Need advice on a foreclosure.

[Saad R.]

Hi everybody,

House valued at 420K, going to be auctioned on 7/15. Starting bid 81.5K, yeah! A heck of a deal.

I feel i should go talk to the owner and try to get this house before auction day. I have no experience whit this...HELP!

I'd appreciate your advice, I am all ears. How should I go about this?

[Justin S.]

Saad - No problem. I'll explain.

You said the house is valued at $420K and its going to auction. If the homeowner owes more on the mortgage than the $420K, then they are upside-down. For example, if the mortgage balance was $520K, then you would need to do a short sale or have the homeowner come with the additional $100K at closing to pay off the remaining mortgage balance. Since they are in foreclosure, I doubt they have the $100K, so you would need to do the short sale. Since the auction is July 15, you have essentially no time to do the short sale and the property will go to auction.

BUT, if the house is really worth $420K, and the mortgage balance is only $200K, then you can go to the homeowner offer them a cash deal and buy the house before auction. Or you can bring their mortgage payments current, and buy the property subject to.

If I were you, I would door knock on the homeowners home and see what their situation is. You may get the door slammed in your face or they may invite you in. If they invite you in, take notice of the condition of the place and talk with them about their situation. Maybe you can work out deal before auction if the numbers work, if not at least you'll know the condition of the property.

Lastly, you seem rather to new. I would caution you about buying your first property at auction. It is very risky. It can be done, but you may want to take a step back and see if you are really ready. A few folks on BP buy at auction so hopefully they pipe-in.

Things you'll need to know:

1. How much is the property worth after repairs (ARV)? You said $420K, how did you get that number? If your answer is zillow or county tax records, then you don't know the real value of the property.

2. How much are repairs?

3. How are you going to buy the property? Auctions typically require cash or hard money.

4. What is your exit strategy? Buy and hold, flip, wholesale?