What’s going on at the foreclosure auctions?

[Joey English]

What’s going on at the foreclosure auctions?

In Georgia, foreclosure auctions happen the first Tuesday of ever month on the courthouse steps between 10am and 4pm in each county. In order for a lender to foreclose on a property, they must put the public on notice by advertising in the local legal organ for four consecutive weeks prior to the auction date.

In 2012, Ashley and I found a lot of our deals by going to the courthouse steps. We continued to work the foreclosures and attend the auctions every month until mid 2014. By working the foreclosures, I mean Ashley and I would sit down and read ever foreclosure ad in the newspaper. We’d get all the important information out of the ad like who the lender was, who the borrower was and what attorney was foreclosing the property. We also gathered things like the property address, the legal description and how much the original mortgage was.

Next, we’d door knock all the “pre-foreclosures” being advertised in the newspaper. This gave us an opportunity to inspect these properties and meet the homeowners to possibly make a deal. During those years, between 50 and 75 properties were being advertised each month. Only about half of those actually made it to the auction.

Then something strange happened in 2014. Companies like Brookshire Hathway formed a thing called hedge funds. These hedge funds were basically a mutual fund that, instead of investing in shares of stock like traditional mutual funds, invited investors to pool their money to buy shares in real estate.

This was great for the individual non-real estate investor. It gave them the opportunity to invest in real estate without having the same risk as being an individual owner. And because of the allure of owning property with depressed market prices, as well as low returns being offered by banks and other common investment vehicles, investors lined up to buy into these hedge funds.

This gave hedge fund companies deep pockets. Consequently, they went to work buying up as many properties as they could at foreclosure auctions. And since they were working on a percentage return versus cash on cash, like most mom and pop investors, they dominated the auctions. They often times paid retail value or more for properties.

The mom and pop investors simply couldn’t compete. Since they’d become dependent on the foreclosure auction to make a living, they had to start traveling to more rural counties where the hedge funds were not present.

I went to the foreclosure auction for the first time in over a year this past month. Things have changed quite a bit since the last time I was there. We had only 10 properties advertised in the newspaper – that is down for the typical 75 properties when we first started. Four properties out of those 10 were going to be auctioned.

As I surveyed the scene on the courthouse steps, I counted 10 investors. Of those, only three of us were actually from Gordon County. The other seven were from other counties and had representatives bidding on their behalf at multiple court houses. Ten investors and four properties – those aren’t good odds.

With two target properties and cashier checks in hand, I decided to stay and see what would happen. Besides, I needed to test the situation to see if auction was a viable source for deals anymore. One property fell off the docket, and I lost the bid war on the other. This is a perfect example of why, as an investor, you must have multiple strategies in order to acquire property in an ever-changing market.

Pete Fortunato said it best, “You must evolve or die.”

[Wayne Brooks]

Yep. People trying to get in on the buy and rehab bandwagon today have to realize a basic fact.....today we have about 15% of the number of Foreclosures And REO's we had a few years ago, with the same number, or more, of people trying to buy. There is an obvious and predictable effect of that.