LMAOOOOOOOOOOO... its ok oldtraitor, i dont blame you for babbling... i know you hate me being right. here is a link just for you: http://housingpanic.blogspot.com/ EDIT: i just did a search of myself and oldtraitor and i just want to say thank you oldtraitor, you made my sunday. i couldn't find one post where i wasn't right and you weren't dreadfully wrong. quite amusing, i should post some!!!
I believe the Op and congratulations. Thinking this might be a potential opportunity, I inquired regarding foreclosure sales from a local real estate attorney. He mainly represented lenders in the foreclosure process. However I came away from the attorney's office less than enthusiastic. He pointed out two major potential problems. The first was, as a bidder on a foreclosure, you usually do not get access to the property prior to bidding in order to determine the condition or deficiencies of the property. So the bidder could potentially be buying a "pig in a poke". I've actually looked at numerous lender owned properties that have had cracked foundations, flooding basements, mold, mildew, pet damage, leaking roofs, structural and interior damage, asbestos duct wrap, asbestos siding, inadequate lot drainage, etc. Quite often the cost of repairs exceeds any profit potential. The second was, that the original owner in a few instances filed bankruptcy the day of or just prior to the foreclosure sale, potentially tying up the bidder's funds and with no immediate settled title available to the bidder. I would prefer to purchase only properties in really good condition directly from the lender after they have title and can convey the property by warranty deed with proper title insurance, rather than at foreclosure. Unfortunately in my state, once the lender has acquired the property, they have the option of marking the price up, which can make the profit potential much less, but also less risky for the buyer. This is only my opinion and is not intended as advice to anyone. My only suggestion would be to consult with an experienced attorney to learn the pros and cons, and to use the services of a qualified professional who can advise on the condition of the property.
A little foreclosure and a little RE wisdom. A successful developer friend long before the current situation purchased a foreclosed property in a moderately desirable area. Condition: NO ROOF, house was literally rotting from the rain. But he knew that and it is why he picked the property on the cheap. It was all about the dirt in this case and the fact it already had wells, septic, road, and a permitted house. He then restored the house to like new condition. Subdivided the lot. Sold the house. With the money he cleared on the first transaction he built a brand new house on the subdivided lot and owned it free and clear. FWIW It can be done but it is not FREE MONEY. It is hard work. This is a second-generation RE operator who knows the business very well.
True....you will not have access to the property. Which leads to part of the reason that these properties sell cheaply...because the interior condition is unknown. At a trustee sale I'm going to assume everything is wrong on the inside...and make my bid accordingly. Obviously, you can determine the condition on the exterior, and depending on what that is you would reflect that in your bid. In the states I'm aware of, you pay cash at a trustee sale. (Every state has it's own unique rules for trustee sales, so keep that in mind). So there is no opportunity upfront to obtain a mortgage. This precludes most people from buying a property at the trustee sale...another reason why properties sell at discounts. And then too....this can be a tedious, time-consuming, and frustrating process. Today most properties going to sale are properties with loans reflecting a high loan to value. The opening bid will be the lenders bid in the amount of their loan plus back interest, penalties, and costs. This alone rules out most of the properties available at trustee sale, because the deal makes no sense given it's a cash deal without access to view the property. When there is large equity in the property, it may be sold, refinanced, etc etc right before sale...meaning that your time and effort you spent on due diligence on this property has been wasted, at least for the moment. So as it goes, there are few properties with sufficient equity that come to sale. And when they do, there is normally a crowd there to bid. However, once the property goes back to the lender, it eventually is put back on the market, generally through a Realtor. They can price it however they want...and generally rely on the Realtor to help in setting the price. The way you make a deal on these properties is by making enough bids, at a low level, until you finally run across a lender motivated enough to drop his price. In my experience, this will be the lender who has a property that needs plenty of work, and therefore he can't sell it to the retail crowd, because they either can't look past the work, or don't have the dough or means or desire to do the work. I've made many good deals on properties of this type. I've never been able to buy a good looking property really cheap. That's my experience, and the experience of the people I know. I would point one other thing out. Attorneys are good at pointing out all the things that can go wrong with something. While it's true that properties at trustee sale cannot be viewed inside, there is not much in a property that can't be fixed if you have the money to fix. So the idea is to bid reflecting a worst case scenario. Usually newbies don't understand this simple reality. In terms of the property here though, the numbers don't jive. $190K for a $900K is way too big a margin unless there was something wrong at the property, or unless the $900K is wrong. Just my view after several decades of acquiring real estate in a variety of ways, to include trustee sales. OldTrader Edit: By the way, I have never once seen a situation in several decades where a bankruptcy filing affected a successful trustee sale buyer. Reason? A bankruptcy stops the sale, and therefore, the sale doesn't take place, the buyer doesn't hand over any money. This is the case in the two states I've bid on properties. Some states have redemption rights...which changes the game somewhat, and perhaps this comes into play somehow in one of those states.
In terms of the property here though, the numbers don't jive. $190K for a $900K is way too big a margin unless there was something wrong at the property, or unless the $900K is wrong. Just my view after several decades of acquiring real estate in a variety of ways, to include trustee sales. OldTrader The numbers absolutely don't jive. That's why this was so unusual. Normally the subordinated lender would have been at the auction and the minimum bid would have been 590K. This lender has been in the news lately. Secondly, there should have been more people at the auction. It was a bright sunny day. In terms of valuation; a house down the street by the same builder sold for 1.15m in January. This house had a large solarium and a pool but less land. It was a different style but comparable in terms of sqft and quality. I did get inside the house to check it out. It's amazing how often people forget to lock their bulkheads.
I can understand why there wouldn't have been a crowd at the auction, given a couple of factors. One, let's say the total mortgages are $590 + costs. And let's say for argument sake that your market value number is too high...afterall, your comp is from January, and in theory these values are falling. And too, most guys who buy these kinds of properties resell the property...they don't hold....that locks up capital that can go on to the next deal. For that reason, they will have additional costs for holding (ie interest on the money, utilities, insurance, taxes), fixup costs, and then costs of resale (realtors, closing costs, etc). By the time you start reflecting all these costs plus the idea that maybe it's worth less than $900K, and especially worth less if you wish to resell quickly to keep your holding costs down...then you start to see a picture where maybe it's not worth it. Especially if you don't know the condition inside. So again, I can see why there may not have been many bidders. What I can't see is why the second mortgage lender didn't show up to protect his interest. This doesn't happen. Notification is the law. So they were notified. If they weren't notified the sale could potentially be set aside. At that, if the owner of the property wasn't paying the first, which led to a foreclosure, then we know for a fact that he wasn't paying the second. Most of the time in a case like this you'll see the second file their own foreclosure, and either bring the first current or pay the first off to stop that foreclosure. There's a lot about this that really makes no sense. If in fact you did really get a deal based on the facts as you've presented them, then it's obviously a great deal. But I find myself unable to believe that without some type of evidence. Either way, I would only say that no one should be expecting to make a deal of this type according to the facts as you've presented them. It isn't going to happen. It would be the needle in the haystack. OldTrader