Foreclosures, Auctions and More!

[Shankar Balakrishnan]

So, in the last few months I have been doing some background work on how to start investing in the RE market. Given the $ I had for investing, I decided to focus more on buying foreclosure properties and flipping them to generate capital than buying multifamily homes to generate small cash flow.

So with that in mind, I started digging more on foreclosure properties. I did the basics as prescribed – (a) Established the invest $ (b) Identified the locations that I wanted to invest in: decent neighborhood(not best but not bad either), good school district, lower crime rate, reasonably high sale and purchase of properties, etc. (c) Partnered with a good real estate agent whose family is in the construction business, (d) looking out for other people for the team is still work in progress

I selected some properties to test my hypothesis and decided to attend some auctions to get a feel for it. At this stage I didn’t do any title research or engage anyone else to do it– all I did was shortlist 3 property auctions which fulfilled all my criteria - drove around the neighborhood, looked at the properties from the outside, spoke to neighbors and essentially shortlisted 3 that I could potentially pursue for further due diligence if I really wanted to pursue with it.

These auctions were listed on the state judicial branch website and I went with great eagerness to each but I was disappointed that in all 3 cases, the mortgage company decided to keep the minimum bid equal to the current market price which meant that essentially no one really bid anything and no auction took place. So before I went to the next auction, I called the committee in charge and they told me that they normally receive the bid from mortgage company only 1 day before the auction. In this case does this mean that the market that I have selected is getting saturated and getting foreclosure properties lower than the market rate is not possible?

So I am little confused on how I should proceed with my due diligence. In the above examples, a) I would have spent some $ in doing real research – property records are available at a cost and if I hire someone, it will cost more; b) I would have spent lot of time researching and preparing for an auction that may not take place and I could have spent that time somewhere else; c) I would be carrying some bankers cheque which I may not eventually use

So I am trying to get a sense of the following:

a)How to get a list of real auctions?
b)How do I establish that the auction listed is for real?
c)How do I establish contact with the lenders to get a sense on their reserve price before the auctions?
d)Finally, is there an inexpensive way to do title research to check liens, etc.?

Appreciate any inputs on these. Thanks

[Jay Hinrichs]

@Shankar Balakrishnan

In general if your going to try to buy court house steps.. YOur going to need to track virtually every sale in the county your interested in. As you just learned very few sales actually go 3P most postpone, revert, Bk, etc etc. Its a full time job to actually be successful at courthouse steps.

And in your mortgage states and from what I see in states that are attorney driven finding the information on FCL. is time consuming, compared to West coast. On the west coast if you have any kind of volume and or in the RE bizz you will have a relationship with a title co.. Be it FATCO, Fidelity etc. My go to is Chicago ( owned by Fidelity).. And our systems are all computerized. I can call my customer service agent give and address. and in 90 seconds she can give me a date down that is 95% accurate. And when I did this for a living in the PDX metro area we covered 4 counties and I had one employee that did nothing but track each and every foreclosure.

But it does not stop there. As @Steve Babiak mentioned many trustee's services that handle these sales don't post the opening bid until the day before or even right at the sale... So you don't know if its going to be a full credit bid a discount bid or a step bid. The most frustrating of all are step bids.. You call get the opening bid its 100k for a 300k house.. And when the first bidder bids. the Cryer on authorization from the lender steps the bid up to 200k or higher and everyone is severely disappointed, Has to do with mortgage insurance is what I have been told.

And if that is not all hard enough. you have the game that is played by the good ole boys at the court house steps. IE the regulars that have been doing this for years.. IN many instances they will out bid a newbie just to keep you frustrated and to run you off.. There is the offers of Lunch. Money and other means of Collusion to keep competitive bidding from happening. In some markets its so wide spread as to be a business all in its self Here in ORegon it was very common and regular practice 15 years ago. There were many that could must up a 100 to 200k cashiers check show up qualify funds but never ever had the intention of buying anything they were just looking for the 1 to 3k to not bid.. There was a group in either NC or SC that got stung for this about 5 to 6 years ago by the FBI... And they got I believe an 800k fine and some other serious stuff.

Fast forward to today and you have the new foreclosure steps Gorilla ( Hedge Funds ) and their bidding services.. When you see a 20 something with his backpack come up to a sale and qualify 1 to 2 mil in cashiers checks and just bid on everything coming up he is bidding for one of the big Hedges.. this happened in the Atlanta Market. The last court house steps property I personally bought was in clayton co. GA.. about 18 months ago.. after that time the Hedges just ran the numbers up to were it was not worth it in my model.

I have bought ct. house steps in FLA GA. MS. TN. CA. OR and WA. probably close to 500 of them over 30 years.

As one poster said as well. I like TAx deed states the best.. Although with Bid for Assets holding many of them these days the screaming deals are far and few between like we used to get.

Hope that gives you a little insight into the Ct. steps bizz at least from a West coast prospective. I am not up to speed on Judicails as well as Trustee sales.