What Is A Trustee Sale And Why Should I Purchase One?
First, let's begin by discussing what a foreclosure is as it relates to a trustee sale. If at any time a borrower of a property fails to either pay their mortgage or pay their property tax, the lender reserves the right to take back ownership of the property. A property can refer to empty land, a home, an apartment complex, etc. The foreclosure process is fairly similar for any property that goes into foreclosure.
Often, when a property goes into foreclosure it is entrusted to a "trustee" to try and resell the property in an attempt to recoup any losses. The foreclosed property can be sold by the trustee at a public auction. When a foreclosed property is sold by a trustee at auction it is known as a trustee sale. One of the ways the public is notified of the sale date and time is via the local newspaper. A (prior) owner of a foreclosed property might wonder if their name will be published as well, and the answer is yes it will be.
A trustee can refer to a number of different entities, but most of the time it is a law firm hired by the lender to act on behalf of the lender to try and relinquish any losses on the property mortgage(s).
Similar to any auction, a property will be assigned an opening bid amount, though not all properties will get assigned an opening bid. At most the opening bid will start at whatever the outstanding balance is on the mortgage loan; however, it can start at much less. It is ultimately up to the lender to decide what the opening bid amount will start at. It helps to do your research when bidding on a trustee sale as some properties can have more than one mortgage. If there is more than one mortgage, you'll want to be sure you are bidding on the first one, and not any subsequent ones.
Now that we've discussed what a trustee sale is, let's move on to what the advantages are of purchasing the "right" one. The most worthwhile properties, meaning the ones you'll make a profit on, will have an opening bid that starts below what the estimated value of the property is. There are many bidding services out there that will provide you with a daily auction list that neatly highlight the most lucrative properties selling at auction for that day, however, you can also do the research yourself.
One important thing to note about purchasing a trustee sale is that it is a cash only type of purchase. For example in Arizona, when purchasing a property at trustee sale a cashier's check is required in the amount of $10,000 payable to the trustee in order to place a bid. If you are the successful bidder, the balance of the winning bid is due in cashier's check by the following day at the place of auction. Once the balance is paid, you are now the proud owner of the property.
Traditional financing is not available when purchasing a trustee sale because there is such a short amount of time to complete the transaction; however, there is what is called "Hard Money Lenders" which borrow money based on the property and not the person. The fee is usually 20% to 30% down, and these "Hard Money Lenders" will charge a higher interest rate for their service with a smaller paperwork fee for usually around $1,000.
To paraphrase what has been said here in the simplest terms possible, you can make a considerable amount of profit from the purchase of a trustee sale as long as the purchase price is less than the assessed value of the property. That is the allure of the trustee sale, and it truly is enchanting how much profit you can make from purchasing one. The important point to take away from this article is to make sure you do your research, and take your time. Like a skilled boxer will pick his shots, pick your properties wisely and you will find that knockout property in due time.
AZ Trustee Sales