Buying forclosure prior to auction

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We found a property that is going through the foreclosure process. It is scheduled to go to auction at the county court house in a month. We had our real estate agent look into the property for us and had a title company pull a report. From what we can tell there are no liens on the property and we could afford to offer more than what is owed to the bank and escrow.

We're new to foreclosures, so my question here is at this point could we purchase the property directly from the owner before auction?

We also know the property is currently occupied by the owner, and the retail value is probably about 2x to 3x what is owed. We feel like we are missing something here? If it goes to auction and sells for more than what is owed where do the additional funds go? Owner, bank, county? In this situation, when it would even need to go to short sale, why wouldn't the owner put it on the market and walk away with cash?

Unless you are missing something, go try to buy it.  People in these situations often have "issues" which may be the reason they haven't simply listed it for sale.

What you suggest is not entirely uncommon. Here in Colorado Springs, once in a while, a property with significant equity will be in pre-foreclosure. investors and agents will have access to this information and send notices trying to entice the owner to sell. However, homeowners can have serious emotional attachment to their homes and any number of personal issues that cloud rational thought. On many occasions I have seen homes go to auction and sell for more than is owed to the lender. In this case, liens are satisfied in order and the remainder goes to the homeowner.

 "retail value is probably about 2x to 3x what is owed"

wow! that is significant. I would be absolutely sure the loan being foreclosed is the first. Often this kind of spread is indicative of a junior lien.

I've tried a couple of times to approach owners in pre-foreclosure - without success - I'm always nervous someone is going to pull a pistol on me. 

My strategy would be to clear the owners debt and offer them some incentive cash for keys and a rapid, clean exit of the property.

good luck.

@Tyler Kurz there is a reason for the situation. You just have to figure out what it is and solve it. I would say this, having cash is what is required. Go knock on the owner's door and get it under contract. At that step you will probably learn why it hasn't sold.

Originally posted by @Tyler Kurz :

 If it goes to auction and sells for more than what is owed where do the additional funds go? Owner, bank, county?

I believe if there is money left after paying all debts, the remainder money should go the owner. I feel this is very unlikely to happen. If the owner has so much equity in it, s/he would do everything possible to prevent the foreclosure from happening.

Crazy as it might seem it DOES happen, and I have seen buyers at auction bidding two times and more than the bank's opening bid. People facing foreclosure sometimes just have their head in the sand and do nothing about it, even when they could sell and get a small profit that could buy a smaller home too. 

This is a common situation.  The owners will until the last minute and file for bankruptcy.  This throws a monkey rench in everyone's plan.  The cure to the problem is to find out what has caused a dramatic change in income, and come at it from a different standpoint.  Maybe lease option purchase buy back.  The objective is make something rather than nothing on the job.

Thanks for all of the great info. We're trying to reach out to them now start with a letter and follow up with a phone call. Hopefully we'll get somewhere.

If it were me, knock on the door and try to buy it.    

Offer them to rent it for 6 months after you purchase so they don't have to move right away, include the cost of that rent into the purchase price but make sure to document the actual rental amount at fair market rent prices.    

If you sense it will help, also offer to allow them to purchase the property back at that time for a 10% premium.           

Allowing them to think they are "kicking the can down the road" should help you secure the deal.   Odds are you are evicting them in 6 months or doing some sort of cash for keys.

@Rod Sanford @Leigh C    Washington Oregon and CA have very specific laws on foreclosure rescue and then lease back to the owner.. One must be up to speed on those laws.. its not as cut and dry as what happens in other markets.

@Tyler Kurz   having made a business out of this prior to WA and OR. passing the anti skimming and foreclosure rescue laws.. you would be surprised folks are generally not to mean if you pound on the door.. Many times they won't answer.

you must realize that if there is a NOD filed on the west coast the homeowner will receive no less than 100 to 200 yellow letters from investors and Realtors and mortgage brokers all offer some assistance.. door knocking is by far the best method to buying one of these.

The laws preclude your profit on them though and if there is substantial equity you must give the old owner the lions share etc. Again read up on the laws.

Overages in WA go to the court.. then the homeowner must petition to get them its routine but it needs to happen that way.

However if your new to this go over and talk to the folks establish a raporte' first thing you want to do is help them protect as much equity as possible.. etc.. you don't want to come off like your picking meat off of dead bones...

@Tyler Kurz , so its been a few days now since you started this thread. You've gotten a lot of good advice and you know what to do. It now "feet to the fire". Have you contacted he distressed owner yet? What is the owner's story?

The situation you described is often one where you could offer cash for keys. Short sale is out because the owner is not underwater, but he may not be selling the property because something about that freaks him out. I don't know what, maybe he just afraid of realtors. In any case you won't know until he tells you.

Here's what you can expect as the auction date looms. The homeowner either gets super anxious about losing his house or he simply resigns himself to his fate. There are other levels of coping, but these are the most common. He may elect to declare bankruptcy, but that will only buy him a short postponement.

If the bank forecloses, they will open the bidding with what is owed to them. The property may well go for more than that if there is as much equity as you've indicated and the bidders know it. Any overages would go first to payoff any junior liens. Generally, whatever might remain is due to the distressed owner. There is rarely anything left over, of course.

This is why you offer him cash for keys. Your distressed owner has basically two choices, he can take your offer for cash or wait for the auction and lose everything. (Of course, he has more options than that, but he doesn't seem willing to take those, so.....)

So, how much cash should you offer him for the keys? That is a great question, but I can't answer that without knowing your numbers. No one could. Let's just say you have really good judgment, know how to run you numbers or you have a partner who does. Don't ruin the deal by guessing or asking the distressed owner to figure it out for you. If you don't know, ask!

Be a little bit careful when talking to the owner. HUD has gotten pretty touchy about people scamming folks out of there homes, so they have guidelines about what you can and can't say to homeowner in foreclosure. Don't oversell the benefits to the owner to sell or underrepresent your position to make a profit and never tell the owner that you are trying to "help" the owner with his foreclosure. "Help" is a fraud hotword with HUD. Use it at your own risk, but if you do, you may well have to answer to a federal judge how putting this fine owner out on the street "helped" him. Not where you want to be.

So, if you have not contacted the homeowner, what are you waiting for. Do it right now! If you have, post your update. Everyone who took the time to post in this thread is dying to see you take this deal down. We want to see you succeed! I'd love to hear how this turns out, even if it doesn't work out this time. I just dig that you are taking action.

"Patience my ***, let's go do a real estate deal!"  -- Anonymous

Well we gave it a shot. Sent a letter at the beginning of last week, then this weekend tried knocking on the door. I could hear that they were home, but they didn't answer. Tried a phone call with no answer there either. I'll have to say, knocking on the door was about the scariest thing I had ever done. I think I almost backed out twice heading up the driveway.

I'll have to keep my eyes out to see if this one makes it to auction. We did some more digging through our agent, and think they may just have figured out how to work the system. It looks like they had been foreclosed on in the past, but were able to refi out of it once. Maybe they did again?

Either way it was a good learning experience, with a lot of good help from this forum. I really appreciate the words of wisdom. The call to action was very helpful as well. I think it was just the kick I needed in the right direction.

Off to try to find a new property to get that elusive first deal.


Hi @Tyler Kurz ,

Congrats on facing your fears and going for it. Knocking at doors of people that are in danger of losing their house scares the poop out almost everyone at first. Usually the fear never really goes away, but you did it anyway. You are on your way to success!

Time is probably getting short on this one, but I'd probably keep trying to connect with the owners right up to the day of the auction. You never know, the auction could get postponed and buy you a bit more time. The bank may even give them a little more time if the owner calls and tells them that you're close to a deal. It's worth a shot.

Keep in mind to give yourself plenty of time when working on the distressed owners. It usually takes a number of "touches" before they'll respond to you, then their first answer is most often "no". (No one said this would be easy.) You've got to be persistent. Remember, you are dogged and relentless. You are....(dramatic pause)...the Foreclosinator!

You have the right idea. No matter what the outcome on this particular deal, find the next one. Even if you somehow do get this one to the negotiation table, keep looking for the next one.

I have one truly burning question for you, however. If you do get them to answer the door, pick up the phone or whatever, do you know what you're planning to say? This can be tricky. I like to start with my attitude and you would do well to do the same. 

Begin with the flaming desire to be of service to this homeowner. I mean to the point that you want to get them to a better place in life, even if you don't make a penny. You want them to look at you like you have wings and a halo. Distressed owners are a skiddish lot and you want, nay need for them to trust you.

 May I offer a suggestion? Put yourself in their shoes. Consider how someone would have to present themselves in order for you open the door and listen. Once you have that down practice it, then practice some more. Maybe even make a game of it. Have a friend play the distressed homeowner and your objective is to get him to say "yes". If you can't do that, you lose. Keep score. The score of this game will be proportional to your investing account balance ($$$)

I can't wait to hear how this deal shakes out and about the next deals. Keep me in the loop. And, naturally, any thoughts, questions, comments or if there's something I can do to help, let me know.