All Forum Posts by: Chris Montgomery

This is a little bit state specific. In our state (Texas) the lawfirm represented by the trustee generall takes a few weeks to review the paperwork to make sure everything was handled appropriately. During this interim period you 'own the house' but you don't want to spend any significant money on it. The only thing we'll typically do is put insurance on the property and then begin the process of dealing with occupants or securing the house if vacant.

Assuming the trustee is valid the lawfirm then provides a Substitute Trustee Deed. In some cases they record this directly into the public records, in other cases they mail it to us and we have to record it. Once the deed is recorded, that's it. The house is yours, for better or for worse. No escrow, no title insurance.

If the sale was not a valid sale - for instance if the homeowner declared bankruptcy the night before and the lawfirm didn't know about it and then went forward with the sale - then the lawfirm sends us our money back and rescinds the sale. Generally nothing is filed in the public records, but at least you have your money back. This is why we don't want to start spending any seriuos money until we actually have the deed recorded.

We have not seen the starting amount of the bids be lowered based on the state of the housing market. It may happen eventually, but at the moment most banks start the bidding based on the total amount they are owed, including principal, interest, late fees, legal fees, etc regardless of the actual value of the house.

As for the second question regarding checks: in Texas you actually have to have the cashiers checks with you at the auction. No pre approval letters or personal checks are accepted. I generally bring a whole stack of cashiers checks in various denominations made out to myself. I might bring some 50s some 40s, 30s, 20s, 10s, 5s and a few ones. If I am the high bidder on the property at the auction I then sign over the appropriate amount of checks to the trustee in order to get as close as possible to the actual bid amount without going over too far. It's rarely an exact amount, so the lawfirm that the trustee represents will then mail me back my 'change' the following week.

We actively buy at the courthouse steps in Central Texas. Texas holds monthly foreclosure auction at the courthouse steps on the first Tuesday of every month. For mortgage foreclosures there is no redemption period in Texas.

We are a high volume buyer, purchasing over 40 properties on the steps last year in an area covering 4 counties. It can definitely be done, but it's also a lot of work preparing the research for all of the properties. In the counties we cover there on average 650 postings per month. We end up performing resarch on approximately 200 of those properties. Around 60 to 70 of those 200 will actually show at the auction. Of those around 50 will go back to the lender (not enough equity for an investor to bid). That leaves around 10 to 15 to be purchased by investors. We personally end up buying 3 or 4 per month.

In the last year and a half we've seen a significant increase in the competition in each county, which has decreased the profit we make on the houses. We generally target netting around 15% on our deals after all expenses. In Texas you pay at the auction immediately with cashier's checks, so it's a tough business to get into without ready access to cash. Other than access to cash the biggest obstacles are the time it takes to perform the research and the ability to handle the inherent risks of buying property at auction that hasn't been available for inspection. In most cases we're buying properties that we have not been able to go inside of. You have to build in a certain cushion as you are estimating both repairs and resale value when you haven't seen the inside of the house.

Hopefully that answers some of your questions about success buying at the auction. Let me know if you have any questions.

Chris

I've been able to purchase a few REOs from Countrywide. On one of the properties they accepted my offer without a counter which was at 70% of their list price. In other cases I've had countrywide reject an offer that was at 80% of list without a counter. It often seems to have as much to do with the listing agent or asset manager as it does with the bank. On the ones I've purchased I think the reasons they accepted the lower offer were related to time on market, condition of the property and perhaps the fact that it as a cash offer that would close before the end of the year. I haven't seen one hard and fast rule for Countrywide as an organization.

I realize that's a lot of variables, but it comes down to what has been said above - make an offer that works for you on the specific piece of property and see what happens.