B.S.!!!! It is easy to buy at the courthouse steps , just show up with cashiers checks and raise your hand!
However, it is also very easy to lose your shirt. I attend and buy at my Texas county foreclosure auction the first tuesday of each month. This is an open invitation to come watch a pro do it next tuesday the 5th. PM me if interested.
Here are a couple examples.
1. Last month, a newbie bid around 40K on a house worth probably 200K. Great deal, right? He hadn't done his homework!! (now it gets funny) It was for a SECOND mortgage that was for a swimming pool and landscaping on the 200K home the homeowner had taken out. This bidder had paid off the homeowners' pool loan. He gets nothing for his money, and the homeowner got a free pool!
2. A couple months ago, a guy bid around 40K for a 100K home and was high bidder. He had missed an IRS tax lien that was over 100K. He had to pay the lien or walk away. He walked.
I say this as a word of warning to all. I have a staff of 3 people doing the following, just to get ready for next tuesday. 21 days prior to sale, a lady goes to the courthouse and compiles the list of foreclosures due for auction.It takes her about 4 days. I purchase the list from her for $150. There are 109 pages and 652 homes this month. My staff then fans out. One begins checking a website for brs, baths, garage, square footage, yr built and lot size. Another begins researching taxes owed on another website. The third goes out and takes photos of the homes I've designated I'm interested in. 212 this month.
The info is then added to the list and re-sent to me as well as the photos. I then begin my chart of properties and match pics with the info. and determine my max price I'll pay. I eliminate some from viewing the photos for various reasons. I'm now under 200.This process takes about a week.
Once I have my list of 200 properties, I make arrangement with my photo person and I go with him to view each home, neighborhood, comps, and homes in area for sale or rent.I make adjustments to my price and add any changes I make notes on my list. Is home vacant, ramsacked, meth house next door, etc. My other 2 people are now researching any liens; i.e. judgements, child support, tax liens, etc. If they miss a single one, I may be screwed.This takes another week approx.
That brings me to today. I have to determine my bidget for this auction and order my cashiers checks. This month, I'll take approx a half million to buy properies. I just ordered 52 cashiers checks of varying amounts from 100 bucks to 50K.
Now I'm ready for the auction and the fun begins. In TX the auction is a 3 ring circus! It starts at 10 in the morning and you may have 2-3 trustees all selling their properties AT THE SAME TIME! You don't know the order properties will come up, or even if property you want, will come up at all. Bank may postpone the same, homeowner bails it out, or declares BK, etc.
Because there may be 3 trustees, each of my staff has a chart with my target prices and hangs out at a different trustee. We have to constantly communicate to make sure we don't exceed our budget- you must pay at conclusion of auction. I've done all this work and maybe not bought a single home. The most I've bought at 1 auction is 5.You also have to constantly know what denominations of cashiers checks you've spent. No change is given for overpayments for weeks, and you must pay for each home separately.
If you get one, then you go , after the auction to see what you bought! If there are people in the home, you go to the door and chat. Some won't be happy, and some won't even know what happened. I've bought homes where there was a tenant. Owners had been collecting the rent and not paying mortgage. Tenant wasn't aware. You have to post the eviction notice and get the folks out.
Finally, after their departure, you get in the house and see what you have. I have a 2 man crew to do the repairs, painting landscape etc. The home is repaired and you're ready to sell. Except, by the time all this is done, the market has changed and loans are no longer available! Now , you either rent it out or continue carrying the home while you try to find a buyer. Doesn't all this sound fun?
I'm posting this to help save aggravation in would be auction buyers. It is not for the faint at heart. I've invited all BP members to come watch and I mean it. If interested, PM me. I'll be attempting to buy. May 5th, at 10 am in Hidalgo county TX. I buy here because it has been rated # 1 for appreciation for 3 years running by many sources. Maybe I'll see you here! Rich
Thanks Rich for the info. thats why i like doing tax auction. What?? Tenants may still be in the house. thats crazy.. let me get this right there may be other lien on the houses?
There could be multiple liens. 2nd mortgage, unpaid taxes, judgements, alimony, child support, IRS, and more. Some are wiped out at foreclosure. Some are not. Depends on type and date incurred. Be careful. Rich.
I'd rather wait until the property becomes an actual REO than buy from an auction.
That is obviously the easy way out, if you just want to buy from the bank that overpaid for the home to begin with at the foreclosure sale! Think about it. If the bank ends up with their bid WINNING, it means no one else was willing to pay more. Many good deals are ONLY available at the auction, because the good deals will have already been purchased by individuals, like me...
Excellent thread Rich ....I learn something new every time I come to Biggerpockets
Tomorrow is the big day. I'll be there with a bunch of cashiers checks and see if I can buy something. Anyone know the process in FL.? I want to start buying there and I'll be there next week to start checking things out. Rich.
I've also am very interested in these auctions. In PA, we have Judicial Sales that state they are "free and clear". I still have to review the process in detail, but it sounds very exciting. Any tips is greatly appreciated!
Yikes! 3 trustees at once...that's more like all hell breaking loose :D I'd probably go to one of these just to watch and have fun!
I don't know whether to laugh or cry at the pool mortgage...just the fact the guy got suckered, or the fact the mortgage was even given out in the first place...
Up here it's nothing like that. Auctions are held at the individual homes, with sheriff sales reserved more for the execution/judgments to satisfy debts. So instead of one spot, try driving around to a few in a day. Not always fun. There are the occasional Hudson/Marshall-type events, but they only have a small amount at best...for me, I'd rather go and network then buy there.
Some I see sell for cheaper, but many are just overburdened and underwater...no reason to even show up unless you can try to make a possible asset contact through the "bank rep" (if they even are an actual employee...even THOSE are being sub-contracted out! What a racket...)
This thread is ONE year old tomorrow. I've seen some changes in last year, and they aren't for the better. A bit more collusion between bidders and more boiler room operations. By that , I mean complete organizations that do the research, the bidding, fix up, mgmt, etc. Or, they'll just deliver it to you for a base fee. What are you finding? Better or worse? My guess is worse. Rich
Originally posted by Rich Weese:
...if you just want to buy from the bank that overpaid for the home to begin with at the foreclosure sale! Think about it. If the bank ends up with their bid WINNING, it means no one else was willing to pay more.
For other who may not be familiar with the process (I'm sure Rich realizes this), this isn't completely accurate...
For example, let's say a property is selling at a foreclosure auction with the bank bidding $100K (this means nobody can buy the property for less than that). And let's say that nobody is willing to bid above $100K, so the bank gets the house back.
While it may be true that the bank's purchase price of $100K wasn't a very good deal (as Rich pointed out, the bank "overpaid" for it at $100K), that doesn't mean that investors won't have the option of picking the house up as an REO for much less than $100K.
In fact, the bank will probably list the house on the MLS at between $70-100K (given the scenario above), and if there are no takers, the price could easily drop by another 50% or more.
So, while investors had no opportunity to pick up the house for less than $100K at the foreclosure auction (which wouldn't have been a good deal), they very well may get an opportunity to purchase that same house as an REO for $50K or less.
And buying REOs is *much* easier and less time intensive than buying at auction (in my opinion and experience)...
That is another view. I haven't found the banks in my foreclosure area(so TX) to discount in that manner, yet. There wasn't the large upside down mortgages as other states we constantly hear about. I still feel that I can make a better deal"most of the time" doing it on steps. In FL, most of the reos turn into auction deals which makes it worse than the courthouse steps transactions.
In all the properties I've seen go across the steps, I've yet to see the bank offer the REO for an additional 50% off. Maybe other areas have that, but not in TX or FL in price range I deal in. Too many buyers drive price up. Rich
Originally posted by Rich Weese:
I still feel that I can make a better deal"most of the time" doing it on steps.
That is most definitely the case, and I certainly wasn't disagreeing with that. For anyone who is willing to do the research and put in the time, foreclosure auctions is definitely the place to find "home run" deals...
My only point was that REOs can still be great deals too...at least where I live and in my experience...and because they are much easier to purchase, they're a good option for people who don't want to invest the time/energy into courthouse auctions.
I have absolutely no problem finding great deals just buying REOs (in my area), but the guys around here who are good at buying on the courthouse steps probably make twice as much profit on each purchase they make than I do with REOs.
The trade-off is time, energy and risk, but the profit potential is certainly larger for auction purchases...
Great post. I learned alot from this.
Quick question, If a house is worth 150k, and has a mortgage of 100k on it. From what I had understood (I have never been to an auction) the bank would simply bet until the mortgage is paid off. That would mean the auction starts at 50k (perhaps) and if someone is bidding, the bank would continue bidding up to 100k because they already have that much invested in the house. Is that acurate? Any help would be appreciated.
Originally posted by Ali Samana:
...the bank would continue bidding up to 100k because they already have that much invested in the house. Is that acurate? Any help would be appreciated.
Generally, that's accurate. Banks have the ability/authority to bid higher or lower than the mortgage payoff amount, and I've seen it done a couple times where they have, but for the most part, they will bid up to the payoff amount of the lien they hold.
I can only speak about Texas (no other state) from personal experience. In major counties such as Harris (Houston), Dallas, etc., usually 20 auctions are occuring at once. The party that is conducting the foreclosure sale may be foreclosing on a first, second, third ore even inferior lein position. There are no title insurance policies, and no guarantees as to good title. Even bidding on the foreclosure of a first lein position is no guarantee of good title - title issues occur all the time and may be very expensive or even impossible to rectify. Other issues also occur - one successful buyer purchased a property which was listed as being in the flood plain. Three weeks later the Army Core of Engineers latest report was issued and the property was now in the FLOOD WAY - rendering the property virtually WORTHLESS.
Major well financed individuals or groups have the resources to do the proper reaearch, leg work and investigation so that they are able to avoid most of the more obvious problems. However, the risk of purchasing a property with significant issues is always present. Diversification by means of spreading your available capital amongst a large number of properties means that the occasional problem purchase will not materially affect your capital or return on investment. The individual purchasing a single property without proper research, knowledge or experience has a much greater chance of losing his shirt at these foreclsoure sales.
Ali- I have a lot of posts and threads about my experiences at foreclosure sales in TX. I probably bought 40 in 12 months plus.
Banks can have their trustee bid any amount. I've yet to see the bank bid more than amount owed including costs, attorney fees etc. I have seen many bid less. I have some detailed posts on BP already, but here is the new trick
Trustee will bid 1 dollar on behalf of lender. If anyone else bids, the trustee will say "I'm prepared to go to $75,100"
No one else bids and bank wins the bid for 1 dollar. This satisfies the open market sale required by law , but leaves them option to sue creditor for a deficiency judgement for difference from $1 to loan amount. Not tested in court yet, to my knowledge.
Don- your quote and a bad one, imo.
Diversification by means of spreading your available capital amongst a large number of properties means that the occasional problem purchase will not materially affect your capital or return on investment. The individual purchasing a single property without proper research, knowledge or experience has a much greater chance of losing his shirt at these foreclsoure sales.
I saw a foreclosure sale in Mcallen , TX that buyer missed a judgement on the title search. He bought home with a ONE MILLION DOLLAR IRS lien against the seller. It would take too many buys to average out this loss. I've seen others that I've posted on here. Pool bought by bidder and emptied house with over 50K in repairs on a 150K property.
You can't allow any mistakes in this arena. Rich
great post Rich! I also agree with J Scott...I have bought at significant discount when compared to what the bank bought it for at auction.
Originally posted by Steven Moua:
... In PA, we have Judicial Sales that state they are "free and clear". ...
In PA, the Judicial sale that you are referring to is for unpaid real estate taxes. Yes, they sort of do come "free and clear" - as long as you aren't chasing a mobile home (they don't always come with the land), and as long as there are no other "government type" liens to deal with. When I see the offerings, they are typically vacant land and mobile homes;; so if you find a property that actually has a real house on it, it's worth a look. Expect it to be competitive in the bidding.
Originally posted by Rich Weese:
... A bit more collusion between bidders and more boiler room operations. By that , I mean complete organizations that do the research, the bidding, fix up, mgmt, etc. Or, they'll just deliver it to you for a base fee. What are you finding? ...
The collusion is not happening in my area; there is lots of competitive bidding back and forth. There are even bidders who stay out of the bidding while the price is still low, and then they jump in just before the sheriff is about to say "sold".
There is definitely an increase in the presence of operations and organizations as bidders.
There is definitely an increase in first-timers who have no clue about the process. This is both the attorneys representing the banks and the buyers bidding! Buyers hear the "upset price" (basically, that is the amount that the attorney states the bank will bid up to, so that a real buyer starts above that) and underbid it, dragging out the time it takes to auction a property that ends up back with the bank because the bidder wasn't going to top that bank's position. In each of the past two months, I could tell a new attorney, not by the face being unfamiliar, but by the manner in which they presented their opening bid; the one was sitting in the row of seats in front of me, and he was getting coached by a veteran attorney sitting directly in front of me.
I am also seeing that the "upset price" is all over the place. sometimes right about where the debt plus liens total; sometimes way over (I don't understand why, but it has happened); and even more commonly, below the total of debt plus liens. The last bit there is an indicator that the bank does not want any more REO.
I am also seeing what Rich mentioned way back in last year, where the bidder has no idea of what the loan position is, or what the surviving liens would be. And this is not just in the first-timers.
Also, when the bank gets the house back, I see the REO listing price all over the place with respect to what the "upset price" was at the sheriff sale. Sometimes higher, sometimes lower, sometimes about the same (a bit higher to pay realtor commissions would be expected).
I have also seen that the second (and worse) position lenders aren't always stepping in to bid to protect their collateral. One such case was even bought by an investor, at what I thought was a decent price; surely the second could have done better by bidding on that one, but they didn't.
I am also seeing quite a bit more of people attending the auction to watch their house go bye-bye. Come the summer, with kids out of school, the kids even come along - and seating gets tight and the courtroom with poor acoustics becomes even worse for hearing the bids.
Just my $0.02 worth.
Attended my first sheriff's sale today. It was easy to follow the process but I didn't win the property I wanted. My bid was 85,100 and the winning bid was 89,100. I was figuring 6 to 15,000 profit so the 4 grand difference clearly put it beyond good value to me. I'll keep looking for the right margin. While I was there I chatted with one of the lawyers representing lenders on a few properties. She invited me to a property that one of her clients wants to sell. She is prepared to take it to auction but I get the chance to make an offer first. Weather I decide on this property or not, I am glad for the insider opportunity just for networking at the sale.
Originally posted by Dan James:
... While I was there I chatted with one of the lawyers representing lenders on a few properties. She invited me to a property that one of her clients wants to sell. She is prepared to take it to auction but I get the chance to make an offer first. ...
They can only do that AFTER exposing it to the public auction in most places, so ask first ... and that is usually a state law (so that as many possible buyers as attend the sale might bid to maximize the price paid, to lower any deficiency that the borrower might owe afterward).
Dan- You may end up glad you didn't get it. IMO, a 6-15K is "very skinny", especially for your first one. There are SO many things you may overlook or be surprised with, once you get into it. Good luck in the future. Rich
Rich, were you keeping the 40 homes you bought as rentals ore reselling them? What kind of percent of market value were you buying at? Do you have a best success deal of those buys to share?
Thats a real good question. What kind of deals are you getting? And how in the heck do you buy a house that you've never seen the inside of?
I don't think I'd have the nerve to do it. Not only that, I know myself all too well and I'm sure I'd end up getting into some kind of trouble because I'd be compelled to look in windows, go in back yards, etc. and I'm pretty sure thats called tresspassing. :-)
But, beyond that, what kind of cushions are you typically giving yourself? 40k as a worst case rehab?
As a rule, I'm guessing you can usually have a pretty good number of rehab costs based on the age of the home and the subdivision its in. Even moreso if its in a cookie cutter subdivision where you have a pretty good idea of the layout.
But how in the world are you estimating whether its a good deal if you have absolutely no clue what the rehab might possibly be?
btw: Its still got to be a ton of fun doing though. :-)
If you could, please share a couple of your biggest success stories out of those 40 homes you just bought. And also, please share a couple of your horror stories out of those 40 homes as well. And what were the signs on each now that you've had a chance to reflect on why they ended up so good and why so bad? Did you remember something that you wish you would have noted and passed on the bad deals? Was there anything in common you noticed on the good ones?
To me, hearing those kinds of results stories are the biggest learning experience I gain. One, maybe its a strategy I need to consider and that clicks. But without seeing the success stories, other strategies don't typically pique my interest.
Thanks for the share though. Seems like one absolutely crazy game to play.
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