Regardless of your level of experience with investing in real estate, you’ve probably heard that foreclosure sales and property auctions are a great way to acquire properties below market value. The principle is simple – by paying a bargain price up front, you increase your margins on the back-end, whether you’re seeking a quick turnaround on a fix & flip or holding the property as a long-term rental. Courthouse auctions are frequented by investors looking to scoop up properties at great prices, especially when housing prices are on the rise.
Based on the type of property being bought at auction, however, investors will have different factors to consider regarding getting the property ready to be rehabbed and sold, or rented out. Let’s dive into each property type and how investors should be thinking about these property types when they’re bidding on properties at the courthouse.
Seller-Owned Properties
Maybe an investor is looking to off-load a fix that hasn’t yet been flipped. Maybe a family is looking for a quick sale of a home previously owned by a loved one. Whatever the case, plenty of great properties are sold through non-traditional means, typically by sellers who want to offload the properties quickly.
Non-bank owned properties offer flexibility in how you purchase them – whether up front in cash, or financed via private lenders. These properties can also often be toured in advance if the seller allows it, giving investors an idea as to how much rehab work may need to be done.
When the sale is complete, the previous owner will be able to keep the proceeds from the sale, while the buyer’s premium should cover the realtor’s fees. While not the most common avenue for flipping properties, auctions can provide certain benefits, especially in a slower market when it’s difficult to find buyers otherwise.
Bank-Owned Properties
Sometimes referred to as REO (real estate-owned) properties, bank-owned properties are exactly what they sound like: Properties that are owned by a financial institution. These are often sold at auctions if an initial foreclosure auction did not result in a successful sale. Investors typically love these properties because their price points are set to move these properties off of the bank’s books and into a buyer’s portfolio.
These properties are typically in good condition, and buyers are generally able to walk through the property prior to committing to a purchase. There are also generally no title issues with these properties, making transactions seamless. Whether you’re financing or paying in cash, purchasing a property from a bank can be an excellent channel for finding affordable fix and flips or buy and hold properties.
Foreclosure Trustee Properties
Foreclosure trustee properties offer bargain hunters some really great deals, as they’re often sold for the amount of money that’s owed on the property (typically much less than the home is worth). This happens when a homeowner has fallen behind on payments, and a neutral third party has been assigned by a court to oversee the transaction to make the lender whole.
In some states, you may be able to take part in foreclosure auctions completely online, though some places still hold live auctions at in-person locations like a courthouse. These are also often day-of sales, meaning you save time and effort by skipping any negotiation phase. These properties typically require cash bids as well, so you’re not likely to face a large amount of competition.
All in all, foreclosure trustee properties can be great buys for cash-flush investors. However, it’s important not to get your heart set on a property too far in advance of an auction, as properties can be pulled from auction listings very shortly before auction day if the homeowner is able to stop the proceedings, whether by making payments again or working out a deal with their lender.
Claims Without Conveyance of Title/Second Chance Foreclosures
The Claims Without Conveyance of Title (CWCOT) program was initially created in the late 1980s to reduce the number of single family properties added to HUD inventory and allow mortgagees to file a claim without conveying title. However, this program did not prove to be very effective at the time, especially for vacant and non-owner occupied properties.
In the last three years, CWCOT properties have become more popular as the federal government has changed requirements for properties that qualify for the program with the goal of increasing the number of affordable single family homes for sale.
These can often be bought via online auction, cash only, as-is, and without warranties. This presents a bit of a risk to investors as there could be hidden or unknown issues with a subject property, however it is still a great way to get a solid deal on properties when volume is the name of your game.
Short Sale Properties
Short sales are often a bit of a desperation move on the part of the seller – they’re typically unable to continue making monthly payments to their lender and are looking to obtain a lump sum of cash to relieve themselves of debt. It’s referred to as “short” selling, not because of the amount of time it takes for these deals to close, but because the amount of the sale is short of what is owed to the lender.
These sales are made with lender approvals in mind, so can take some time to negotiate and finalize deals. However these properties come with a guaranteed clear title, can be purchased with cash or via financing, and often times closing costs are split between the buyer and seller.
Need Proof of Funds Before Your Next Auction?
If you’re financing auction acquisitions, having a relationship with a hard money lender like Pimlico Capital is a big plus. We take pride in offering best-in-class customer service with a consistent 5-star rating among borrowers, and we always strive to develop long-term relationships rather than one-off deals.
If you need a proof of funds letter from a private lender prior to your next auction, feel free to visit our online rate calculator, or give our loan origination team a call at 410-855-4600!
