Trustee Sale Financing

[Jake Kucheck]

So I've started to see this model pop up, usually with particularly poor execution. The underlying question is fairly simple:

If you as an investor had an opportunity to purchase with leverage at "courthouse steps" auctions, would that be useful?

If so, what is the "ceiling" in terms of fees that you would want to pay to acquire a property with 70% LTV financing?

[Chris Martin]

For an investor it may be useful, but I think the premise is faulty. For sure, conventional lenders are out at virtually any LTV. Private lenders? At 70% LTV? In general for courthouse sales, you can't get an accurate assessment of property condition, so calculating repair costs is guess work at best. To be reasonably accurate, you are limited to a small percentage of properties going to the courthouse where you can gain access and are priced to be profitable. Not impossible, but difficult. That means targets are like: tenant occupied property, friendly OO property (very very small numbers here), "accessible" (did I really say that?) property, some condos, or neighbors with a key (would you trade my $50 bill for a 5 minute walk-through?, etc). Remember, the property is at the courthouse for a reason. A private lender will (or should) make you find it. Owner couldn't sell, right? Oh, kitchen fire. Or the "owner" was 3 85 lb. dogs. I don't know any lenders who would do 70% LTV on a sight unseen property, unless maybe 25 points upfront?

A better answer may be to substitute collateral, do your best "due diligence", buy with a plan for the worst and hope for the best, 'free clean' the place up, then finance and back fill the collateralized asset.