Whether you’re first getting started and you’re just very interested in specific topics, perhaps you plan to entreat on your first property at a foreclosure or tax foreclosure or perhaps you’ve already been doing this for awhile. I’m going to share with you some tips that you’ll hear nowhere else.
Foreclosure Auction : is mortgage foreclosure, the borrower doesn’t pay their mortgage long enough, they go through the entire legal process and it goes to an actual county auction or a parish or borough so we’re talking about the United States here.
Tax Deed Sale : is also referred to as a tax foreclosure where the property owner doesn’t pay their property taxes, usually it’s sold as a tax lien first, and then after a reporting period if that tax lien is never paid it then goes to an actual foreclosure.
I’m a creative real estate investor so I am focused directly with the vendor themselves and I’m not sourcing my deals from an agent or if it’s already on the market, on the MLS or even on activity. You might be thinking to yourself,” Well, Phil, why are we talking about auctions here if normally you don’t source your deals where other people know about them ?” Well, that’s a good question.
There are certain circumstances where it is best to let a property go to auction:
- title questions
- Maybe it’s got some extra liens on there
- maybe there was a death and so there are various heirs .
- Maybe the heirs didn’t have the money to pay for probate and they just let it go to auction .
- Maybe it’s kind of a mess on deed and it’s better to let it go to auction, clear the whole act out so someone can buy it there .
Also, if you’ve been in this business for any reporting period, some people are procrastinators and they will literally call you the day before the auction. There’s not even enough time to call the lender, actually get an updated reinstatement or modernized payoff. Even if the cope is a home run there’s simply not enough time to get the information from the lender to be able to actually buy the belonging, even if you have the cash in your bank account.
If you don’t have the currency you can’t play in the sandbox.
Okay, so whether you can play in the sandbox or not I know you’re really going to enjoy this blog. Abraham Lincoln once said that,” If I have eight hours to cut a tree down I would spend the first seven hours sharpening the ax .” That will be the theme of this blog. The first seven hours is going to be you preparing for the auction. You’ve got to have your act together and you have to know your trash because the auction itself is not where you’re going to play all your recreations. It’s going to be at the moment in which you get all of the data and you do your due diligence.
The First Seven Hours
Okay, so we’re going to call that the first seven hours, all right, the first seven hours. You know what that means now, that’s this Abraham Lincoln quote.
The first thing it is necessary to do in this section of seven hours is you need to do your property homework, on the property itself.
Now, there’s several parts to this. If you listen to me you’ll make sure you never make a mistake on one of the following options auctions. If you don’t listen to me here you have been able learn some really expensive lessons. This can be a blood bath if you don’t know what you’re doing when it is necessary to auctions. Give me tell you, the districts that handle these auctions, they don’t care if “were losing” coin, it matters very little to them. It is buyer beware. Beware, beware.
- With property homework there’s some obvious ones, the first being value.
- You may not be able to ascertain the complete total value because you may not is the possibility of get inside but I’ll also say this. When it comes to surrounding you’d be surprised how often there is a back door or space that might be open.
- Now, I’m not suggesting you do that but these beings I know they tend to find a way to get inside the property if it’s abandoned prior to the actual auction resulting.
- You can judge surrounding on the exterior readily but perhaps the interior is more difficult.
- The utilities won’t be on so you won’t always know how the plumbing is or the electrical or the HVAC and heating and breeze but you have been able at least get some level of understanding by taking a ogle and also looking at persons under the age of the property.
- These two come together though because in order to really understand value you have to understand surrounding. You want to really start at the comparable marketing to understand what the property can sell for all fixed up as well as what it is as is.
- Now, these two sections of information help you better understand whether or not you are able to even consume your time going any further down the road of these seven hours of sharpening your ax. That would be the opening bid sum, that’s what I’m going to call it here, opening bid sum.
Opening Bid Sum
If this opening offer quantity is really close to the price it’s probably not going to be worth your time. That’s not always the case but most of the time it is because the bank is typically going to make their offer at the least what the hell is owe.
Here’s the pattern . If the opening offer is going to be $100,000 and the price … I’m going to call this offer the O offer. Then, this is the price and the price is, let’s say, $200,000. Well, this is an agitating potential auction because there’s a lot of chamber in this slew. We know that the opening is generally where the lender’s going to tap out at, and then the only race you’re going to have between $100 and the price is other investors and so this is good.
Instead of $200,000, if the price is say, $110,000, the problem in this pattern is that the lender might go all the way up to their $100,000 and there’s just no chamber in there. You might be saying,” Well, Phil, what happens if the price is, let’s say, $80,000. Is the lender going to come up to their $100,000 opening offer ?” Maybe not. They might max out at 70. They generally do a drive by VPO or a drive by appraisal right before the auction if they’re in a situation like this to ensure that they at least offer on an amount that’s reasonable.
This could go for less than opening offer quantity, it sometimes depends. You can see what the lowest hanging fruit slew is, when the opening offer quantity is significantly lower than the price. Now, I’m not talking about imposition judgment price, I’m talking about the actual comparable auctions on the MLS closed comps price. I’ve got a great video on that, Adjudicating Property the Right Way, that’ll help you better understand what I necessitate by what I just said. Okay, so if you understand that the opening offer quantity is going to be well below what the price is , now all of a sudden you may have some promise here. Maybe you’ll is the possibility of get in through one of the side openings or one of the back doors. You seemed inside and you’re stimulated, this slew could have some promise.
Do a Title Search
You’ve got to know what’s on the title because some liens will subsist the auction such as
- owed taxes
- even IRS tax liens because sometimes they stay on the property after the auction.
- You need to know what’s going on with not just other liens but what if they did some sort of building on the owned and then there’s a house let that never went closed off. That could be a real question, that could spread past the closing. All kinds of issues could occur.
Professional Title Search Services
I can do title rummages through the districts that I invest in online. I can do a speedy exploration but I go to the next level here because I want to make sure there’s no mistakes. When you do make a mistake on this it can be very troubling. You buy a owned with what’s called ” unclean entitle” which is awful. It especially with imposition deed auctions where in many cases with a imposition foreclosure you have to file what’s called quiet entitle. You have to file that after the closing to actually have the ability to resell the owned and give the new buyer entitle assurance because when you buy at an auction you’re not getting title insurance.
When you resell after you’ve bought at auction you don’t always have the ability to give the new purchaser claim guarantee, specially tax deed sales, and so sometimes you have file quiet claim. This is extremely important that you understand this. I get professionals involved, I pay for this substance. Yeah, you could spend money on claim inquiries and the bargains never come together, you lose the option. Well, it’s better to be safe than sorry so I spend a bit of fund here and sometimes I don’t get that fund back.
Your Next Step
If you’ve done all of this analysis, at this item you’re in a position now where you can start to potentially consider groups together your max proposal quantity which is incredibly important. You want to go into the auction with the plan on what your max bid’s going to be. Before you do that we have one more fragment of this seven hours, and I’m going to call it this…
Rules of the Game
You have got to know the rules of the game. Make me tell you some horror tales. I had a deal one time … Now, I could have figured this out had I been smart enough. I’m going to tell you this lesson so you don’t ever have to do this, what I did.
The property was in foreclosure for literally years and the borrower had continued to file utilizing a foreclosure defense attorney, these frivolous rule suits and throw away all kinds of cockamamie schemes to keep this thing from going to foreclosure. What happened was on the working day of the foreclosure I won the option at $385,000, so I cabled in $385,000 currency to the county, I won the option. Well, in this particular situation there was a seven epoch age where that borrower could dispute the foreclosure marketing, and he did. When he feuded this thing it get put into this limbo theatre where I didn’t own the property so I couldn’t even put insurance on the property. If this thing burned down my $385,000 was at risk-risk.
Now, what happened was there were two judges in that county that were handling these disputes. One of them was on vacation for three months and another one was behavior backed up. It took seven months to finalise this.
Now, at the end what happened was he won the dispute so he got to keep the property, think it is or not, it was ridiculous, and I did get my coin back. This came back eight a few months later and I didn’t get any interest on my coin, didn’t get any interest. Thank goodness I got the money back it tied up $385,000 of my currency. What the lesson there was this. Had I been smarter … This was a long time ago.
Had I been smarter I would have searched up the foreclosure event records and I would have seen that this guy had filed all these frivolous litigations for years and years and years. That would have told me that this was a risky one to offer on because person could have pulled this stunt.
You’re going to have to get good law improve, either a foreclosure attorney themselves or a real estate attorney that understands this and working in cooperation with clients that actually buy these properties at these auctions because you could make a big mistake and it could be very expensive. Now, this one intention up only costing me the fact that my coin was tied up, $385,000 for eight months, so it was more like an opportunity cost.
Right of Redemption
A right of saving means that the person who got foreclosed upon has the right to redeem or buy the property back for the amount it went to auction for. An precedent “would’ve been” New Mexico. When the property goes to foreclosure, let’s say it went to foreclosure for $100,000 and you won the proposal, what if you started refurbishing the property, started setting it up, and then all of a sudden 30 epochs into it you get a knock on the door and they say,” Yeah, I still own this property, I ran and redeemed it. Thanks for setting up my property free of charge .” It’s happened, so you need to understand the interests of redemption.
No Right of Redemption
Now, particular commonwealths don’t have claim of savings on mortgages because of the deed of trust or the mortgage will actually annuls that. HOA, Home Owners Association, foreclosures sometimes still have these claim of savings as well as charge marketing. There are situations that involve these and you need to know if those exist or not. Another one, and that might be more on the rules of video games but including information on property. You likewise have to understand the property’s boundaries, what’s going on with the property itself with respect to laws.
This one individual was _empty_ on a charge deed sale and it was a unoccupied batch. A batch of days these charge deed marketings are unoccupied region, they’re not homes. The numbers seemed astonishing so he won the auction and then he eventually learned that that particular batch had a historical overlay and it is not possible to be built upon so the region was mostly ineffective. It was in a residential community and he thought he could sell the batch for $100,000. He paid 10 grandiose for it and it turns out he couldn’t so there’s no construct that could result. He sat on it and he now compensates the taxes on it each year so no enjoyable, right?
Well, you do need to understand the rules of video games. I belief an advocate could really help you here follow out all the things that could go wrong, what you need to be aware of. Sometimes its situation will depend on whether it’s a mortgage charge or an HOA foreclosure or what is involved in the actual auction itself.
Now that you’ve done your first seven hours , now we can talk about the auction, the actual auction can be either in person or a lot of days it’s online these days. When you’re dealing with an auction here are a couple of rules I need you to keep in mind.
I’ll give you a great story about that.
There’s this one particular auction where every single time that it was in session the same age-old Big Roy came in the chamber. He had his chest out and anybody who envisioned Big Roy, they knew if he was bid that he was going to put up a fight. They guessed Big Roy was making a killing around city with all the transactions he was doing. Oftentimes, if he started _empty_ with you you would ever _empty_ up a little more, so these parties told me at this auction, because if Big Roy was _empty_ on the cope it must be good. Well, here’s what the real narrative turned out to be.
Old Big Roy, he exactly worked for a cluster of attorneys and doctors in city that weren’t very smart. He caused a cluster of coin and he had basically a mini Bernie Madoff Ponzi scheme moving where he would get the money from them. He’d buy these belongings, he’d secure them up a little bit, he lost coin on them, he exactly had to keep … New money had to keep coming in to pay off the old money. Eventually, he got in big trouble. All these people were thinking that Big Roy had his act together and it turned out that that wasn’t the game he was playing at all, he had a Ponzi scheme moving.
You do not want to go into the auction and on the fly change your dictation, do not do that. You want to be focused, you must have your max dictation already decided, and don’t change it. What’s going to happen is when you’re there, especially in person, if you hear some other parties you might anticipate,” Maybe they know something about the quality that I missed. Maybe this thing’s more valuable than I thought it was .” Don’t think that way, you have no idea what they’re up to. Don’t follow anybody else in the chamber. You have your max dictation and you stick to it.
If You Lose It’s Ok
I understand, here in America we’re very competitive. We adoration plays and we ever want to winning, winning, acquire. You need to be okay with losing. I lose a whole lot when it comes to these auctions because I don’t like compensating very much. There’s always some chump out there willing to pay way too much for some of these properties. Be okay with losing, it is not a big deal. Be okay if it doesn’t going to see sale. you’d be surprised, if you follow this a lot, how often these belongings never actually going to see auction.
Tax deed marketings are pretty much 100%, they ever extend. Sometimes, they’ll repay it up the working day before or maybe the lender will postpone the sale because of some frivolous foreclosure defense attorney’s note, all kinds of reasons to push off the sale. You may do all your work and it may not going to see sale but that doesn’t mean it’s going to always stay in limbo. Hinder an eye on those, they are unable to come back around.
If You Win
Congratulations, make sure you get insurance bound on that property. It’s easy to forget that detail but you’re the owner now. If you’re the owner you’d better employed some assurance on there, especially because it’s probably a unoccupied property at that point. Maybe there might even be some squats in there. if it is a charge deed sale and you have to do quiet designation make sure you file for that. In a lot of cases, I know in Florida quiet designation can cost $2,000 so you have to influence that into your bid. You’ll have an extra $ 2,000 expenditure when you acquire a charge deed sale.
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