Archive for December, 2007

Seattle Times Foreclosure Auction Article

This Sunday’s Seattle Times real estate section had an interesting article regarding the King County foreclosure auction.  You can read the full text of the article here. http://seattletimes.nwsource.com/html/realestate/2004086535_auctions23.html

Overall I thought the article was informative for the novice investor and didn’t really get anything wrong.  It highlighted the fact that in King County, foreclosure auction sales are up 29% in 2007 vs. 2006 and that many lenders are dropping their opening bids in order to attract a 3rd party bidder at the auction.    One quote in the article did stand out to me.  It was attributed to Brian Truman, an investor who says he has bought several properties at the auction "Out of 10 properties you purchase, there’s one that’s a home run, several that are break-even and a couple that are horrible," Truman said.  I am not sure if that is the exact quote Mr. Truman said or if the author misquoted him, but my hunch is he was misquoted. Why then would Mr. Truman continue to buy properties at the auction if he was only profiting on 1 in 10 deals.  The answer is, he wouldn’t. What I believe Mr. Truman said is something I have said several times myself "Out of ten properties you purchase, one is going to be a home run, seven will make you a nice profit and two you will either break even or possibly lose money on."

As I have said before, the key to successfully profiting from the foreclosure auction auction is research, research, and more research.  The vast amounts of information that needs to be gathered and then constantly updated for each property in foreclosure is impossible for the average investor to compile.  That is why working with an experienced team of professionals who have the resources to track, monitor and update the properties is key.  Without current updated information regarding the properties and their sale status, the investor could end up spending vast amounts of time researching and inspecting properties that have already been postponed or cancelled. 

If your an investor who is interested in purchasing foreclosure properties, Real Estate Investment Firm has all the tools and an experienced team of professionals to help you purchase and profit from buying at the foreclosure auction.  

Foreclosure auction,investing

Foreclosure Investing 101 – Post Auction Part 8 of 8

Stage 4 – Post Auction

Properties sold at auction are immediately legally owned by the winning bidder. Propertied not sold at auction revert back to the bank as an REO (Real Estate Owned). REO properties ultimately find their way back onto the market as REO or "bank owned" listings.

The new legal owner can now take ownership of the property. The property must first be secured. If it’s vacant this simply mean changing locks. However, if a home sold at auction is occupied, the new owner has to work with the resident or previous owners who are now viewed as tenants. This may involve a formal eviction process.

 Evictions

 Eviction proceedings must follow state guidelines and statutes. One solution that often works is know as "cash for keys" where the new owner pays the previous owner a small fee to vacate or covers their moving expense.  Never give the previous owner any cash until all of his belonging are out of the property.  If you have agreed to rent a moving truck for the person, take them down to the truck rental place, have them provide their drivers license in order to rent the truck then you can pay for the rental with your credit card.  **NOTE**  It may cost a few bucks more, but pay for the additional insurance coverage.

Washington State Law gives 20 days for occupants to vacate the premises. After this period an unlawful detainer or formal eviction can take place. This involves a sheriff escort following formal court order.

As part of our service to our clients, at Real Estate Investment Firm, we are happy to help you make contact and negotiate with the former owners if necessary or help facilitate eviction proceedings if the circumstance dictates. 

With the property secured – the new owner can make any necessary improvements and put the property immediately on the market if investment was the purchase motivation or move in.

Traditional mortgage financing can now typically be applied to the property.

foreclosure auction,post-auction,evictions

Foreclosure Investing 101 – Auction Sale Part 7 of 8

Stage 3 – Auction Sale

The actual auction takes place in a public location in some cases literally outside on the courthouse steps. Bidders must have cash in hand to purchase a property and this may mean multiple cashiers checks to cover the variance in potential final bid outcome. A property may have multiple bidders or none.

Opening bids are typically based on the total debt accrued on the property or a specified amount as designated by the lender.  A recent trend at the auctions has been “drop bids”.  In order to stimulate interest in the property from bidders, lenders will discount their opening bid.  Usually there are 4-6 properties a week where the lender has dropped their opening bid $20,000-$100,000 below the amount they are owed.

At close of auction the winning bid is the new property owner immediately upon handing over of funds. A receipt is given and a trustee’s deed will arrive in the mail typically within a week or two.

Special Foreclosure  Financing

Banks will typically not provide financing for a foreclosure sale.  We have developed relationships with several local funding partners to help you participate in a foreclosure sale.  We have agreements in place with our funding partners that will allow you to borrow anywhere from 75%, 90% and even 100% of the bid price.

Foreclosure,Foreclosure Auction,Foreclosure Auction Financing

Foreclosure Investing 101 – Postponement Part 6 of 8

Stage 2 – Postponement

The auction sale date can often be delayed or postponed.  Postponement can be from a few hours (i.e. delay in open bid receipt) – to many weeks. Lenders are strongly motivated to resolve a property’s default status prior to auction. The designated trustee or lender will often push the sale date out if there is a promising development or a discrepancy that prevents a timely sale.

Some of the more common reasons for a postponement are:

• Bankruptcy – The debtor files bankruptcy 
• Repayment plan – The lender agrees to a plan bring the loan current
• Forbearance agreement – Lender provides temporary relieve based belief borrower can somehow bring the loan current.
• Loan modification – Lender agrees to modify loan payment terms
• Pending sale – Lender delays action based on receipt of signed purchase agreement 
• Debt Dispute – The debtor formally disagrees with claimed debt owed
• Title Discrepancy Resolution – A title issue that has not been resolved prior sale date
• Litigation – Any lawsuit where a judge requests a stay on the property sale

With postponements occurring so regularly it is critical to have accurate up to date information on the properties. You could spend hours and hours driving around town looking at potential buys, only to find out the sale has been delayed a month or more. At Real Estate Investment Firm, we provide daily tracking and updates to all the properties in foreclosure in King, Pierce, Snohomish & Kitsap counties.  If there is a change in property status, you will know about it.

Foreclosure Auction,Sale Postponements,Real Estate Investing

Foreclosure Investing 101 – Pre-Foreclosure Part 5 of 8

Stage 1 – PRE-FORECLOSURE

The foreclosure timeline begins when the Notice of Sale (NOS) is issued. The NOS is a formal notice informing the home owner that the property has been scheduled for sale as a result of its default status. The pre-foreclosure period lasts up until the actual auction date.

WHAT YOU NEED TO KNOW

Tracking is critical

During this pre-foreclosure period there are a number of reasons that often can cause a property sale to be postponed. Examples that can cause a postponement include:

• Debtor files bankruptcy
• Owner disputes the debt
• Title Discrepancy
• Forebearance agreement

Therefore it is critical to track property status in order to know when the actual sale will take place.

Real Estate Investment Firm, through our partnership with Foreclosurepoint, provides real time status tracking that is constantly updated including:

• The actual auction date, time and location 
• The estimated opening bid
• The actual opening bid
• If Postponed – the new sale date
• Responsible trustee details

Research is Key

The pre-foreclosure period is the time to extensively research the property. Detailed research will help identify good opportunities and ensure success at auction.

The most important research elements are:

• Accurate date, time and location of auction 
• Property valuation analysis
• Title research showing all liens and encumbrances
• Bid info and Grantor, Trustee and Lender contact details

Real Estate Investment Firm provides a detailed property analysis for each property in foreclosure. This analysis report includes the following research elements:

• Property Details including current Photos 
• Preliminary Title Summary noting anything recorded against the property:
1. Voluntary liens
2. In-voluntary liens
3. Tax liens
4. Detailed Property Inspection
5. Judgments and comparable analysis
6. Construction liens or other encumbrances 
• Valuation Analysis (provided as a range), including auction bid calculator
• Property transaction history
• All foreclosure details, including opening bid details

NEXT: Stage 2

Pre-Foreclosure,Foreclosure Auction,Real Estate Investing

Foreclosure Investing 101 – Foreclosure Timeline – 4 of 8

FORECLOSURE TIMELINE:

The foreclosure process is based on a set time line established by state regulations.

During the foreclosure period various actions must occur before the property can be sold at auction. At any point in time, the sale date can get postponed, therefore it’s crucial to accurately track property status to effectively buy foreclosure properties.

The foreclosure time line can be broken into 4 distinct stages:

1. Pre-Foreclosure Stage – This is the time to research the property, determine property valuation, and possibly contact the owner to negotiate a pre-foreclosure sale.

2. Postponement – A property sale can get postponed for numerous reasons such as: bankruptcy, title disputes or debt disputes. The trustee handling the property can delay the sale any time. Delays can be hours, days, or weeks so its critical to track property status.

3. Auction Day – Prior to the day of auction, it’s critical to have done proper research. Auctions are often held with properties being sold right on the court house steps. To purchase, you must come with "cash in hand" or have arranged special foreclosure funding.

4. Post Auction – Any properties not sold become bank owned properties "REO". Properties purchased are now owed by the winning bidder with a free and clear title. There are a number of actions which the new owner may now have to take.

In the following chapters, I will go into greater detail about each stage.

Foreclosure,Pre-Foreclosure,REO,Foreclosure Auction

Foreclosure Investing 101 – Foreclosure Auction – Part 3 of 8

Why Foreclosures Sell for Less Than Market Value:

In real estate, you hear the term "market value" quite a bit when discussing properties.  Everyone seems to know what market value means,  Most would say "it is the price that a given asset or property would fetch in the marketplace." and they would be correct. 

But you cannot stop there.. 

Market Value is the price that a given asset or property would fetch in the marketplace, subject tot the following conditions:

1. Prospective buyers and sellers are reasonably knowledgeable about the asset; they are behaving in their own best interests and are free of undue pressure to trade.
2. A reasonable time period is given for the transaction to be completed.

Given these conditions, an asset’s fair market value should represent an accurate valuation or assessment of its worth.

The foreclosure process and resulting auction do not come close to meeting the above criteria of a market value transaction. In fact, they are structured in a way as to virtually guarantee the lowest possible sale price. The following table will help illustrate my point:

Many investors would look at that and say "no thanks". "Too risky, and where would I come up with all that cash anyway." It is that attitude which explains why there are so many deals to be had at the auction. 

But what about the risks?

Granted, there are risks associated with purchasing property at the auction. But you can overcome the risks of bidding!  At Real Estate Investment Firm we have worked tirelessly to help open up the foreclosure market to the average investor. By providing our clients with detailed property status tracking, property research, title analysis and insurance, value assessment, auction bid calculator, access to foreclosure financing and much more we have helped our clients minimize the risks while maximizing their profit.

Foreclosures,market value,auction,foreclosure auction