds transferred between any parties. The only bank that would EVER actually go to sale with money would be a junior lien holder trying to bid to protect their lien position and keep from being wiped out (I do it daily when I'm the junior lien holder).

And while I agree that it can take months to get the foreclosed property on the open market, it's not because they are just sitting there. We have to make sure there are no tenants, if there are, we are screwed for the term of the lease. We have to make sure we get an inspection, find out what's wrong with the property, see if it's economically feasible to rehab the property, ensure we are compliant with all local/state rules regarding REO property, register the property if applicable, ensure health and safety issues are addresssed (Toxic DDT Landfill?), arrange for someone to clean it out if its a dump (It usually is), get bids for repairs, approve bids for repairs, get repairs, re appraise the property, then list it with a local agent.

That doesn't happen in two weeks.

 Ron, thanks for the clarity on the redemption period. Also thanks for the clarification on what happens after the the foreclosure. I knew there were some processes that happen, but I'm not on that side so I don't know the details of how much has to happen. I wasn't implying that the file just sits on someone's desk for 3 months collecting dust.

Best,

Allen

Allen Maris, Real Estate Agent in CA (#01918765)

@ Allen - No worries! Sometimes I have to seperate the "Consumer" from the "Industry Colleague". Consumers have all of these conspiracy theories that things just sit for the purpose of things sitting.

Originally posted by @Cal Ewing :

I have purchased 3 properties at the Harris County Tax Sale so far. I agree with a lot of what @Allen Maris said above. Don't go over your max bid that you predetermined and practice patience. It took me 6 auctions to win anything. Unlike what Allen is doing, you have to know what you are doing when you are bidding at a tax deed auction. I highly recommend sitting down with a real estate attorney before you get going on this strategy as he/she can save you from making some costly mistakes. That being said, I am finding it a good way to get undervalued properties in a hot Houston market. 

 Hello, I am also in Harris County and will like to connect with you if possible. I will like to attend one of this auctions. It is always nice to go with someone that has done it before.

I bought a house on action and the title wasn't  an issue, it was guaranteed  free and clear. The problem with the property that it had a fatal error and it was non financeable. I didn't find the problem till the day after it was closed.

Join the Largest Real Estate Investing Community

Basic membership is free, forever.