Looks like a great deal .....should I bid ?

[Gaurav S.]

I found this property on Auction.com which has a stated starting bid of $367k. The unpaid balance on the loan to the lender is the same 367k. But the going price for a SFH in this neighborhood is around $600k.Since this is a trustee sale I will have to go to courthouse with cashiers check.

I asked my realtor to do a title search and it came out clean with no second mortgage,no lis pendens,no tax liens,no hoa liens.The loan holder is Bank of America.

The realtor said that its illegal for the bank to ask for more that what is owed and any bid higher than 367k would go to seller.

My question is,
1) is this worth pursuing ? I am first time homebuyer with no prior experience. I don't have that amount in cash but I can borrow to just make it there. Is it worth the hassle ?
2) How do I see the property ? What tactics do you use to judge the condition of property without seeing insides of it ? Can I go to the owner and offer him some money to let me see the property ?
3) Do I have to pay all cash on the same day or do I get sometime to pay cash if I win the bid ? Do I have to carry cashiers check for the full amount I am willing to bid to the court house ?

Thanks.

[Brian Burke]

Yes, THE auction.com is now doing trustee's sales. Allow me to share over 20 years and over 500 purchases at trustee's sales to help you decide whether or not there is "a catch".

Just because auction.com shows an opening bid does not mean that it will actually be auctioned off on the date you think it will be. about 2/3 of the houses with opening bids at auction.com trustee's sales postpone. I think they use this as a tactic to attract more bidders to the party so that once the list is whittled down to the few that actually go to sale, there will be more bidders to fight over the scraps.

It is not unusual for properties that actually have equity to be sold at foreclosure auctions. Up until 2006 this was the case about 90% of the time. Since then, it happens only about 2% of the time, but it still happens.

For me as a professional investor this deal is probably worth pursuing. For you as a first time home buyer, I would advise you to run the other way. There are many reasons for this, allow me to explain.

1. Trustee's sales are not a PURCHASE transaction. They are a LEGAL transaction where the high bidder assumes whatever ownership rights possessed by the beneficiary of the loan being sold. That means that if the loan is in second position, you own the house with the first mortgage still remaining. Yes, I hear you when you say there was a title search, but do you want to bet $367K that that there were no errors in that search?

2. This is an as-is, where-is transaction. There are no legal protections to the buyer as you would see in a purchase transaction.

3. The trustee will not even warrant that the address they put on the notice of trustee's sale is the correct address. Yes, I've seen it happen more times than I can count where the address was wrong, and if you don't know how to figure out if it is right or not you could buy a different house than you think.

4. You can't afford to take the loss. If the house burns down 5 minutes before the auction and you don't find out until after you've signed over your checks, you have a big problem. If you have bad title, owners throughly destroy the house, the house has hidden major defects, has had all of the copper wiring and plumbing stolen by thieves...the list goes on and on. I'm not making this stuff up to scare you, each of those things has happened to me.

5. Buying a house as an investment is a numbers transaction. This deal makes sense on the numbers. Buying your first home (or any home you intend to live in) is an emotional decision. If you hate the way the kitchen is layed out, you won't know that until it's too late.

And finally...the biggest reason that this is probably a waste of your time: If the house is really worth $600K, professional investors will be there and bid it up to somewhere in the high $400s or low $500s. If they don't, then it either isn't worth what you think it is, or there is something that I described above affecting this house. Since you'll barely be able to scrape up the opening bid, you'll be outbid (yes, you have to pay up immediately after winning the bid, in full, you get no time to come up with the rest of the price in California).

As a professional investor, I can afford to take a loss, feel the sting, learn from it, shrug my shoulders, and move on to the next one. You'd be wiped out. If you are OK with that gamble, go for it, and I hope that everything works out (which it does more often than it does not). Good luck!