Hard Money Lenders and Foreclosures

[Daniel O'Donohue]

Can you use hard money loans to purchase foreclosures? If so, what will you need to bring as proof to the auction?

[Jay Hinrichs]

Originally posted by @Brent Shields:

I have seen a handful of hard money lenders at the courthouse steps ready to make a loan if their client won the property, but I would say it's not that common. My guess is that most of them had a preexisting relationship with the people they were going to loan money to.

So probably you need to get a hard money lender, make a few regular loans with them and then ask about that possibility.

I think this could have started in Seattle and then it came to Portland.. However there are 2 or 3 HML in these markets that have a full service.

IE they track all the courthouse steps sales.. they then bid for you and once you win the sale they put the HML on the property once the sherrifs deed or Trustee's deed is received..

from a HML perspective its genius I would have done it personally but we got so tangled up in the GFC we had to pivot.

But what they do is this.

1. you must deposit 20% of the opening bid amount with them prior to the sale  so if opening bid is 300k you need 60k deposit.

2. you pay a bidding fee  usually a % like a commish of the winning bid  

3. At the auction the HML puts their name on the receipt along with the bidder to secure the 80% they funded..

4. Once the trustee's deed or sherrifs deed arrives the HML is then put into place. You then pay points and interest from the day you won the bid.

in some instance they will fund rehab etc.

Now with these guys bringing in uber liquidity you can imagine how competitive the sales are and or were.. and deals become very thin the HML in these scenarios made as much if not more than the person buying the foreclosure if its a flip.. for someone buying a rental they may get the property for 10% back of market.. for someone looking to move in same thing.

So the lender gets the bidding fee  they get points and interest on the money put out and they have 20% skin in the game from the borrower.. like I said genius model.

PS I am experimenting with a version of this model as a lender in a few mid west markets were the purchase prices are so low.. compared to WA CA OR NV AZ