On today’s podcast episode, I talk about bidding on online auction sites, and buying bank owned properties and foreclosures. In order to understand buying foreclosures and bidding on bank owned properties on online auction sites, it’s important that you understand the foreclosure process and how it works. I will be covering this in detail at the Foreclosures and Bank Owned Properties Boot Camp next weekend. You can learn more about the Foreclosures and Bank Owned Properties Boot Camp at the link below: https://www.lexlevinrad.com/foreclosures-bank-owned-properties-boot-camp/ There are 4 stages to foreclosure: Pre-Foreclosure Foreclosure Foreclosure Auction Bank Owned Property Pre-Foreclosure In the pre-foreclosure stage, the homeowner is late on their mortgage payments. They can be 30 days, 60 days, 90 days or 120 days late. According to the Dodd Frank Act, banks cannot pursue a foreclosure lawsuit until a homeowner is 120 days late so any homeowner who is late up to 120 days (or until the bank initiates a foreclosure lawsuit) is considered in pre-foreclosure. You can market to these homeowners by accessing 30 60 90 day late mortgage lists from data providers and marketing to these homeowners before they go into foreclosure. Foreclosure After the bank has initiated a foreclosure lawsuit (known as “Lis Pendens” in Judicial States like Florida), the homeowner is now in foreclosure. Foreclosure is public record and you can get access to this data by using data providers like Propstream (you can get a free 7 day trial at https://www.lexlevinrad.com/propstream/) Many real estate investors download the foreclosure list and market to homeowners in foreclosure by mailing postcards and letters. Investors can purchase these properties before the foreclosure auction directly from the homeowner. On new foreclosure filings, a foreclosure auction date has not yet been scheduled, but after a few months, a foreclosure auction date may have already been set. It’s very important to understand this and to know if there is a foreclosure auction date and what that date is. Any investor can buy the property for cash directly from the homeowner up to theoretically the day of the foreclosure auction. In reality if you were using a title company and you were going to do a lien search, you would want to close at least a few days before the foreclosure auction which means you would need to sign a contract with the homeowner no later than 3 weeks before the foreclosure auction date. Foreclosure Auction Investors can register to bid on the property at the foreclosure auction which is held online by the County Clerk in most counties. I do not recommend buying at the foreclosure auction since you are not guaranteed to receive free and clear title and the property may have liens and building violations attached to it. At the foreclosure auction, the property is sold to the highest bidder. The bank will have a representative who is usually an attorney who will bid up to or very close to the amount of the original mortgage that was owed by the homeowner. This is done to protect the bank's interest for the amount of the money owed. In the event that the bank is the highest bidder (because other investors don’t want to bid that high), then the property will go back to the bank. At this point the mortgage is wiped out and the bank now owns the property and it becomes a bank owned property. Bank Owned Property (REO) Once the property goes back to the bank it becomes a bank owned property or REO (which stands for real estate owned by the bank). The goal of the bank is to get rid of this property as fast as possible. They do this by only selling to cash investors. They do not allow mortgages because the bank wants a quick sale and does not want to wait to see if the house will appraise or if the buyer can get approved. The bank only accepts cash offers and requires all offers to have a proof of funds letter showing that the buyer has the funds available to purchase the property. We provide a proof of funds letter to all students that are in our real estate training program. The ideal buyer for a bank is an investor that will pay cash and waive all contingencies including inspections. Why is this ideal for the bank? Because the buyer cannot back out. There are no appraisals, surveys, inspections or requirements to be approved for a mortgage, so for the bank this type of offer is the one that is most likely to close and sell fast for cash (which is what the bank wants). Once the bank owns the property, they assign an asset manager in their loss mitigation department to oversee the sale of the property. This asset manager hires a few local real estate agents and requests a BPO which is a broker's price opinion on what the property should be listed for and what the current value of the property is. The asset manager then chooses one of these agents to be the listing agent and list the property on the...
