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Buy A Foreclosure...
The Trustee's Sale
The auctioneer will ask if anyone wants to qualify, either before all properties are announced or before individual properties are announced. To qualify, you will need to show the auctioneer either cash or cashier's checks sufficient to cover any bids you will be making. Some Trustees specify checks are to be made out to them. Sometimes, you can get cashier's check made payable to you, then if you are a successful bidder, you endorse them payable to the Trustee. Common practice is to have large checks to cover most of the expected bid, with smaller checks to cover increases in the bidding. You really don't want to have one check for $300,000 if you are going to be bidding on a $150,000 house or if you will want to buy more than one property. Once you sign your check over, you will not have the surplus funds available for a while. When bidding and qualifying, keep in mind that anyone around you is a prospective bidder. If you allow them to see the maximum amount you can bid you have just weakened your position. The same is true for notes you may have written or numbers. Be sure to keep your information confidential.
Bidding
The auctioneer will ask if anyone would like to bid when they are auctioning a property. If it is a property you are interested in, your bid should be a penny over the opening bid. The property will not sell until the third call and some people like to wait and see if anyone else is showing an interest. Relax, wait to see if other bidders are going to jump in, and if no one does put your "penny over" bid just before the third call. If other bidders are interested in the same property, bids will go up usually in one hundred dollar increments. Be sure to know the maximum bid you are willing to place and don't exceed that number. You can easily get involved in a contest of who's going to win the bid. If you are investing, you need to make a profit, not prove you can be the higher bidder.
The Successful High Bid
If you are the successful bidder, you will need to sign checks over to the Trustee. Usually, after all sales are complete, the auctioneer will write you a receipt, ask how title is to be held and you'll be done. The Trustee can record the Trustee's Deed for you or they will send you the deed along with any excess funds from your checks. Sales are sometimes invalidated for legal reasons, if that is the case, you will receive your funds back. Expect to have everything done one to two weeks after the sale.
Novice Buyer's Checklist
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Establish position of lien you are bidding on. Avoid surprises. |
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Senior trust deeds may or may not be assumable. VA/FHA may be assumable; others are at the discretion of the lender. |
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Be sure you know what you are buying: Fee simple or lease-hold. |
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Be sure you are bidding on the right property. Do not rely on the street address. |
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Check all parties on title against signatures appearing on the trust deed. You may end up buying a partial interest. |
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Get a good evaluation report on the property. Guessing can be expensive. |
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Check for hidden damage. Sinking, sliding, etc., can be a forerunner to condemnation. |
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Federal and state tax liens, if senior, will not be eliminated. Federal tax liens, if junior, have 120 days to redeem. |
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Some Lenders may not refinance property purchased at a foreclosure auction within a year after the sale. Avoid financing issues by checking with subsequent lenders beforehand. |
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Association liens from condominiums, etc., may or may not stay. Read CC&Rs or seek legal opinion. |
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Judgments less then 10 years old (senior to the lien being foreclosed) can go with the property and may effect plans to sell. |
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Old deeds of trust look good to bid on, but check for a subordination agreement. |
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Vacant property is worth more then occupied property. Evictions can cost time and money. |
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Check for possible rent control. |
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Remember you are purchasing the property "as is", "where is". Do your homework. |
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