Beginner Looking For Advice on Foreclosures

[Olivia Stramara]

Hi everyone. I am a new investor located in Madison, WI. I have been doing extensive research, reading and networking within my community the last 1.5 months to lay my roots for my goals ahead! Because I am new to the game I have few contacts or access to leads or "ins", so in trying to find my own "ins" I have discovered properties I am highly interested in going through foreclosure. These foreclosures are possibilities in accomplishing my goal of owner occupying a 2 unit flat OR a single family home in which I house hack to friends in the area. But I have many questions... 

My limitation is the knowledge I don't have on how foreclosure timing works. I understand the court moving forward with foreclosure but I do not understand how long these take to become REO and posted for public. If I had enough capital, I would go to auction, after walk through, and consider buying at auction (given I knew all possibilities of of tax liens, etc) but at this moment, my connections and capital is not adequate.

So, do I find a realtor who specializes in foreclosure properties? Do I connect with someone who would private lend (given our relationship/businesship is good)? I am unsure on which steps to take next and would appreciate any success stories or advice from you all. Thank you for your time, I appreciate it so much!

-Olivia

[Ron S.]

My opinion below is assuming a non judicial foreclosure with no right of redemption.

"Foreclosures" do not automatically become "REO". It becomes REO only if no one bids at the foreclosure sale. There are many reasons that no one would bid. The opening bid may be too much. The notice of sale implies that the opening bid may be too much (The notice of sale tells you what the total debt is, but is not always what they will open the bid for and many people see the total debt and figure its not worth bidding on). The auctioneer may have postponed the sale one or more times and people end up unsure of when the next scheduled sale date is (Always call before sale to make sure the sale is on, or, to make sure an updated sale date has been posted/scheduled).

If someone bids beyond the opening bid even by a dollar (Whatever the auctioneer's rules are), if no one else bids, they get the property. That transaction is called a 3rd party sale. If that happens, the buyer might sell it? Might keep it? Who knows.

If no one bids, and it becomes REO, 99% of the time, the lender/bank will list it with an agent of their choosing on the MLS. Could be a week after the sale, could be a year after the sale. You just have to wait until a sign pops up on the front lawn. Calling the asset manager/bank, etc., is a total waste of time that will only frustrate and embarrass you.

No one is going to let you do a walk through before a foreclosure auction. Lots of people on this forum say they finagle their way into a walkthrough but that's all it is, a finagling. You may be able to drive through. May be able to walk on/around the property but, unless the owner that is about to lose their property by foreclosure sale invites you into their home, anything short of that is trespassing or at the very least, shady.

If you don't have the connections/capital to attend and bid at auction, I would say you aren't ready. I highly recommend attending several auctions to get a feel for how they work but unless/until you have liquid cash ready to go, anything else is an exercise in futility.

Hard money loans are out there but they are not there to help you, in spite of what the hard money lender's flier may state. They are there to help the hard money lender. Many financial models employed by the hard money lender are based on the assumption of default by you. They would do better with you defaulting than if you performed so, you can bet the numbers are going to work in their favor and have very tight covenants to ensure if you do default, they benefit from it. You may benefit as well if you perform but again, just don't default, or you risk everything. Most hard money lenders shy away from owner occupied properties because they subject to ATR rules (Ability to repay).

Traditional financing through a lender is not available on a property that is being publicly auctioned. I suppose technically it's available but there isn't a  lender in business that will do a loan without a full interior appraisal, a fully executed purchase and sale agreement, and other things, and there is no "seller" in a foreclosure. If you can buy the property prior to the sale, from the owner, sure, you may be able to finance the deal (Assuming you and the property qualify) but that's not a foreclosure sale then.

Hope that helps.