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Foreclosure Investing Do’s and Don’ts

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Sixteen years ago I began my career as a real estate investor in the often overlooked, and sometimes treacherous waters of the foreclosure auctions (aka Trustee Sales).

 

The Trustee Sales can be a tremendous place to find continuous below market deals without having to deal with sellers. There is, and will always be foreclosures. So today I want to show you how you can add bidding at the Trustee Sales to your investor tool belt.

 

The first thing that you need to know about investing at the foreclosure auctions is that it truly is “buyer beware”. Now, don’t let that intimidate you. Just like buying from a motivated seller, there is certain due diligence that must be done to make sure that you know what you are buying.

 

In a normal real estate transaction you will almost always go through a title and escrow company or a real estate attorney. The main reason for this is so that you can get title insurance and “insure” that there are no other liens on the property.

 

At a Trustee Sale you do not have the ability to get title insurance. This is where part of the “buyer beware” comes in. It also is what discourages most investors from bidding and buying at the Trustee Sales. And, for those that it doesn’t intimidate, it is usually because they don’t realize the properties are not sold free of all liens and encumbrances.

 

I have personally seen many (not one or two), unsuspecting new investors show up at the trustee sale and bid on a property that they thought was a smoking deal. Only later to find out that they had bought a 2nd mortgage and were still responsible for the first! Their smoking deal just turned into a financial nightmare! Don’t be that guy.

 

What is important to remember is that mortgages are what’s being foreclosed at the Trustee Sale. Yes, if you are the successful bidder you will own the property, not the mortgage, but you will also be responsible for anything else that is “ahead of you” on title.

 

This all may sound technical or complicated but it really isn’t. By statute a Trustee Sale “wipes out” all liens (with a minor exception) that fall behind whatever loan is being foreclosed on and you are bidding on.

 

However, if the loan that you are bidding on is a 2nd or 3rd mortgage you will still be responsible for paying off or reinstating the loans ahead of that position. To an unsuspecting bidder this can be true disaster. To the seasoned investor this can be an opportunity to pay little cash and take over an existing first mortgage with a low interest rate.

 

The most important thing you can do prior to bidding at a Trustee Sale is to make sure that you have a relationship built with a title company so that you can get the lien positions of each of the properties that you are interested in bidding on.

 

Without this knowledge you are essentially shooting in the dark and eventually you will get crushed.

 

The second thing that you want to do prior to bidding is a bit more obvious…you will want to inspect the property. Bidding at the Trustee Sales is a business of information. He who has more information then the next guy will always be the winner. Knowing what the condition of the property is will help you determine how much to bid or not bid.

 

This can be challenging as often times the property is still occupied. And, even if it is vacant there are no keys you can get from anyone to get inside. This is where hustle and a little thick skin will go a long way.

 

If the property is occupied consider knocking on the door. You will be surprised how much info you can find out. If it is vacant look in the windows, go around back and don’t be afraid of getting a little dirty.

 

In the past there were many times that I would find my way into a vacant house and see that the property was in turn key condition. Upon finding this information I would close all the blinds and make sure that the house was completely secured before I left. I did all this so that other competing bidders would not know the condition of the property and it would allow me to get it for a better price.

 

These are the tricks of the trade my friend. Trustee Sales can be a very lucrative way of finding a consistent source of below market deals. Just make sure to always check title and visibly see the property prior to bidding.

 

Happy Investing,

Andy

Editor’s note: While Andy says investing in Trustee Sales can be a real gold mine it isn’t the easiest or the least risky way of investing in real estate.

And nobody in the business is better at finding the deals and making a fortune in real estate – no matter what the market is doing – than Andy. His proprietary strategy allowed him to buy and sell over 2,000 properties in the last 16 years…even during the market crash of 2008. Learn more about his methods here.

About Author

Andy Werner
Andrew J Warner

Real Estate and investing have been my passion for over 15 years. I love transforming a broken down distressed property into something that is fresh, updated and modern. My real estate investing career began in foreclosures, but I have also built new, worked direct with sellers, apartments, condo conversions, rentals, wholesale, commercial etc.

Comments (2)
Javier    

Great content Andy.
Much appreciated. Cheers from San Diego, CA

    Andy Werner    

    Thanks Javier! Let me know if you have other things that you would like me to write about in the future.

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