Thinking about buying a property at, or before, the trustee sale? At first glance, there looks like some properties that are being given away - is that happening?
For those who have followed the foreclosure market on a website like Realty Trac, you'll see some properties getting foreclosed that have ridiculously-small loan amounts - can you really buy a house in Olivenhain for 20 cents on the dollar?
Let's look at 2605 Lone Jack - the trustee sale scheduled for yesterday (but postponed to next month) was over a $170,000 balance. Aren't those million-dollar homes on Lone Jack? Indeed, this 3 br/3 ba, 3,655 sf house on a half-acre is currently listed for sale at $1,399,000.
However, further investigation shows that the $170,000 is the second mortgage - but most foreclosure sites don't tell you that there is also an underlying first mortgage. In this case, the first is $335,000, and that's the starting balance from 1994 - hopefully it's less now.
Do we have a possible giveaway candidate here? Say that the first has been paid down to $250,000, and add that to the second loan the combined balance is only $420,000 - not bad if it's a million-dollar house.
If the $1,399,000 list price is overly optimistic (market time is 47 days) and it's only worth $900,000 - there is still a nice profit available if you buy it at the trustee sale for the $170,000, and take over the first loan of roughly $250,000.
But wait - you have to keep looking for more. We also found the dreaded federal tax liens, which like the first mortgage, don't get washed out in the trustee sale - the new buyer has to pay them off too. In this case, liens of $51,579, $33,759, $126,173, and $29,143 - that's over $240,000 and those are just the ones that were easy to find.
You might still be interested though, the total is $420,000 + $240,000 = $660,000.
The property's ownership was transferred into a professional trust - there might be additional liens in the individuals' names, and more searching required. You really need a preliminary title report to know exactly what liens are on record.
One of the burdens of buying at a trustee sale, however, is no title insurance - but with the right investigation you can get reasonably good assurance about what liens will travel with the property. Make sure to double-check on the morning of the sale too!
Once you have checked that the equity position is sufficient enough, then it's time for the field investigation. Ideally it would be nice to find a vacant property, at least you don't have to worry about evicting some upset folks. But if there are occupants, you can try to gain access to inspect the interior - it'll take some sweet-talking, and possibly some money, but it's worth a shot. You may want to review some old 'Rockford Files' episodes before you go.
if you find a property that you feel comfortable with, call your insurance agent to make sure you can obtain coverage immediately upon a successful trustee sale.
Check the comparable listings around the property, and search for other notices of default too - try to predict where the next few sales in the neighborhood could take the future value. Look back in time as to what year's price you are comfortable paying - are you getting in at 2003 pricing? 2002? At this stage of the game you should be buying a trustee-sale property at 2002 prices or older, depending on area.
Some of the guys who buy properties at the courthouse steps for a living are happy to buy at $50,000 off, but I think you should expect to pay at least $100,000 below today's prices to ensure an adequate buffer for any problems that could arise - especially other low sales that may be a result of a future buyer using your sale for a comp.