Using Hard Money at Auctions

[Lashawn McCauley]

Can someone explain how they've used an hard money lender to purchase a property at an auction? 

Please elaborate how you identified the property(ies), informed the lender of your target properties, and what were the lenders requirements and process. 

Thanks.

[Sharon Rosendahl]

I am awaiting an answer from the seller of an auction property and purchasing with hard money.

1) Identify one or more hard money lenders you want to work with.

2) If you can pre-qualify do so. This means you don't have a specific deal but you are having a dialog and application to ensure they will lend to you and what terms. This would include what kind of deals they cover.

3) The house I might be buying was listed for a week or so before the auction so I was able to walk it. I wasn't aware they were sending it to auction since it was originally listed without saying so.

4) Since I had a relationship established with my HML and I knew they did auctions I just requested a proof of funds letter.

5) I bid, I was top bidder but the auction didn't make reserve hence why I'm waiting to see if the seller will accept my offer.

Some caveats about auctions:

Do your due diligence. We had to work hard to complete things before the auction closed. We are talking we were satisfied a few hours before the auction ended. We researched not just the title history but also building permit history. Since this is a rural property we also checked well and septic records to ensure they supported what we were planning. There were still some questions so we spoke to both the sanitarian and the building permit office.

Not doing your due diligence can be disastrous. Not only is there consideration of inheriting debt of some sort but also building issues. We looked at a house that was listed on the MLS. This house had been purchased at auction and obviously needed a lot of work. We were told the buyer was overwhelmed and just couldn't get it wrapped up. The house was obviously in the flood plain. We were also told it needed a well. Upon further checking we found that it was actually in a floodway and no new permits could be issued, including well and septic. This is checking the seller should have done before bidding on it. It is likely that this was a huge amount of his savings and he will never get back what he paid. It is sad.

The house we are waiting on has some permitting issues. After our conversations with the county, they are all surmountable and we already have a plan coming together to remediate. That doesn't mean all problems in all cases can be remediated. It is better to know what you are walking into and have those conversations with the appropriate departments.

I have always avoided auctions because of their terms and the fact that not all deals are really deals. It was an incredibly busy couple days trying to cover all of our bases in time to bid. Hopefully, this will be a successful venture for us.