Many potential buyers have been reluctant to invest in foreclosed properties because of the chaos and confusion surrounding the “robo signing” fiasco that involved missing and doctored documentation. As a result, major mortgage lenders placed a moratorium on foreclosures. With the negotiations between mortgage lenders and regulators and states Attorneys General drawing to a close, more foreclosures will flood the market.
The “robo-signing’ controversy should not determine if you invest in foreclosures as long as the bank has title insurance on the property. In the event of an issue with the title, the previous owner would likely receive cash compensation from the title policy.
Take the time to learn the intricacies of the foreclosure buying process in your state and the county where the property is located. The following guidelines you maneuver through the process – from finding available properties to taking possession:
Identify Properties and Create Files
Start by obtaining the latest information concerning the auction. Once you have the data, take immediate steps to act on the information. A number of online databases specialize in foreclosed auctioned properties. Some services even offer a daily email alert for the properties on your watch list. Create a tracking system for properties on your list, especially if you plan to invest in several properties in the near term. Keep a record on property details, including address of the property, name of the owner, trustee, lender, and the unpaid loan balance.
You can download the information to spreadsheet. Once you identify a property of interest, drive by, and ascertain the condition and the quality of the neighborhood. If the owner still resides on the property, strike up a conversation, you may find the person receptive to striking a deal before the auction or uncover other information that may affect your decision.
Verify the Status Auction
Once the trustee schedules a property for auction, the property owner has about a month to bring a halt to the process by paying the outstanding balance to the mortgage lender. Sometimes, officials postpone an auction without posting a new date. Often the postponement of cancellation occurs at the site of the scheduled event; place a call to the property trustee to find out if the auction is still scheduled. Keep in mind, the information about the process is public; you can look at foreclosure files at the local courthouse or obtain the information from online sources.
Typically, auctions take place at a public site, in the county of the property’s location. Most counties schedule their foreclosure auctions in the same location. Call the trustee or county clerk for your area to get the information. Some counties have a website that posts the schedule and other relevant information. Whether speaking to a person on the phone or in person, or perusing a county website, do not confuse the foreclosure auctions with tax auctions.
Auction Laws and Procedures
Read and understand the foreclosure laws for your state. Each state and county has its own foreclosure bidding process. Learn what the procedures are for you information before attending and bidding at an auction. For example, some jurisdictions require bidders to bring the total amount of the bid amount for the property in the form of a cashiers’ check or money order.
Other states may only require bidders to bring ten percent of the bid amount. The winning bidder must pay the balance by a certain deadlines, such as 24 or 48-hours. Call the trustee to obtain information about the bid, or gather information online. You can also visit the county courthouse to examine the information in the foreclosure files. Local real estate agents and lawyers may also have insights into the local foreclosure auction process. Go to an auction beforehand, observe, and learn about the process. Ask some of the experience participant question about the procedures.
Look for Foreclosure Bargains
Do your homework and determine the estimated market value for the properties you want to bid. Find out the amount owed to the mortgage lender and if the property has other liens, such as a home equity loan or mechanic’s lien. Some information is in the foreclosure file or subscribe to a foreclosure service.
Auctioneers base opening bids on the balance owed to the mortgage lender. The figure may include fees and expenses related to the foreclosure process. This is the number you must know; compare it to the estimated market value to determine if it is a “bargain” according to your research. If the auctioneer does not receive a bid above the opening amount, the lender buys the property.
Find out how your state handles other liens on foreclosed property. In some states, the winning bidder must pay certain liens. If the property has outstanding liens, determine the priority of the liens before attending the auction and making a bid. Check county records to find out if a property has liens. Establish the lien priority by the date the lien holder placed it on the property. The mortgage lender has first priority. Some states wipe out junior liens as part of the auction process. In other states, tax liens may remain on the property until paid.
Prepare Your Bid
Once you have the information to determine whether to tag the property as a bargain, make some financial decisions. Decide how much to bid for the property and how to raise the cash to consummate the transaction. Unless you have the necessary cash on hand, make plans to come up with the money for the bid. Some people have the credit to obtain a cash loan; others may rely on a home equity line of credit is another option for a homeowner. Another approach would be to obtain a mortgage to purchase a property in pre-foreclosure or already owned by the bank.
Once you determine your maximum bid for the property – stick to this amount. Avoid getting emotionally tied to a property and possibly overbidding should you become the winning bidder. Regardless of the bid, keep in mind, failure to pay the bid in full by the deadline may result in you losing the nonrefundable deposit.
To compete effectively at foreclosure auctions, expect to bid about 20 percent below the property’s market value. Some other factors to consider when bidding on foreclosures: the rate of appreciation/ depreciation of property values and the potential for increasing the value of the property by making repairs and improvements based on its location.
Making the Bid
Make a call to the trustee the day before or morning of the schedule auction to find out if the event will go on as scheduled. Obtain the new date if postponed. Make it a point to get to the auction site early. Identify the auctioneer. For first time bidders, take hints from experienced bidders – some will freely share their knowledge, other will look at you as the competition and not utter a word. Again, do not overbid.
Winning the Bid
After winning a bid, obtain the documents from the auctioneer that verifies you as the winner. Confirm with the auctioneer the steps to take to receive possession and ownership of the property. Consult with an experienced real estate attorney. Some state rules allow for the immediate transfer of the property. Other jurisdictions require the court to approve the sale.
Many states have “redemption periods,” which allow property owners a specific amount of time to buy the property back from the winning bidder. Follow the rules for how to proceed after winning the bid and during the redemption period. In some states, you may have to evict the tenant when it comes time to take possession of the property.