All About Real Estate Auctions...

Parent Cafe
1

<p>In the other thread, several posters are interested to know about Real Estate Auctions. Since I have been in the business for a while, I should write about my experiences.</p>

<p>Real Estate auctions have been in existence since who knows what, but with the advent of Internet, the business has been changed a little. Let me first start with types of auctions in the current environment and explain the risks and rewards in each.</p>

<p>The first type of auction is the oldest, since day one in American history and is still in operation today. That is selling a piece of real estate on the steps of the county court yard. Each county has its own auction and it is normally conducted once a week. Property sold in these auctions are Loan Foreclosures from the banks, it is also called trustee sale.</p>

<p>In a trustee sale, you are buying a loan that is not performing and the bank is selling the LOAN, not the property to the buyers on the steps. The loan the bank is selling mostly are first mortgages, but it could be the 2nd or 3rd mortgages or the 1st mortgage with other mortgages that needs to be paid off or foreclosed upon in order to clear the title.</p>

<p>Since it is not a sale of property you cannot examine the property prior to the sale as the property is still occupied by the “owner” whether the “owner” is in default or not. In addition, if the bank and the owner come to an accord on the mortgage prior to the sale, the sale may get canceled even 5 minutes before the auction. So, you may hold high hopes to buy it and end up disappointed. The deed you will be receiving in this kind of sale is called trustee deed and once it is recorded, you step into the shoes of the bank and you need to perform all the procedures that bank does to evict the previous owner. All the liens and charges goes with the property.</p>

<p>To purchase a property on the steps of the court house is not for those with fainted hart. Not only you need to be a person with title company knowledge, but also need to have cash in hand at the auction, if you win, the auctioneer or the trustee wants a cashier’s check equal or more that the “hammer” price within a hour or less. There will be no financing, cash and carry.</p>

<p>These auction items are public information published in the court house days before the auction date. But most of the properties sold in these auctions are either canceled or returned to the bank not sold because:

  1. A lot of property owner had settled with the bank on loan repayments.
  2. Those properties are under the water, bank asking the loan amount and they do not get it.
  3. Some properties have more than one loan and the investors just don’t want to deal with it.</p>

<p>About 1 in 50 are being sold to investors on the court steps, therefore most of the investors expect only to buy one property per year at the best. Those properties not sold on the steps go back to the bank and now it becomes REO or Real Estate Owned.</p>

<p>Second type of auction is conducted by private auctioneers in an auditorium where many buyers are congregated to buy those Bank Owned properties, mostly land of less desire or run down houses. Its like cattle auction and everyone has to register to bid with a bid card in hand. These auctions normally start the bids low and goes up by fixed increments, based on auction rules. LOAN officers are present to make financing arrangements once you won. You will receive full title of the property and the house you buy are vacant homes. I have been to several of them prior to the crash, in 2006-7 era. The spirit is high at that time, therefore, the price attained for those auctions are even better than what was at the retail, IMO. Before the crash, I have seen a piece of build-able single family parcel sold in an auction for $160K, add the cost of building, I cannot see it will justify the price in that neighborhood. The hype was the price of real estate will go up all the time and if you buy it the next year you will make money.</p>

<p>After the crash, the auction business took a big hit as well, hardly anyone wants to waste time at the steps to buy under the water properties at the bank asking price. Even though the auctions are still going.</p>

<p>With the advent of internet and the concept of Ebay, now a lot of the real estate auction activities have been moved to online. Some auctioneer does all three:</p>

<ol>
<li><p>In lieu of the steps, they replace the trustees on the steps and realistically evaluate the value of the property and conduct trustee sales for the banks. In stead of post the sale items in court, they advertise it on the net. This format, however, still has the same traits of the auctions conducted on the court steps: cancellation at the last moment, selling the loan only, owner occupied etc. the only difference is that the private company will negotiate with the bank on the starting prices. This format of sale could be conducted live in an auditorium or online Ebay style.</p></li>
<li><p>Like the old days, selling REOs or Bank owned properties in live or online auctions. These auctions, now a days, are mostly focus on sale of the existing buildings with low starting bids. A $10,000 starting bid on a $250,000 house is common place. However, the auction house and the bank had negotiated a reserve for the property. If the final bid came below the reserve, the bank has the last saying whether to sale the property or not. These REOs, even though maybe owned by the bank, when the bank put those on the market, the eviction process may not have completed. Unlike REOs sold by RE brokers on the MLS which is always vacant, the buyers of these REOs at auctions may have eviction issues. The auctioneers will describe the property either occupied or vacant up front and you have to bid accordingly. For those occupied properties, you cannot examine the property prior to the auction. The auctioneer also will specify if the house is eligible for financing or not, most occupied properties are not.</p></li>
</ol>

<p>I mostly buy those occupied REOs where it has the best value because no one can see the inside and require eviction after the purchase.</p>

<ol>
<li>Loan paper auctions, these are troubled loans or non performing loans that bank is selling, normally bundled and mostly for commercial properties. This is an area requires investors with the highest skills.</li>
</ol>

<p>I will stop now as I can go on forever for the sagas I have experienced. Ask, if you have any questions.</p>

2

<p>alp, thank you for this!! I need to read and re-read, and then I may have questions. This is really good stuff.</p>

<p>Where do you focus your efforts, geographically?</p>

<p>How do you find the properties you bid on?</p>

3

<p>As a small investor, I can only do so much. So, I focus only two or three counties in the Bay area that I can drive to easily. In addition, there is a renovation aspect of this process and I need to do renovation projects with people I am familiar with. It is hard to find good people that is priced right. For example, I can do a new fence for $900 where other quotes came in $3000.</p>

<p>I find deals through all the resources described above. It is a full time job…</p>

<p>But, for just turn over 2 homes a year, you can make around 100k</p>

4

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<p>How do you get rid of the tenants?</p>

5

<p>Eviction is a process you have to go through with a lawyer in the court. In CA it is around $2,000, depends if the tenants are fighting for their rights or not.</p>

<p>In #3, I described above, the loan papers banks selling off are not foreclosed papers, while all the others have been foreclosed upon and you do not have to go through the foreclosure procedures which is very very hard if you don’t know how. There are services that can do the foreclosure for you with additional time and costs. It is NOT for a first time player(even 10th time) to deal with.</p>

<p>Basically, with higher risk you will get higher rewards, it is always the rule. You pay market value for an owner occupied regular sale, whereas you pay pennies on a dollar when you buy bank non-performing papers in bulk.</p>

6

<p>Just came back from the court yesterday in an Unlawful Detainer(Eviction) Case, for whatever the reason, the prior owner(the defendant) did not show up and I won by default. Its been a saga going on since Feb. 2012 and yet I have the possession of the property. And that is I bought a bank OWNED property which was foreclosed on Sept. 2011.</p>

<p>Had I bought a bank paper(case #3 in my OP statement) without foreclosure proceeding completed, I could have to spend YEARS to get possession of the property.</p>