Can I get a loan to buy properties at a auction?

Question

Do I have to buy in cash if purchasing from a county auction?  What type of loan could I get?

Don Konipol · Answer

Since you are buying the property without benefit of title insurance, no institutional lenders and few if any private lenders would consider lending on this scenario.  There may be some individuals experienced with foreclosure and county tax auctions confident in their ability to research title, analyze any title issues and willing to lend.  If you come across one who can and will perform as thus you have found the proverbial needle in a haystack.

Jon Holdman · Answer

Its a local one, and I believe they have changed names.  It not something I'm trying to do, so I didn't keep up.  I can find it in notes at home, though, if you really want the name.  Here the auction listings come out on Monday afternoon and the auction is Wednesday morning.  One day later for Denver county.  So, you have to have a title company that will do the work very quickly.  The auctions are cash on the barrelhead, though.  Some counties require you to literally produce the money as soon as you win.  Others give you a few hours.  That's the tougher part to finding a lender.  No lender that requires a real appraisal is going to be quick enough.

Jon Holdman · Answer

I know of one hard money lender here who says they will do this (not the one I work with.)  They attend the auction with you.  The deed isn't issued for a couple of weeks, but there is a certificate of purchase that's issued at the auction.  And, it is possible to get title insurance for these.  You just need a company that can move quickly.

Jake Kucheck · Answer

Haven't once had a recision, perhaps we've been lucky.  What we have had is a lot of former homeowners (and their attorneys) whom are fond of thinly veiled threats and tough talk.  Generally this ends in a CFK or eviction (I would say 80/20 in favor of CFK) and no trials or court dates or whatever.

Haven't encountered tenants with valid leases at market rent, mainly because squatters haven't a clue what market rent would be in a house they were living in for free.  Or maybe the squatter population is just less sophisticated in Riverside county (wouldn't be too hard to see this being true).  Not once do I recall the property being occupied with actual tenants, willing to produce a valid lease agreement, at market rate or otherwise.

I would say if there's going to be an increase in difficulty, it will be due to the investors willing to pay 80 cents on the dollar, or the GSEs bulk programs taking off and causing servicers not to lower opening bids to attractive levels.  Not too worried about what happens after we've been able to successfully acquire a property.

Account Closed · Answer

i know you guys cover title errors, that's a super business model, really cool.

the trustee sale investors i talk to are seeing rescission of sale more and more.  an eviction attorney i heard speak the other day said he had one where the trustee sale was rescinded 6 months after sale, or at least an attempt was in the works.   another problem is the obama law, where you can't kick out renters that have a lease, renters have figured this out and are manufacturing long term leases to foil reo lender/trustee sale buyers efforts to take possession after sale.  have you guys run into this kind of thing and, if so, how are you handling it?  this is a title problem of a sort.

if trustee sale buying was risky enough already, it seems to worse.

Jake Kucheck · Answer

They can certainly run the checks (usually just as extensive if not more so than a prelim) prior to purchasing.  That is, in fact, exactly what we do.  However, the title companies we use (Ticor and Lawyers) do not subsequently provide title insurance policies, and I am unaware of any that do.  This may be an issue of timing, risk, or a combination of the two.

The implicit (and in two cases to date explicit) arrangement that we have with our investors is that they won't lose money due to title issues.  Thus, if we (or our title companies) make a mistake (which is different than being aware of a lien and factoring it into a bid), then the resulting loss comes out of our fees as opposed to out of their returns in order to ensure they are making the minimum agreed upon return.  Not quite as good as title insurance, but better than not having it, too.

Account Closed · Answer

Jake: Hi, yes, i remember the presentation.  you guys seem to have a solid operation, very respectable.  do you know of a title co offering insurance for a trustee’s deed in CA?  not sure why you say it would be ineffective or why a need for blanket policy.  i would envision something more akin to the traditional policy where title, perhaps in real time, generates a list of outstanding liens to confirm you are not bidding on a second when you thought you were bidding on a first, for example, then issues a policy for a fee if/when you purchase.  A traditional closing only charges for the policy if title transfers, not for the preliminary title check.  I’m not saying such a thing exists, it just seems to have raised its head in this thread.
It’s my understanding title co data has about a 1% error rate.  Even if you have access to title data and are the best title searchers in the world you can’t be perfect, you can’t be better than the data you rely on.  if I have title insurance those errors are covered.  Trustee sale buyers use real money, not money that will eventually be paid back with government bailouts if mistakes are made.  Having said that, title insurance companies are probably like all insurance companies … making a claim and actually collecting are two different things.

Jake Kucheck · Answer

David C.- yes, theoretically you could get title insurance, but it would be wildly ineffective to do so.

The reason Jon mentions this is possible in CO is that the properties are posted on a Monday, and auctioned on a Wed.  In CA, as I'm sure you're aware, the auctions (and accompanying postponements and cancellations) are every day.  I don't know how many postponements/cancellations are included in Jon's auctions, but I'm sure there are some.

There's also the issue of not knowing which property you will end up buying.  Could you get a blanket policy for all of those you're interested in?  Perhaps.  But it sure would be expensive.  Not to mention you'd have to find a lender willing to then lend to you on that basis to accomplish your ultimate goal, which would be at best unlikely.

Since you've seen our presentations, you know that as fairly frequent auction buyers we opt not to get title insurance, and instead rely on our own analysis (and that of our title vendors).  As long as you know what you're getting into, you can factor it into your max bid.  That seems a lot more cost effective than the expense of blanket title policies on everything you're interested in.

Steve Babiak · Answer

some links related to this discussion, from title company blogs:

http://titleinsurancetalk.blogspot.com/2007/04/buying-property-at-sheriffs-sale.html

http://titleinsurancetalk.blogspot.com/2008/02/query-by-e-mail-title-insurance-and.html

http://titleinsurancetalk.blogspot.com/2010/06/oopsmissed-two-items-in-foreclosure.html

http://titleinsurancetalk.blogspot.com/2008/02/we-had-near-miss-in-title-today.html

http://clearingtitle.wordpress.com/2007/04/15/fools-rush-in/

Account Closed · Answer

Jon: i'm mostly interested in CA so i don't want to ask you to dig through your papers for a title co local to CO.  I'm intrigued by the idea that you can get title insurance at all, anywhere.

Will: do you know of any title co in CA that will insure a trustee's deed?  I know you can get insurance after the trustee sale but it wouldn't cover any title defects that existed at the time of sale...not sure what it does cover.  that would insure position of foreclosing lien, for example.

Can I get a loan to buy properties at a auction?

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