Buying at the Courthouse Steps Trustee Sale Secrets Revealed! by Justin Wi!iams

Have you ever been to a county court house in the middle of the day, and seen a bunch of random people standing around or sitting in lawn chairs? What?  You mean to tell me you didn’t know that the county court house is one of the most popular places to just go hang out and soak up sun? Believe it or not, this motley crew (the best ones are usually the most ragged looking) are actually waiting/hoping for the opportunity to snag up a great bargain on a piece of real estate through a foreclosure auction.

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These real estate foreclosure auctions are what are known as trustee sales, (also commonly referred to as “Buying at the Court House Steps”) and are a very popular way for investors to pick up properties in today’s market. Although trustee sales are one of the quickest and most exciting ways to purchase real estate, they are also one of the most risky for the following reasons…

1. No Title Insurance. Although many liens are wiped away after a trustee sale takes place, some remain.  Unpaid property taxes and some other liens may stay with the property and the winning bidder will be responsible for them. The property can also be effected by the previous homeowner.  If they are behind of federal taxes the property may be subject to a right of redemption by the IRS.  Other things such as lawsuits the person may have been involved in can  effect the property as well. It is also imperative that you know the position of the loan you are bidding on.  One of the biggest and most common mistakes of an unexperienced trustee sale buyer is to purchase a second loan, thinking it is a first.  If more is owed on the first than the house is worth you can kiss your money goodbye

2. You get what you get, and you can’t throw a fit! Unlike most other purchases, when purchasing a property via trustee sale you cannot go back and ask the seller to make repairs.  If you missed something you are stuck with it!

3. You must pay cash! (Cashiers Checks) When purchasing a property via trustee sale only cash is accepted.  Once you hand over those cashiers checks no cancelling escrow, or backing out of the deal.  Your money is gone!

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4. Quick decision making Usually when purchasing a property via trustee sale you only have hours or sometimes even minutes to determine what price you are willing to pay for the property before the bidding begins.  It is imperative that you know what you are looking for ahead of time, so you can spot a good deal when the opportunity presents itself.

5. Current tenants and homeowners If you purchase a property that is occupied then you must deal with the occupant.  You really never know how cooperative/uncooperative they will be at the time you purchase the property.

6. Thin margins Due to advanced technology and more accessible data it is easier than ever to track these properties.  This combined with the low inventory in todays market has caused what many seasoned trustee sale buyers refer to as “a zoo” down at the court house.  This competition has really caused the margins (potential profit) to decrease.  You really need to know your market/ farm and what you can and should pay for a given property or you may end up bidding more than what will actually allow you to turn a profit.  As I search the MLS I have seen numerous properties that have been purchased at trustee sale in the last few months and have now been reduced to a break even or lose money price.

Times and Locations As mentioned most trustee sale auctions are held outside the  County Court House(s).  Most counties actually have more than one location where the auctions are held. These auctions will be held anywhere from 9:00 AM to 5:00 PM on weekdays (excluding specified holidays) so you will need to research times for the location which you will attend.

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The Bidding Process Properties that are auctioned off have gone through the complete foreclosure process.  The trustee sale is the method at which the foreclosing lender will either sale the property, or take control of the property, and become the rightful owner (if no one bids). Before bidding occurs the auctioneer will read off postponements or cancellations for sales which will no longer be auctioned off that day. Once postponements have been “cried” (read) the bidding will begin. If there are a lot of properties up for auction the auctioneer will usually have all prospect bidders stand in a line to qualify. To qualify you must show the auctioneer the amount of funds (usually cashiers checks) which you will be using to bid.  If you are bidding on behalf of another individual or company you must have a notarized authorization from the entity for whom you will represent. If there is not a great amount of properties being auctioned off, often qualifications will be on a per property basis.  Bidders which attend on a regular basis are often not required to qualify because the auctioneer is confident they have the required funds. After bidders qualify, the auctioneer will begin reading the property information for the property which will be auctioned off. Typically the “opening bid” for any given property is what is owed on the property including late/additional fees. However in today’s market, since most of the homes being foreclosed on are worth far less than what is owed on them, lenders will occasionally do what is known as a “drop bid.”  This is where the opening bid for the property is dropped from the amount owed to a price more in line with current property values. In order to purchase the property you must pay at least one penny over the opening bid.  If anyone is interested in the property for the opening bid price they will usually say “penny” meaning they are willing to pay a penny more than the opening bid. From there bidders call out

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what they are willing to bid on the property.  There will be a minimum increment set by the auctioneer (Usually $100).  Bidders bid by either saying “hundred” or they will state the amount which they would like to bid. When the bidding is complete and it appears there are no higher bids the auctioneer will call out something to this effect “Going once, going twice, third and final call, property sold to…” and state the name of the person who purchased the property.  At which time the high bidder is required to hand the auctioneer their cashiers checks. Some auctioneers require that you hand them your checks before they say sold and the final bidding is over. It is very important you know what system your auctioneer follows.  I have seen several occasions where someone was the high bidder, but did not have their checks ready to give the auctioneer and someone else bid higher before the auctioneer said sold. Needless to say they either ended up paying more or losing out on the purchase of the property. Once checks have been received the auctioneer will hand the bidder a form to fill (trustee sales receipt) out showing how they wish to take title, as well as mailing information of where to send the “Trustees Deed” and the “Refund” if any.

What to Expect/Do After the Purchase A Trustees Deed is the document which conveys title for a property sold via trustee sale.  This should be mailed to you within two weeks from the trustee sale date.  If two weeks have passed and you have yet to receive your trustees deed in the mail, then call the trustee.  (Their phone number will be on your trustee sales receipt given to you after you purchase the property.) Once you receive your trustees deed in the mail, you want to be sure to record it as soon as possible so you can “perfect title.”  Perfecting Title means if you record the deed within 15 days from the day of the trustee sale it will revert back to 8:00 AM of the day of the sale, and defeat/ supersede any post-sale filings such as liens BK’s etc.

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It is also important to take note that when you purchase a trustee sale property you will not receive your “change” right there on the spot.  This will also be mailed to you.  It is therefore important to have several cashiers checks with you, so you are waiting to receive as small of a refund as possible.

Finding/Tracking the Sales Most companies that hold the foreclosure auctions will have a website that you can track properties that are coming up for auction.  They will post opening bids or postponements as they receive that information from the trustee.  You can also call to verify the status of a property you are hoping to bid on. There are also foreclosure tracking sites such ashttp://www.foreclosureradar.com/,http:// www.realtytrac.com/, andhttp://countyrecordsresearch.com/that will post all of the properties and their various stages of foreclosure.  These websites have some lag time and are not as up to date as the actual foreclosure service company sites, but they do gather all the information to one central location which can have it’s advantages. Note: Foreclosure Radar and County Records Research only cover certain regions and Realty Trac has national coverage, if you are not in CA or a state in which is covered by the other providers.  These sites are not always completely accurate and additional due diligence should be made to verify information given.

The Team… Since time is so limited and there are a number of properties that must be analyzed when bidding on trustee sale properties, a team is usually required if you are serious about purchasing properties at the trustee sales.

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Drop Bid Searcher/CoordinatorDepending on how many properties you are checking you may want someone designated almost specifically to checking for drop bids.  This person can also coordinate the additional needed research for the property since they will be the first one to know about it.

Drivers/SpottersYou will always want to have someone go see (“inspect”) the property before bidding on it.   Some investors will occasionally purchase properties “site unseen”  This is extremely risky and can have devastating results.  If you are willing/able to lose the money then that may be a risk you are willing to take but we would never bid on a property that we have not seen first. The first thing you want your driver to check for is to make sure the property is still standing.  I have a good friend who bought a property sight unseen at trustee sale and when they went to see it, it had been burned down!  I would not recommended this “strategy” to anyone! Once they have confirmed that the property is still standing, you will want them to check the property condition.  Is it structurally sound?  How is the roof, foundation etc.  What are the repairs needed?  If they are able to see the inside of the property they can give you an idea of what needs to be done on the inside as well.  We try to see as much of the house as possible, but it is up to you and your comfort level on the amount of “snooping around” you choose to do.   You can usually get an “idea” of what the inside condition is based on the outside condition, but if we can’t see it, we will always account for additional potential repairs. Next we have them verify occupancy.  Is the property vacant or occupied?  If occupied, we will always knock on the door and try to find out if they are a tenant or owner and what their plans are.  If they open the door this is a good opportunity to take a peak inside and check out the condition.  They may even invite you in for a tour if you are real lucky. If we are keeping the property as a rental, we will find out if they have any interest in renting from us.  We can also

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make an educated guess on how easy or difficult they will be to work with if we were to purchase the property. Note: It can be much more difficult to deal with a uncooperative tenant (especially if they have a lease) than the actual homeowner if you need to resort to an eviction. All things being equal, we will almost always take a vacant property to an occupied property.   As with repairs, if we know it is occupied (or cannot verify occupancy), but can’t speak to the occupant, we will always assume a worse case scenario and adjust our bidding accordingly. I have had pretty good success in dealing with occupants from trustee sales, but will have to cover that in more detail in another post. Last of all you want your driver to take a quick look at the neighborhood and point out anything that you may want to be aware of such as gang activity, graffiti, busy streets, power lines, commercial buildings or just overall appearance and feel of the neighborhood.

Someone to Check Property Value You must have someone to pull comps on the property and come up with the property value (see previous post of  Evaluating property value)  If you are buying the house as a rental you may want to verify local rents as well for comparable properties.  Just about every property that I am currently buying will work great as a rental or a flip which gives me multiple “exit strategies” with any property I purchase.

Title Researcher You will need someone who can do title research for you.  This may be your most important and skilled team member.  Title research can be a very involved process and require a well trained person.   They must be able to identify anything that can effect your property. This same person can also check for unpaid property taxes, which if you are the high bidder will be your responsibility to pay.  Calling a title rep although better than nothing, is not sufficient.

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Ward Hannigan is probably the most well known Trustee Sale Educator in Southern CA, and has a very detailed Title Researching class where he will teach you how to research title and what to look for when bidding on properties at trustee sales.  You can check out his blog/forum for more details athttp://foreclosureforum.com/

Bidders Last of all you will need someone down at the court house to bid on the properties for you.   Depending on the properties you are bidding on you may need two or more bidders since many auctions times will often overlap.  If you are bidding in more than one county on a regular basis, you will defiantly want more than one bidder. There are many ways to go about working with your team.  You may fill one or two of the roles yourself, work with a partner(s), or hire others to help you.  It all depends on your comfort level and intentions.  Be aware if you plan on doing trustee sales on a regular full time basis, your over head cost can become very expensive.  Some of the more consistent trustee sale buyers have overhead expenses in the tens of thousands of dollars or more each month. Regardless of who your team consists of, you must have complete trust and confidence in their ability to fulfill their role at an optimal level since each role is crucial to your success or failure in the trustee sale business.

Determining Your Max Bid Once you know the property value/rents, repairs, occupancy, title issues, etc., you can come up with your Max Bid.  (See previous posts for formulas to compute offers) and make sure your bidder is aware of how high you are willing to go. Note: You may or may not want to have your bidder call you when your property is up for sale, in case you decide to go up a couple hundred $$$ while they are bidding.  I have lost more than one property by only $100 more than what I told my bidder I was willing to pay.  Looking back I sometimes wish I would have bid just a little higher.  However on the other hand you want to

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make sure you don’t get too excited and let the “heat of the moment” get to you and bid more than you want to pay

Conclusion As you can see buying properties at “the court house steps” is not for the newbie investor nor faint of heart.  It is imperative that you really understand what you are doing before jumping into this “shark tank” as it is often referred to.  However once you feel confident in your ability to master all of the required elements, and feel very comfortable with your market and farm area(s) you may find buying properties at the court house a pretty exciting way to acquire some investment properties. Happy Bidding! or Swimming…

Note/Disclaimer: I have described the trustee sale process as I know it where I bid in Southern CA.  I have not done any additional intensive research other than what I have learned through my personal training and experience.  It should be noted that although each state has some form of foreclosure process/sale, that the method can and does vary from state to state and in some cases even from auction to auction.  So it is imperative to do your own due diligence/research before participating in any of these auctions. Also as I have made clear in my post, purchasing homes in this manner can be very high risk and should only be pursued by one who understands everything which is involved and at stake.  I received some very high level training before purchasing properties at trustee sales and learned things I would not have !

otherwise been aware of.  I recommended anyone who is

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considering buying properties in this manner to do the same.