Funding an Auction foreclosure (looking to wholesale)

Investor · Layton, UT · Member since 2016 · 162 posts · 237 votes

I have a purchase agreement for a house in Hooper, Utah (Weber County). I have 2 days to move forward or pass on it. Here are a few of the details of the foreclosed property:

Purchase Price: $266K

ARV: $370-380K

Year built: 2007

Sq Footage: 3900

Estimated repairs: No idea

I won't have interior access because it is still occupied by the previous owner and I would need a hard money loan to complete this purchase.

Are there lenders that will loan to me even though I won't have interior access (and therefore pictures)? I am planning on wholesaling this house as soon as I close, but I'm not sure if hard money lenders would loan on this if I won't be rehabbing it.

Tagging a couple experts that hopefully can help. @Jeff Rappaport @William Hochstedler @Cody Backus @Jacob Cogswell

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Jeff RappaportPro Member

Specialist · Salt Lake City, UT · Member since 2015 · 533 posts · 378 votes

@Caleb Rigby, so I have a couple of questions. First, are you buying this property from the bank? I am not really familiar with the Hooper market. What is the average days on the market for this price range of a house? The last question is I probably would not pursue the deal without seeing the inside of the property first. On that size of a house you may have to spend $60-$80K in rehab to put it in excellent condition and be worth $370k+. If that is the case your numbers don't work. In my opinion, if you have a really short time frame and can't get all the info you need I would want a much bigger spread on the property. If it were up to me I would pass on the deal or get more time so you can complete your due diligence.

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Jacob Cogswell
Real Estate Agent · American Fork, UT · Member since 2016 · 46 posts · 17 votes
9y
Are you doing it seller finance, or looking to get a loan?
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Caleb Rigby
OP
Investor · Layton, UT · Member since 2016 · 162 posts · 237 votes
9y
A hard money loan - this is a foreclosure property bought through Auction.com (The purchase has to be paid with cash). The home was foreclosed on last month and I am the winning bidder at $266K.
I would need to evict the previous owner if I completed the purchase so that I could wholesale it.
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Jeff RappaportPro Member
Specialist · Salt Lake City, UT · Member since 2015 · 533 posts · 378 votes
9y
@Caleb Rigby, so I have a couple of questions. First, are you buying this property from the bank? I am not really familiar with the Hooper market. What is the average days on the market for this price range of a house? The last question is I probably would not pursue the deal without seeing the inside of the property first. On that size of a house you may have to spend $60-$80K in rehab to put it in excellent condition and be worth $370k+. If that is the case your numbers don't work. In my opinion, if you have a really short time frame and can't get all the info you need I would want a much bigger spread on the property. If it were up to me I would pass on the deal or get more time so you can complete your due diligence.
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Caleb Rigby
OP
Investor · Layton, UT · Member since 2016 · 162 posts · 237 votes
9y
@Jeff Rappaport, average days on market is 54 days for homes over 3500 sq ft. Right now, there are only 25 SFRs for sale in Hooper, but most of those are new (to give you a sense of the Hooper market). The bank is actually using Auction.com to sell their property, so that is who I would buy it from.
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Cody Backus
Attorney/Investor in Lehi, UT · Member since 2016 · 70 posts · 65 votes
9y
@Caleb Rigby, I'm with @Jeff Rappaport on this. I did meet yesterday with a buyer who has been buying foreclosures for over 7 years and knows the process well. He also uses his own funds so he might be a good person to chat this over with or partner on. He's also a BP guy.
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Elijah F.
Investor · Kaneohe, HI · Member since 2015 · 91 posts · 36 votes
9y
Can't offer advice on how to make this deal successful but I do have some thoughts you may want to consider in the future. Do you have $70K in cash to put in? Hard money lenders usually lend 70% to 80% (rare) on properties. Some will consider ARV, but most I have spoken with use purchase price. I don't see a two day turn around happening in this case, especially since it sounds like this is your first time with this type of purchase. Hate to beat a dead horse but you should have had this all figured out before bidding at auction. Also, do you have a lawyer experienced with this type of eviction? What's the usual time frame for these situations?
I'm going to follow this discussion to see how it turns out. If you can make this deal work that would be an impressive achievement.
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Rebecca Belnap
Rental Property Investor · Lehi, UT · Member since 2015 · 195 posts · 133 votes
9y
Do you need funds in 2 days or you need to let them know in 2 days?
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Caleb Rigby
OP
Investor · Layton, UT · Member since 2016 · 162 posts · 237 votes
9y
@Rebecca Belnap, let them know in 2 days. I'll have roughly 30 days after this to close on the property. The only thing I would need to pay next week is 5% down.
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Rebecca Belnap
Rental Property Investor · Lehi, UT · Member since 2015 · 195 posts · 133 votes
9y
@Caleb Rigby
30 days is no problem and I will contact you offline. It's the interior access that is the issue. I had one deal like this more than 10 years ago. We talked to the owners and gave them $1000 to let an inspector in the house. That is where I would start. Offer the owner some cash to let an appraiser in and to move out by a specific date and if they say yes, it's your best option.
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Caleb Rigby
OP
Investor · Layton, UT · Member since 2016 · 162 posts · 237 votes
9y
@Elijah F., I've done an eviction before and have read up on this scenario, so I'm not scared there. About 3-4 weeks for the eviction to take place and have the owners out. Thanks for the input on the 70-80% - I had always heard it was based on ARV and not purchase price. I do have 20% if I need it. And lastly, I don't need to fund in two days (I probably wasn't clear) but I do need to decide to either move forward or pass in two days. There is no recourse if I back out.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
sound like you will risk 5% if you want to move forward.. if you don't have the cash on hand personally.. .never know if the lenders will like it at the end of the day.... And a good lender is not going to let you do a deal that ONLY makes them money..
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Remy Lattin
Investor · Herriman, UT · Member since 2016 · 17 posts · 17 votes
9y
I like Rebecca's idea. Knock on the door and offer them $100 or so to go inside and take some pictures. Offer more to come back with an inspector if things look good. I don't know if that's against any rules or not but it seems worth a shot. Built in 2007 seems like the rehab would mostly just be cosmetic stuff, but you never know till you see it.
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Chris Martin
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
9y
I don't know Utah law but why in the world would, in a non-judicial state, a lien holder not pursue possession after foreclosure? I wonder if this was a judicial foreclosure and that's why this property is on auction.com and not listed via an REO broker. Just curious if you looked at the case file and/or have a paralegal verify the integrity of the proceedings of the foreclosure case. I may be out of whack, but some of us have seen strange things when those 1%-2% of cases go bad. Reminds me of EconoHomes deals that created havoc with many buyers...
Just my 2 cents. Carry on.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Chris Martin I think the lenders think that the market is hot enough in certain areas that they can get away with selling the asset with hold over owner still in possession.. they do divulge that on their auction site..
its always a crap shoot though.. and when I was buying court house steps props we bought many with owner still in possession... its the risk you run.
I have had them leave and the home was spotless and I have had them leave and take everything with them including cabinets all appliances fixtures HVAC basically left us a shell LOL...
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Ann Bellamy
Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
9y
Owner in possession: I'd check with a title company on title insurance when you close. In MA, because of recent court decisions, title companies will no longer write title insurance on foreclosures with the previous owner still in possession. And my attorney, who has family ties to a major title insurer, says that pretty soon, many title companies may refuse to write these policies in other states as well. So before you risk your earnest money, check with a title company/title attorney. It may not be an issue in Utah, I don't know, but if you can't get marketable title insurance, your hard money lender might not close. And if you check your contract with auction.com, you may find the contract reads that they will provide insurable title, not marketable. This can leave you holding the bag, or more correctly, auction.com holding your deposit and you can't close.
Just something else to put on your due diligence list before you commit.
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William Hochstedler
Broker · Logan, UT · Member since 2013 · 1k+ posts · 1k+ votes
9y
@Caleb Rigby
I will message you someone you should call on this.
In general, limited or no inspection hard money loans require a track record. As @Jay Hinrichs mentioned, a bigger down won't necessarily close the deal. Matt Strong answered a similar question to this at SLREIA last night about funding trustee sales. His concern was whether he is familiar with the borrowers knowledge and experience. He said he probably wouldn't lend on something like this on someone's first deal with him, but mentioned a client who he would do a loan for because he has "done enough deals with them to know they are careful and make good decisions."
The problem with the SLC lenders is they don't know our northern markets and aren't comfortable enough with the collateral to do these deals.
I have someone up in Cache Valley who will fund anything I do including trustee sales after I've coughed up $20K non-refundable at the courthouse steps. But the terms aren't anything special. I've done dozens of deals with this lender. And despite this relationship, he's not comfortable lending to me in Ogden.
So start developing relationships with lenders who know and are comfortable with the market you are operating in. Borrow even when you can fund the entire deal yourself to build these relationships. And develop a network of potential partners who can add more than money to deals like this.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Ann Bellamy that is quite interesting I have not heard that.. and I am one of the top 3 buyers of auction.com .. at least my account rep tells me that LOL...
Is there a redemption issue like tax sales that the title companies are worried about.. ????
can you be a little more specific as to WHY.... I know some areas title companies won't insure quit claims.
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Account Closed
Investor · Denver, CO · Member since 2016 · 736 posts · 582 votes
9y
You are playing with fire. If you don't commit to the purchase, you lose the $2,500 you placed as a deposit on the auction. I have a property I purchased from them that was held by Fannie Mae- the title specified I could not resell it for 90 days for more than $6,600 (I paid $4,400 for the house - it's a 3 bedroom 2 bath). I did not know about the stipulation until day of close - it was not disclosed to me. I would try to find this as best you can before you try to wholesale it. I do have two others I've bought from them that didn't have the hold stipulated but wow...what a risk.
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Account Closed
Investor · Denver, CO · Member since 2016 · 736 posts · 582 votes
9y
Fund not find (autocorrect error)
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Caleb Rigby
OP
Investor · Layton, UT · Member since 2016 · 162 posts · 237 votes
9y
@Account ClosedI went to the house this morning to speak with the owner and see if my Utah charm could get me in the house to take pictures and to my utter amazement, the front door was unlocked. It's no longer occupied as Auction.com says. I have a video of the property and now know the condition (not great), but at least I can prepare to market it once I have closed on the property. Thank you for all of your responses - very knowledgeable people and I appreciate the sharing of information.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Caleb Rigby you always want to physically inspect what you buy..so this is a good outcome good luck
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Rebecca Belnap
Rental Property Investor · Lehi, UT · Member since 2015 · 195 posts · 133 votes
9y
@Caleb Rigby That is a wonderful thing to have happen. There is nothing like going to the property to know what the situation really is. Now you have a chance to run the numbers, get bids and see if the numbers do work. Best of luck on your decision.
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Ann Bellamy
Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
9y
@Jay Hinrichs, I don't remember details or the name of the case, I can try to find out and post it. In this particular MA case, the previous owner still living in the foreclosed home was successful in avoided subsequent eviction by the courts based on some technicality of the foreclosure and as a result, MA title insurance underwriting has changed.
Understand, the Massachusetts Land Courts are some of the most tenant friendly in the country, and the judges are fond of setting case law precedent when they don't like an existing law as it actually exists.
At least that's what I assume you were asking about, and not the insurable vs marketable question.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Ann Bellamy that's confusing one is tenant in sufferance issue and the other is marketable title.
must be more to it.. but real estate never ceases to amaze me.
and or the owner who lost it is challenging that the home was not foreclosed on because of robo signing or something like that.
in Oregon we had that issue and trustee sales all switched to full blown judicial so the owners could not come back and make that claim
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Ann Bellamy
Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
9y
@Jay Hinrichs, they are two separate issues. But the insurable vs marketable comes up all the time with Hubzu and auction.com. At least with me. 50% of them don't close.
The previous owner in possession is another issue altogether, and just icing on the degree of difficulty cake.
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