All Forum Posts by: Brian Burke

Hi Gaurav,

To answer your question to me, I'm a buyer not a lender so I can't help you there. I know of a couple groups that loan for TS purchases, but their products are designed for professional buyers with a track record, I highly doubt it would be an option in your case.

Your best bet would be to borrow the money using a brokerage account or 401(k) as collateral if that is an option, or borrow from friends or family, etc. After you own the property, your financing options obviously multiply.

I've lost count of the number of homes I've bought at trustees sales where the owners told me the same thing. I guess I forgot a couple of items in my previous post: you will never get a straight answer out of the owner or the trustee, and the bank isn't talking. Time will tell.

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!

Eddie P., between that weekend and the following two weekends, I ended up as high bidder on 10 properties. I met the reserve on only two of them.

So far I have closed on all three from my last post, and four other "reserve not met" bids were accepted. I'm still waiting to see if my bid will be accepted on three.

Brandon Laughridge, the above well thought out responses are excellent advice. You said a couple of things in your original post that are important.

You said that you "have two partners" and you "own your investment company equally". From this, I intrepret this to mean that you are all active participants in the business. If this is true, you guys can just write up an agreement amongst yourselves as to who gets paid what. Just an addendum to your partnership agreement or memorandum of understanding should suffice.

The reason that you can get away with such simplicity is because no security is being created. One of the key federal tests to the creation of a security is "...the presence of an investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others." (United housing Foundation, Inc. vs. Forman (1975)).

If all three of you are active participants in the business, for example, you all make the decisions of the business together, then there is no reliance upon the "efforts of others."

If you are not all active participants, then the above doesn't apply and you need to follow the advice of the previous postings.

The second important thing that you said was that you wanted to structure it so someone else could join in. If you do that, you have created a securiy and the simplicity of just doing a simple agreement is out the window and you have to comply with the federal and state securities acts.

Seems to me that FNMA would only have standing if they could prove that the first transaction was a sham by a straw buyer and the second transaction was a premeditated scheme to defraud them by scooping up the property and immediately reselling at a profit that FNMA could prove should have been theirs.

I'd guess this deed restriction would only become clear via case law, and I can't imagine that it would ever get that far in the absence of fraudulent intent.

Chris, just like the FHA 90-day flip rule (waived, but is it really??!), this FNMA deed restriction serves no legitimate purpose and a result of outdated perceptions of unprofessional operators and scam artists. Now that I got that off my chest...

I've had a lot of these but have never tested the boundaries. I have been told that the clock starts ticking on the date that the deed is recorded. I just take the conservative approach and make sure closings take place 91 days or later after our purchase deed records.

Worse yet is having to wait 91 days to even sign a contract in order to avoid the double appraisal and home inspection, but I digress...

I'm guessing that you are fixing and flipping? If so, there is no reason to burden cash flow with principal payments. You are much better off with an interest-only loan with a one-year term.

If the interest-only loans have higher up-front costs (points, etc) than the loan you just used, eliminating the burden of interest payments might actually raise your overall expenses at the end of the day, however.

For example, if you can get a bank loan at 6% and 1/2 point, but it is amortized (has principal payments) the payments might be higher than an interest-only private money loan at 10% and three points, but the second option has a higher total cost.

You just have to shop around, compare terms, and pick the best fit for you.

Yeah, I thought property taxes were high in Texas until I saw NY. Crazy!

David Niles, I really liked it for the buy/hold. At the peak of the market here in CA there was no reason to be buying property, so I was looking for an area that didn't have a bubble, but had excellent cash flow. Your area had both. I looked at a lot of stuff around the area, and so much of it was really scary. Being on the west coast, I didn't want to own in a war zone so far away, Elmwood Village is such a great area that I could justify the long distance relationship. I still like that market for cash flow!