Teaching Landlords to Find Their Quality Tenant!

Buying at the Foreclosure Auction

by Allen Watkins

The very best method for buying from lenders is to simply out-bid them at the foreclosure auction. There you do not need them to say yes; you just bid a dollar more than their opening bid, and it is yours — unless there are other bidders. Then it is the successful bidder.

Buying foreclosures at the sheriff's or trustee's sale (or auction as it's commonly known) is one of the best ways to make big profits in the foreclosure business. It is also the easiest way to lose your shirt if you don’t acquire some basic knowledge first.
The sale of the property comes at the end of the foreclosure process when the defaulting homeowner can't repair his financial problems with the lender.

When a default occurs, the lender will attempt to end the homeowner's rights of possession to the property. The lender must show to the court that it has the right to sell the property to recover its loss by virtue of the default, and as stipulated in the signed mortgage agreement. The lender will proceed with the foreclosure and the property will be scheduled for sale.

Properties are sold at public auction in the county where the property is located. The successful bidder becomes the new owner of the property. Much of the time the successful bidder is the lender, the original mortgage holder.

Attorneys or their representatives will be there to bid on the property for the lender. There will also be investors, on lookers and curiosity seekers observing the proceedings. Occasionally, a lien holder will appear trying to salvage what he can from his claim.

Advantages:
The biggest advantage to buying properties at the auction is the high profit potential. If there is a large difference between the market value of a property and its final judgment amount or opening bid at auction, you can really win big. Typically, the largest cash rewards come from the proper application of this investing method.

Sales are usually advertised 4 - 6 weeks in advance. In some states, this information may be available 6 - 8 months or more before the sale. This gives you ample time to research the property, the condition of the loan and the condition of the homeowner. Why the homeowner? If you can work out a satisfactory arrangement with the homeowner, you can save yourself the trouble at the auction. If you meet with the owner and can't work out a deal, you should at least take careful note of the property's condition. This gives you a competitive advantage over other auction bidders.

You can go to the auction and observe the process as often as you like before going to bid on your property. It's certainly a good idea to familiarize yourself with the auction process.

Buying properties at the auction is a numbers game like anything else. I’ve gotten some great deals for a dollar more, some after being bid up by other investors, and I’ve lost many more. It has been tremendously worthwhile!

Disadvantage:
Buying at the auction can be very dangerous for those who do not do their research properly. The large cash outlay required to buy the property is the biggest deterrent for most buyers. Certified checks and sometimes cash will be required to bid on properties.

You may not be able to inspect a property before bidding on it. In that case, there is little chance you will be able to assess the property damage and replacement costs. This hinders your ability to determine the true market value, your maximum bid amount and your profit. In my book and seminar I discuss ways to over come this obstacle.

If you are the successful bidder, you may have to evict tenants currently residing in your new property. This could take a couple months. This also interferes with your plans to repair and quickly sell the property for a profit. This delay increases your carrying costs and erodes your profits. I have techniques for getting them out immediately
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Failure to research a property correctly leads many to over-bid. Too often properties are purchased for much more than their value. This accompanied by "auction fever," the tendency to get caught up in the heat of the moment and over-bid, results in large over-payments and even larger losses. Let that be everyone else. I teach you how to do the number analysis, and know your maximum bid prior to bidding.

At the sale, the first lien holder can nullify all other liens if he's the successful bidder. Junior lien holders must buy out senior lien positions and be high bidder to gain possession of the property with clear title. Otherwise they are wiped clean from the title.
The first mortgage holder is not the only one foreclosing properties. If a third lien holder forecloses, the process will not wipe out the first and second lien holders. Buying this property means you buy these liens as well. Typically, first mortgages are the largest liens on the property.

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courtesy of http://www.findthatqualitytenant.com

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Thank You. Don Conrad

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