What are the risks associated with trustee sale and mitigation?

Question

Hello BP Family,

I have been doing research on how to properly buy trustee sales in Midlothian VA.  There are great pieces of information but i'm struggling to find a location where all risk associated with their mitigation strategy.  With that said, I will listed all the risks associated with buying trustee sales that I gathered.

1. Liens on the property.

2. Occupancy permit yanked or condemned.

3. Buying a 2nd position mortgage.

4. Evict occupant? or maybe even tenants?

5. Limited ability to inspect before purchase.

6. Some states have redemption rights.

7. Close within 15 days or forfeit deposit.

I'm not trying to over analyzed or over thinking trustee sale but the terms requires cash and close within 15 days so I'm just trying to understand what I'm getting myself into.

1. This one is fairly easy?  Just get a title company to do a title search?  My issue with this is after spending the money to do the title search but when i go to the auction that house is no longer available, didn't I just waste my money or is this just part of risk of doing business?  Any way to mitigate this?

2. If the property are single family, then will this still be an issue?  What's the reason for occupancy permit to be yanked or condemned?  How do I find the code enforcement people?

3. How do I know if I'm bidding on a 2nd position mortgage or not?  I understanding sometime it is no big deal to bid on 2nd position mortgage if 1st position mortgage amount is small.

4. Is this any different than evicting someone who don't pay rent?

5. Any creative ways of seeing the condition of the inside other than just looking from the outside windows and doors?

6. Does this mean after I bid and won the house, the owner could still get the house back??  How do I find out if my state have redemption rights?

7. Never done a cash purchase before.  How soon can closing happen if it is a cash purchase?  Not worry about this one as I can check with my settlement company.

Sorry for all the questions but I figure it is better to ask all in one go than multiple questions.

Thank you in advance for your time and for sharing!

Tom Gimer · Answer

So to be clear,  @Ron S. you don't recommend trespassing and sticking your head in the window?

Ron S. · Answer

1) Prelim will show you what's on title as a lien. Match it up to the foreclosing entity to find out what the lien position is. If you don't want to spend the money to find out what you might be buying, might want to look at other investment opportunities. It's the cost of doing business if you don't want someone else to take your hard earned money.

2) Occupancy permanently yanked? Huh? Do you mean, how do you know if a property is condemned or not? Find out from the county. Should be recorded and available information. This is not an issue I would spend too much time on if the property looks like its still standing and has no obvious red flags.

3) Refer back to item 1.

4) Yeah, you'll have to evict them unless you want them as tenants (I don't recommend). Contrary to what another poster said, no, the bank should not have evicted them. That's just silly. The bank didn't own it until foreclosure sale. How could they evict an occupant when they didn't own it? So, to your point, yes, you evict them like normal.

5) Yeah. That's typical. Unless the occupant lets you in the door (Don't count on it), chances are you don't get to know what it looks like on the inside. Bid accordingly. Creativity could put you in hot water so, unless they invite you in, I'd steer away from getting creative.

6) Some states do. Google is your friend. If you don't know whether or not the owner has redemption rights, that means you don't know if its a judicial or non judicial foreclosure and if you don't know that yet, you probably are premature in your efforts to buy foreclosures without getting a bit more education.

7) Yeah? That means, close or lose.

Marvin Franz · Answer

Bart,

1.  We go to the court house and look at what they owe or if loans were satisfied.  We also make sure there is enough equity to pay off what was overlooked.  We only buy title insurance after we buy at auction.

2. Once again courthouse would list this.  We don't buy these.  There are always other deals out there.

3. We only buy first mortgages which wipe out the second in virginia.

4. We evict the previous buyers as they have not paid on their mortgage for quite some time and the bank should have evicted them.

5.   Once again we look for enough equity for the fact you can only see the outside of said property.

6. We have only bought in Va.

7.Trustee wants money in 20 days we usually try to get the deed in the first week to get started flipping right away.

Yi Lin · Answer

Thank you all for the reply.  @Ron, I like how you answer my question about redemption rights.  I definitely need more education on foreclosure and glad there is biggerpockets and members like you!  Too bad you are in Paradise, otherwise I would buy you a beer or whatever you like!

What are the risks associated with trustee sale and mitigation?

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