Advice for Auctions? Foreclosures?

Question

Hi guys! I searched other forum posts, but didn’t find anything recent. We have been investing in rentals for quite awhile and I’ve always been interested in buying properties at auction. Courthouse steps, online, whatever, but I feel like I don’t know enough about HOW to research. What exactly am I looking for (I’m assuming liens and what position), what else and how??? I know of some scary stories from people (ended up bidding/winning second position, didn’t get the property) I know that they probably didn’t do their homework. I know its important to get the first position and really how do I know for sure? We are in California if that helps. I just want to learn more about this, advice? Thank you I feel stupid about this lol

Andy Mirza · Answer

@Sheryll Bauman I bought about 25 condos at trustee sales in CA from 2011-2013. We bought them as rentals with the long term in mind and it's worked out great! Market values have gone up 3-4 times original purchase price and rents have almost doubled since then.

I started buying REO condos through the MLS but discovered that I could buy them for even less at the auction, which is what prompted me to go that way. Yes, there are things you have to do to mitigate your risk but that justifies the discount you're getting.

Once you decide you're going to do this:

1. Get "Propertyradar.com." It's an indispensable tool to the trustee sale buyer with easy access to a lot of important information

2. Have your title rep give you access to their online title platform as well as their customer service line.

Between Property Radar, the online title tool, and in depth calls to the customer service rep, I mitigated most of the title risk of buying at auction. You need to be 100% sure of which lien is foreclosing. If you think it's a 1st mortgage, but it's actually the 2nd mortgage that's foreclosing, you can get yourself in trouble.

I think there are deals to be had these days but you'll have to be vigilant to get them. When I started buying, none of the bigger fish wanted to buy lower end condos like I was doing and in most auctions, I was the only bidder. By 2013, the bigger fish were starting to come my way and the deals dried up. I think the big hedge funds are mostly out of the game, especially beyond the big auctions like in L.A. If you are planning to buy at smaller auctions, you'll be left with fewer players, which means you should have better opportunities.

If you're buying with the intent to rent, you'll have a bigger advantage since the fix and flip investors need bigger margins than you do.

Will Barnard · Answer

So for CA, bank owned foreclosures (trustee sales) are held on the courthouse steps. For Los Angeles, there are two locations and these trustee sales are of public record. First, a bank files a notice of default, then notice of trustee sale which lists the date and location of said sale. You would be swimming with the sharks in these auctions so buyer beware. You need systems in place to quickly run checks on property, site visits to determine if they are vacant or occupied, try to find as much info on condition as possible, etc. This due diligence is not easy and requires some systems and a team.

Other actions online can be easier and more straight forward plus there are also several single listed auctions that are typically held on the property. As a newer investor, I would recommend you find other avenues to find your deals until you are well versed and experienced. Some of the auctions I have personally seen here in So Cal lately went well above retail value which is simply crazy. I believe they were owner occupant buyers and not investors though.

Stephen Mathies · Answer

Hi @Sheryll Bauman. I suggest you go to a good number of auctions just to observe the whole process, learn a lot and study the faces there. Many of them will be investors and wholesalers.  I suggest you don't attempt to partake but just observe and learn. As @Melissa Barnard stated, learn your state's laws concerning auctions.I'm doing that right now where I reside. Auctions are a whole different beast by itself. You never know what you get when you win a property at an auction. It's like opening a can of worms. You have no idea the amount of repairs a property might need.

There are people at auctions who will know you are a newbie and if you try to partake when you don't know it well, they can set you up. I have no intention to bid but just to learn the whole process and later down the road make it part of my funnel for leads.It is not easy to get properties cheap from auctions as it was years ago. Banks are not giving them away cheaply now.You can also use auctions to network with other investors and wholesalers. Some will be nice and befriend you and show you the ropes.I suggest other ways to find deals like going after off-market deals with direct mail, driving for dollars app, asking your mailman/woman, gas installers to help you with properties.Mailmen/women can be a good source of leads if you offer them an incentive for every lead they gave you which turns into a deal.Craigslist is another treasure many overlook. Just make it a habit of checking it daily or create an alert for RE with an email address.

FSBO (for sale by owners) is another way to get deals. There are websites with FSBO deals. Consider building a website to collect leads. Many people go online to search for sites that buy properties. You can set up a site very cheaply on many free platforms.

Doug Smith · Answer

Hi @Sheryll Bauman.

The foreclosure laws are very different in each state. We’ve purchased most of our foreclosure homes in Florida, which is a “lien theory” state…meaning that there is a “mortgage” that places a lien on the property, so it goes through the court system (judicial process). In states such as California, Missouri, and North Carolina, they state is known as a “deed theory” state where the borrower signs a “Deed of Trust” that technically transfers ownership of the property to a “trustee” (usually a law firm that represents the lender) until such time as the loan is paid off. Deed Theory foreclosures are “non-judicial”, meaning that the courts don’t get involved. Deed Theory foreclosures are much, much quicker that lien theory foreclosures.

Most of our purchases through foreclosure auctions have been in Florida. Most of the counties in Florida use an on-line system that is actually quite smooth. The problem with any auction is that, unlike HGTV show auctions, you are bidding against many, many investors…and the lender themselves.

Lenders are granted “auction credit” for the amount of their loan plus fees plus interest. They then place a bid in with the entity that is holding the auction. The auction takes place and if no one outbids the lender, the property goes back to the lender. If someone bids higher, they get the property. In this day and age, I’ve been seeing lenders bid more than the property is worth on a consistent basis. This means that most of the properties that we have seen go up for auction end up going back to the lender.

Auctions are difficult places to buy property as so many people tend to bid. Many of them bid much higher than they should bid leaving reasonable bidders (like yourself) on the sidelines. You’ve spent tons of time preparing your bid. You’ve visited the home, estimated repair costs, pulled your comparables and still, more often than not, you don’t get the property. Unfortunately, this is the life of an auction bidder.

Buying properties at auction can be a scary and frustrating venture, but every now and then you strike gold.

Melissa Barnard · Answer

Hey @Sheryll Bauman! I live in Texas so the laws may be different but hopefully I can give you some insight. If you go to your county's courthouse then they should be able to provide you with what houses are in foreclosure and what date they will be held at auction. In TX, the auctions are held the first Tuesday of each month at the courthouse steps. There are also certain websites you can pay for that let you know what houses are in foreclosure and sometimes you can bid for them online. It is hard to know for sure if you have a good deal since you cannot walk through the property prior. Definitely do as much homework as you can and make sure you have good exit strategies if needed. It is good to know about your states foreclosure laws so you know about all of the risks that could potentially happen even after you purchase a property. I hoped that helped some. Good luck!

Sheryll Bauman · Answer

@Andy Mirza dang!! That’s awesome! I will be doing this in the future for sure. Right now we’re in escrow on a property with three possible units, doing a 1031 with two condos we bought for cash during the crash. After this goes through I’ll continue educating myself on auctions, your experience is inspiring! Thank you

Sheryll Bauman · Answer

@Doug Smith thank you so much for taking the time to answer my questions, buying at auction is no joke!! It’s not nearly as easy as it’s made out to be, I hope to gain further understanding by watching and learning before taking the leap! I truly appreciate your knowledge.

Sheryll Bauman · Answer

@Will Barnard and @Stephen Mathies wow! You guys are a wealth of knowledge!! Basically I will keep on researching and plan on attending as many auctions in person as I can. I’ll pretend like I’m going to bid and do the legwork and then see how the actual auction goes, but won’t bid until I’m truly ready. We have been able to get rental deals over the years mainly through personal/business connections and sheer dogged determination, this just might be another way to find some. I truly appreciate you taking the time to answer my questions so thoroughly. Living on the central coast of California is beautiful but super difficult to find properties where the numbers work. I just want to keep learning.

Sheryll Bauman · Answer

@Melissa Barnard thank you for taking the time to answer, I really appreciate it. Good advice that I will be researching further!

Advice for Auctions? Foreclosures?

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