Won Foreclosure Auction! Now what?

Realtor · Costa Mesa, CA · Member since 2017 · 52 posts · 14 votes

I put my 10% down, and am looking to insure the property while I deal with current owner residents. It is my understanding that this needs to be done asap since I am aquiring it as is where is..

How should I approach the current owner/tenant? They have until October 4th to try and hold on to it. Do I Call, Write a letter, Door Knock?

1. Should I try to lease it to them?

2. Cash for keys?

3. Sheriff Eviction?

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Chad U.

Investor · Boca Raton, FL · Member since 2012 · 1k+ posts · 1k+ votes

Quote from @Robert Sorrels:

I did not run title 😬. I shall do that on Monday while I’m looking for insurance. What’s the best way to contact for cash for keys? By mail? Is there a form letter you use? I do feel bad they are losing their home, and want to be sensitive to their situation, (and would like them to not trash the place.) what are the requirements for the cash, do they just have to get the big stuff? Leave whatever they want? Obviously each situation is different…

"I did not run title". Famous last words before realizing one lost all their capital buying a Foreclosure. Checking title before bidding is on the 1st page of Foreclosure Buying 101.

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Andrew PostellPro Member
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
4y
@Robert Sorrels well, congrats on buying your first home. This forum is mostly for the BRRRR method - how to rehab, calculating, stuff like that. I would post this in the "landlording" forum. That will give you a lot more (and better) responses. I would also rely on a property manager in the Tulsa area as well. Whoever is doing your property management on this rental should be able to advise you on what to do with a pre-existing tenant and what rights they have to the property. It's might get challenging but be glad that the property isn't located in California.
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Chris SeveneyBusiness Member
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
4y
@Robert Sorrels
I would never recommend leasing back to someone foreclosed. There was a reason they were foreclosed and what makes you think they would magically become full paying tenants?
We typically offer cash for keys first. If not then we would do an eviction.
I assume you did run title to make sure you bought a 1st position lien and there are also no water / sewer / municipal liens or taxes owed on property.
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Robert Sorrels
OP
Realtor · Costa Mesa, CA · Member since 2017 · 52 posts · 14 votes
4y
Thanks for the reply Andrew! Yeah there isn’t a forem for foreclosures, but as this is being purchased for cash it is a brrrr too. This is my 2nd auction acquisition, but the first was vacant so I didn’t have this step.

I am primarily buy and hold and look for value, and opportunity for STR. This home having a pool is huge for summer rentals and rates, also on a privacy fenced 1/2 acre. So I had been looking at a DSCR loan on other properties but they wanted 1 year of income before they loan…
My thought was perhaps I can lease back out to the current owners, then refinance to get my cash out. After the current tenant/owner leaves I will go in do a small rehab, furnish and STR following my current system.
But as the previous owners didn’t pay their mortgage how likely are they to pay the rent?
So is it better to keep ‘em, kick em, or pay em?
I might just go directly to STR, and see if I'm right about the market. (It's outside of Tulsa and the STR's in the area don't have private pools.) Obviously summer is almost over, but I can build up my team until peak season.

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Robert Sorrels
OP
Realtor · Costa Mesa, CA · Member since 2017 · 52 posts · 14 votes
4y
I did not run title 😬. I shall do that on Monday while I’m looking for insurance. What’s the best way to contact for cash for keys? By mail? Is there a form letter you use? I do feel bad they are losing their home, and want to be sensitive to their situation, (and would like them to not trash the place.) what are the requirements for the cash, do they just have to get the big stuff? Leave whatever they want? Obviously each situation is different…
0 Reply
Chad U.
Investor · Boca Raton, FL · Member since 2012 · 1k+ posts · 1k+ votes
4y
Quote from @Robert Sorrels:

I did not run title 😬. I shall do that on Monday while I’m looking for insurance. What’s the best way to contact for cash for keys? By mail? Is there a form letter you use? I do feel bad they are losing their home, and want to be sensitive to their situation, (and would like them to not trash the place.) what are the requirements for the cash, do they just have to get the big stuff? Leave whatever they want? Obviously each situation is different…

"I did not run title". Famous last words before realizing one lost all their capital buying a Foreclosure. Checking title before bidding is on the 1st page of Foreclosure Buying 101.

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Robert Sorrels
OP
Realtor · Costa Mesa, CA · Member since 2017 · 52 posts · 14 votes
4y
so I was able to check the county recorders website and there was a judgement for a credit card in 06, the purchase in 2017, and the Lis pendens from April, 2022. Of course I will still run title tomorrow… how can I check on Federal tax liens?
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Sergey A. Petrov
Real Estate Consultant · Seattle, WA · Member since 2022 · 1k+ posts · 784 votes
4y
Quote from @Robert Sorrels:

so I was able to check the county recorders website and there was a judgement for a credit card in 06, the purchase in 2017, and the Lis pendens from April, 2022. Of course I will still run title tomorrow… how can I check on Federal tax liens?

Call a title company and hope there isn’t much more to find putting you at a 100% negative equity. As for the existing occupants/prior owners they need to go. The sooner the better and hopefully with as little damage to the property as possible. Cash for keys is simple - get out by X date and I’ll give you Y dollars when you give me the keys and leave the property undamaged otherwise we go to eviction
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Robert Sorrels
OP
Realtor · Costa Mesa, CA · Member since 2017 · 52 posts · 14 votes
4y
Thank you Sergey,
I appreciate the non-negative, constructive feedback. It's obviously an error on my part. Still fairly confident as Taxes are up to date and no liens recorded. My search for this property was a little over 9 months of pretty extensive area research with boots on the ground. At this point wish I had done the title report, and a bit more due diligence as now my 10% is at risk. However, I may still get to obtain a great property at a 30-40% discount.
I will do my best in my letter to be firm, but not as to infuriate them! Pictures from 2017 look promising but I left enough meat on the bone to do a lot of work if needed.
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Sergey A. Petrov
Real Estate Consultant · Seattle, WA · Member since 2022 · 1k+ posts · 784 votes
4y
Quote from @Robert Sorrels:

Thank you Sergey,
I appreciate the non-negative, constructive feedback. It's obviously an error on my part. Still fairly confident as Taxes are up to date and no liens recorded. My search for this property was a little over 9 months of pretty extensive area research with boots on the ground. At this point wish I had done the title report, and a bit more due diligence as now my 10% is at risk. However, I may still get to obtain a great property at a 30-40% discount.
I will do my best in my letter to be firm, but not as to infuriate them! Pictures from 2017 look promising but I left enough meat on the bone to do a lot of work if needed.

Fingers crossed! Taxes may have been escrowed and paid by the owner’s mortgage company so yes they would be current. I also pause a bit because you mention 10%… Is the other 90% private money/lending? You might be more than 10% or even more than 100% on the hook with private money especially if that came with a personal guarantee…
1 Reply
Robert Sorrels
OP
Realtor · Costa Mesa, CA · Member since 2017 · 52 posts · 14 votes
4y
I am using funds from Heloc on Primary.
0 Reply
Sergey A. Petrov
Real Estate Consultant · Seattle, WA · Member since 2022 · 1k+ posts · 784 votes
4y
Why is your risk only 10%? What is that 10% of? Property value? Was this a mortgage co foreclosure? An HOA lien? Second position lien holder? Sounds like property taxes were up to date…
0 Reply
Robert Sorrels
OP
Realtor · Costa Mesa, CA · Member since 2017 · 52 posts · 14 votes
4y
I have 10% down, do you think they would come after me for the other 90 of I decided to back out..?
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
4y
Quote from @Sergey A. Petrov:

Why is your risk only 10%? What is that 10% of? Property value? Was this a mortgage co foreclosure? An HOA lien? Second position lien holder? Sounds like property taxes were up to date…

what state did you buy this in.. some states like Ohio sales work this way you put up a deposit of 5 to 10k sometime a tad more then you have a settlement when the judge signs off.

Or maybe this is a private auction and you just put up non refundable EM maybe ?? it would help to get better answers if you clarified what exactly you did or what kind of sale this really is.
IRS liens are no big deal.. worse case you just have to hold the property about 180 days and they fall off.. many people get scared of IRS liens myself I would target those as I knew many would not bid because of it.. I have never had the IRS redeem in all the years I have been buying court house steps.. and if they do they have to pay you statatory interest but you are out any rehab you did to it.. so have to be careful there you may just have to hold it 6 months is all..
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Robert Sorrels
OP
Realtor · Costa Mesa, CA · Member since 2017 · 52 posts · 14 votes
4y
It was a sheriff’s sale..
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
4y
Quote from @Robert Sorrels:

It was a sheriff’s sale..

what state makes a big difference the reason I ask is in many states not only do you lose your deposit if you dont close out the sale. The Sherrif can ban you from further auctions and its a misdemeanor offense i believe with cash penalties.. So thats why the state is important.
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Sergey A. Petrov
Real Estate Consultant · Seattle, WA · Member since 2022 · 1k+ posts · 784 votes
4y
Yep I am slightly confused… there is no downpayment in a traditional foreclosure. I am also not sure why the redemption period expires on Oct 4 (60 days?). What lien is being foreclosed on…
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
4y
Quote from @Sergey A. Petrov:

Yep I am slightly confused… there is no downpayment in a traditional foreclosure. I am also not sure why the redemption period expires on Oct 4 (60 days?). What lien is being foreclosed on…

Ohio works this way so do other states.. west coast no its cash and carry.
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Robert Sorrels
OP
Realtor · Costa Mesa, CA · Member since 2017 · 52 posts · 14 votes
4y
I should clarify more perhaps..
this was a foreclosure auction in Oklahoma by the trustee on the courthouse steps for non payment of mortgage. The lis pendens is dated April 28, 2022, and is owner occupied. It was purchased for 153k in 2017 with only $1200 down.. eeh.. it had an estimated debt of 143 and change, and an NRA estimate of 196. At the auction it was myself and the bank. They bid up to 145,980, and I bid 146.. the county requires a 10% down payment (14,600) they have 60 days to redeem, and I am to pay the remaining 90% on or before the court date. If they don’t figure it out by then it’s mine..

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Sergey A. Petrov
Real Estate Consultant · Seattle, WA · Member since 2022 · 1k+ posts · 784 votes
4y
@Jay Hinrichs - suppose I learn something new every day! Never did anything in Ohio so not familiar. I am used to cash and carry only

@Robert Sorrels - it sounds like the lender is owed $146k. They probably wouldn’t bid over what they are owed. $196k value is just an algorithm that wouldn’t take property condition into account. You still owe the full $146k (with 10% already paid so $131k) at the very least. Assume the property is in perfect condition at the vacant stage. Assume you are able to sell for $196k. Deduct 10% in selling expenses. You are now at $176k. Deduct carrying costs. If absolutely everything goes absolutely perfect, you net $20k-$25k. Things aren’t going to be perfect. Reduce that $20k by repairs, cash for keys, and other things that will come up. That would be your gain. I am sure there is more to it but I suspect if you found a similar $196k property with no headaches already on the market and offered $10k less you’d end up in the same position. Hope it all works out!
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Robert Sorrels
OP
Realtor · Costa Mesa, CA · Member since 2017 · 52 posts · 14 votes
4y
Thank again for your thoughts, I truly do appreciate the time it takes and professional opinion and thoughts. Hoping my mistake of not researching title doesn’t bite me in the ***!
For my strategy there is a lot more to it, as well as my own limitations on conventional loans. I don’t plan on selling it anytime soon, but I will certainly follow up and let you know how it goes.

Mostly just trying to figure out the best way to get them out with least amount of resistance/damage.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
4y
Quote from @Robert Sorrels:

I should clarify more perhaps..
this was a foreclosure auction in Oklahoma by the trustee on the courthouse steps for non payment of mortgage. The lis pendens is dated April 28, 2022, and is owner occupied. It was purchased for 153k in 2017 with only $1200 down.. eeh.. it had an estimated debt of 143 and change, and an NRA estimate of 196. At the auction it was myself and the bank. They bid up to 145,980, and I bid 146.. the county requires a 10% down payment (14,600) they have 60 days to redeem, and I am to pay the remaining 90% on or before the court date. If they don’t figure it out by then it’s mine..

they never redeem it would be very rare.
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Angela W.
Attorney · Houston, TX · Member since 2022 · 60 posts · 93 votes
4y
You can try all three but the reality is that leasing it to them isn't a good idea. There a reason foreclosure occurred. I would first ask them to leave after you received proof of ownership. Ex. Notice to Vacate the premises.

1. Cash for keys? Yes - give them 1 week to accept it and move out with X amount of days. Make sure you put in that the should leave the property in clean swept condition. They may not do it but if they do, it'll save you some time and money.

2. Sheriff Eviction- Yes - If cash for keys doesn't work, evict them. You got title of the property but they got physical possession if they're in the property. Although I'm a Texas attorney, generally, eviction is necessary to get an actual legal order to get them out if they don't budge.
Good luck
Angela Walter - Texas Attorney at Walter & Truong PLLC
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Bud Gaffney
Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
4y
Cash for Key$
1 Reply
Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
4y
Get em out of there
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Beth JohnsonPro Member
Lender · Renton, WA · Member since 2018 · 215 posts · 216 votes
4y
@Robert Sorrels
This sounds to me like a foreclosure with redemption rights since you say the owners have until October to figure out how to keep it. And the lis pendens is another tell-tale sign it’s on redemption. I’ve purchased a couple of these before and a few things that I have understood about this process, doing it myself:
- As others have said, you really need to order title and understand what mortgage/liens/debt/judgments they have on title as that is something you'd assume when the redemption period ends. We bought a property in a similar fashion but we weren't the winning bidder, we bought directly from the lady who was foreclosed on and she had a 170K 1st lien mortgage ahead of the HOA dues she was taken to court over.
- Until the redemption period ends, you are not the owner. You are simply the winning bidder who gets to have first right to “purchase” after the redemption period. This means you aren’t on title at all as the vested owner and you can’t obtain secured financing.
- While you have rights to the property during the redemption period, if they are able to redeem the property during this time, you will immediately lose rights and access to the property meaning you can’t really kick them out without going through the formal eviction process (at least in my state of WA) as the sheriff won’t kick them out without one.
- Any improvements you make to the property aren't covered expenses. We bought a condo from a lady who's mom passed away and she let the property go into foreclosure due to HOA dues as well as the mortgage. The HOA did a judicial foreclosure and it was "sold" at auction. The winning bid was 85K and they tended the cash to the courts/Sheriffs dept and then took possession of the property and started rehabbing it. When we went under contract with the actual owner (the daughter's attorney contacted us), we closed on the property officially after redeeming the property on her behalf with the Sheriff's department (she had a full year to redeem) and then the winning bidder received their 85K back from the Sherrif's dept along with some interest owed. The winning bidder changed out flooring, fixed up the kitchen a little, installed new washer/dryer and then leased it up. Unfortunately, when they asked for these costs to be reimbursed to them, the court said no and they had to walk away from the condo and the money put into improvements because they weren't aware of the redemption process and policies. We ended up having to pay the tenant to leave, we felt bad for his family and wanted to provide them with deposit and last months rent money since the winning bidder was illegally holding on to both of these and wouldn't refund the tenant. We let the tenant decide if they were going to take the bidder to small claims court or not.
Bottom line, be very careful about properties that are foreclosures with redemption rights. If you do not understand the way it works, you could lose out on time and money. Unfortunately, it’s not always clear on the Sheriff’s Sales sites that these sales do not in fact change title until the day of redemption is over. And even then, if you do not do a preliminary title search, you could get stuck with liens and mortgages you weren’t expecting. Good luck!
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