The Foreclosure Auction - shortsalesrichesmembers.com

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The Foreclosure Auction
Quick Cash System
TABLE OF CONTENTS
TABLE OF CONTENTS
INTRODUCTION ................................................................................................................................. - 1 I. FORECLOSURE 101 ...................................................................................................................... - 5 Common Terms Associated with Foreclosures ........................................................................... - 6 Mortgagees – Your Competition at the Auction ........................................................................... - 8 The Secondary Mortgage Market & PMI ..................................................................................... - 10 Loans in Default and Foreclosure ............................................................................................... - 12 Long Redemption Period States ................................................................................................. - 16 Homeowners in Default ............................................................................................................... - 21 Special Considerations ............................................................................................................... - 23 II. IDENTIFYING PROPERTY TO BID ON ........................................................................................ - 27 Foreclosure Listing Services ...................................................................................................... - 29 What is it Worth? ......................................................................................................................... - 29 Before You Buy at Auction .......................................................................................................... - 31 Problem Properties...................................................................................................................... - 31 III. AUCTION CASE STUDIES ......................................................................................................... - 34 1703 Sandalwood Circle SW, Winter Haven, FL ......................................................................... - 36 1448 Marigold Drive ..................................................................................................................... - 37 5521 Yarborough Lane, Lakeland, FL ......................................................................................... - 39 417 Longfellow, Lakeland, FL ..................................................................................................... - 41 435 Lucille Street, Lakeland, FL .................................................................................................. - 42 The Right Investor for a Birddog ................................................................................................ - 43 IV. THE CALIFORNIA TRUSTEE SALE ........................................................................................... - 44 Quick Facts .................................................................................................................................. - 45 The Parties to a Trustee Sale ...................................................................................................... - 46 The Path to a Trustee Sale .......................................................................................................... - 48 Beginning the Birddog Process – Auction Websites ................................................................. - 52 An Auctioneer's Auction Description ......................................................................................... - 53 The Bidding Process ................................................................................................................... - 54 The Numbers Game ..................................................................................................................... - 56 A Birddog Case Study ................................................................................................................. - 57 Birddog Fees................................................................................................................................ - 59 Other Fees.................................................................................................................................... - 60 When a Bidder Disappears .......................................................................................................... - 60 Avoiding Auction Traps............................................................................................................... - 61 i
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Liens & Judgments in California ................................................................................................. - 65 Running Title Work ...................................................................................................................... - 68 V. NEVADA FORECLOSURE AUCTIONS ....................................................................................... - 70 Quick Facts .................................................................................................................................. - 71 The Bidding Process ................................................................................................................... - 72 Nevada Closing Costs ................................................................................................................. - 73 VI. ARIZONA FORECLOSURE AUCTIONS ..................................................................................... - 75 Quick Facts .................................................................................................................................. - 76 The Arizona Auction Process ..................................................................................................... - 77 Foreclosure Sales ........................................................................................................................ - 79 Arizona Foreclosure Timeline ..................................................................................................... - 79 Statutes that Govern Foreclosure in AZ ..................................................................................... - 80 Tax and Title Issues..................................................................................................................... - 80 Winning the Bid ........................................................................................................................... - 82 VII. FLORIDA FORECLOSURE AUCTIONS .................................................................................... - 84 Quick Facts .................................................................................................................................. - 85 Live Courthouse Auctions........................................................................................................... - 86 Getting Started............................................................................................................................. - 86 The Bidding Process ................................................................................................................... - 87 Assignment of Bid ....................................................................................................................... - 91 The 10-Day Redemption Period .................................................................................................. - 91 Online Auctions with RealAuction.com ...................................................................................... - 93 Auction Example.......................................................................................................................... - 94 VIII. APPENDIX ................................................................................................................................ - 98 SUMMARY of FORECLOSURE LAWS & PROCEDURES BY STATE.......................................... - 99 FORECLOSURE LAW ANALYSIS BY STATE............................................................................ - 104 PROPERTY INSPECTION REPORT ........................................................................................... - 154 CALIFORNIA TITLE QUESTIONS .............................................................................................. - 155 AGREEMENT TO VACATE......................................................................................................... - 156 AGREEMENT TO VACATE RELEASE ....................................................................................... - 158 WHO ARE CHRIS McLAUGHLIN and NATHAN JUREWICZ? ................................................... - 159 -
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Quick Cash System
INTRODUCTION
INTRODUCTION
Go ahead and do it. Google "foreclosure auction" and "foreclosure auction
birddog." You will find that there is little-to-nothing on this topic – until now.
Why? It's simple, really. The people who are "in the know" don't want to let
others know just how good this aspect of real estate investing is. If there
ever was a good ol' boys network in real estate – this is where you'll find it.
But that's all about the change – for you. If you take action. And don't allow
this manual to gather dust.
You see, I learned the foreclosure auction birddog secrets the hard way. I
tried to get information from people, but most of them were very tight
lipped. So I decided to start attending auctions myself to learn how
birddogs operate. And as a buyer with cash, I was quickly approached by
the birddogs in the room.
"Go home, you don't need to be here. Let me do this all for you," a few of
them said – as they got into fancy cars to drive to their expensive homes.
I'm a real estate broker by trade, with four real estate offices and over 400
agents. But even I didn't realize just how much profit is to be made by
learning the foreclosure auction process inside and out. Most of my
investment purchases have come from REOs (real estate owned by banks)
or short sales listed in the MLS. Rarely have I ventured out into the auction
world. Until I had to. Why?
The "robo signing" crisis forced me to look elsewhere for foreclosures to
purchase. Several of the good REO agents I'd worked with in the past told
me that they were sitting on their thumbs waiting for future assignments,
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INTRODUCTION
because the banks had slowed the allocation of REOs and were also
delaying closings. In fact, one of my closings has now been delayed by the
bank for over 120 days. But I still want the property -- so I continue to wait.
You see, I'm fortunate enough to live in Central Florida, where the real
estate is a great bargain these days. One of the reasons I invest in real
estate is for cash flow (the excess cash generated from sale or rent after
paying debt service and all expenses). Cash flow is very attractive. And,
with no-money-down deals a dime a dozen nowadays, foreclosures can be
great cash generators if you're in a market that enjoys:
 a stable rental market

availability of cheap housing
The combination of these two factors creates a nice hotbed for real estate.
I'd been consistently purchasing four to five foreclosures a month and
wanted to ramp up to 10 a month. In fact, my goal is at least 100 over the
next 12 months, creating $3MM in equity and a positive cash flow of an
extra $30,000+ a month. But the REOs just weren't to be found on the
Multiple Listing Service – at least not at prices I wanted to pay.
When one door closes, another one always opens.
And so I became an expert at buying at auction. Before the banks would
take ownership on the courthouse steps and assign properties to real
estate companies to resell via the MLS, I could get a crack at buying them!
But I learned one thing – I didn't want to do all the legwork that was
required. In order to do what I truly wanted to do I needed to leverage
myself through other people. I needed a foreclosure auction birddog.
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INTRODUCTION
And now I'm about to tell you why you need one, too, or why you need to
become one. Either way, you're in for a great income and an amazing
financial opportunity for the next several years.
Serious real estate investors know that making money in any market
means staying ahead of the curve. With foreclosures continuing at a high
rate in many parts of the country, there are still huge profits to be made.
But there is one thing you will need to be a successful Birddog (or to keep a
cadre of ace birddogs on your wealth building team) and that's knowledge.
Those who have the knowledge and the ability to spot an opportunity and
act on it will prosper.
Here are a few of the topics covered in the Birddog course:
Foreclosure from A to Z – know the players, know the field
How to identify properties to buy at auction
Bidding strategies
Avoiding traps and pitfalls at auction
Investment opportunities in a down market require special skills and
relationships. Few have those tools at their disposal, so the competition is
limited. But the great thing is, once you’ve learned how to successfully
birddog foreclosure auction properties, you'll always have opportunities –
regardless of the market!
What this course covers:
With this course you'll learn how to become a Birddog. I'll guide you stepby-step through the process by using case study illustrations. We'll also
look at the process in different states – because it does vary.
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INTRODUCTION
Section I will bring you up to speed on the mortgage industry, the
foreclosure cycle, terminology, etc. In Section II we'll talk about finding
prospective auction properties. Then I'll then go over a few case studies of
actual auction sales, so you can get a feel for how it works, as well as
keeping an eye open for where it can go wrong in Section III. In Sections IV
- VII we'll address the process in the states where the most foreclosure
sales are happening, namely California, Nevada, Arizona and Florida.
Section VIII contains Appendices.
Throughout this course we’ve used icons to alert you to important stuff.
Tip – this will make your life easier
Red Flag – be careful here
Legal Stuff – you should know this
This course is intended to be a comprehensive overview, applicable to all
market places. However, foreclosure processes and real estate standards
of practice vary from state to state. Always consult your local real estate
attorney and certified public accountant (CPA) before you begin.
Finally, because things change quickly and there are always new variables
in the real estate investment world, we encourage you to visit our related
website regularly for updates and news you can use:
www.ForeclosureAuctionMembers.com
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Quick Cash System
FORECLOSURE 101
I. FORECLOSURE 101
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FORECLOSURE 101
Common Terms Associated with Foreclosures
Most people do not buy a house with cash, but rather with the help of a
loan. Terms of a residential loan can vary widely. Because of a great little
system called capitalism, and consumer appetites for choice, institutions
that lend money continually invent new ways to lend it. But there are
common elements to loans and foreclosures, as defined here:
Promissory Note (Note) – a written instrument that promises to pay
certain sums at certain times or upon demand to a certain party. A Note
recites details of the amount borrowed and repayment conditions (interest
rate, term, payment amounts, etc.).
Mortgage – a written instrument that grants an interest in the real estate
and provides security for the Note by giving the lender the legal right,
should the borrower default, to take possession of the real estate by
foreclosure or other means. A Mortgage outlines the conditions of default,
both monetary and non-monetary.
Mortgagor – the person who makes the Mortgage given to the lender and
makes payments according to the terms of the Note, i.e., the Borrower.
Mortgagee – the person who holds the Mortgage and who receives
payments according to the terms of the Note, i.e., the Lender
Deed of Trust (DOT) – Some states use a DOT instead of a Note and
Mortgage to make and secure mortgage debt. The two instruments are
incorporated into one and title is held in the name of a third party, the
Trustee; the borrower is called the Grantor or Trustor; the lender is called
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the Beneficiary. For all practical purposes, a DOT and a Mortgage are the
same in that they grant a security interest in real property to the lender. The
procedure for foreclosure is somewhat different.
Lender – For purposes of this course we will refer to any mortgage bank,
direct lender, mortgage brokerage, credit union, bank or savings & loan that
lends money for and holds a mortgage on real estate as the “Bank.”
Investor – For purposes of this course Investor will refer to a foreclosure
Birddog or party for whom the Birddog is buying and assigning property.
Note, however, that you will also frequently hear the term “investor” as it
applies to the secondary market when dealing with a Bank.
Loan – There are four basic types of home loans that Banks make (not
including exotic and “interest only” loans), although there are many different
types of programs that fall under one of these:
Conventional – a non-subsidized, non-government loan with a fixed
or adjustable interest rate that amortizes principal over the fixed life of
the loan and conforms to certain funding criteria.
Jumbo – a loan that exceeds the limits established by Fannie Mae or
Freddie Mac, and thus the amount acceptable for sale in the
secondary market. It usually carries a higher interest rate.
VA-guaranteed – a loan guaranteed by the federal government to
help veterans finance a home under favorable terms at an interest
rate that is usually lower than the rate charged for other types of
mortgages. The guarantee is incentive for the Bank to make the loan.
FHA-insured – a loan insured by the federal government that allows
qualified, lower-income or credit-impaired home buyers to purchase
with a lower down payment and lower closing cost. The government
doesn’t make the loan, but insures it against default to limit Bank risk.
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Origination – the process of evaluating and giving a mortgage loan is
called origination. Banks “underwrite” a loan by evaluating the credit
(borrower) and the collateral (the real estate) under guidelines set for the
type of loan. Following specific underwriting guidelines, or “conforming”
allows the Bank to position the loan for a later sale.
In times of “easy” money lending standards relax and Banks do everything
they can to make loans. In leaner times with harsher economies, Banks do
everything they can to avoid risks and loss.
Mortgagees – Your Competition at the Auction
Once a loan is underwritten and approved, it is funded (closed). How it is
funded and what happens to it after closing depends on what type of loan it
is and what type of Bank originated it.
Most Banks do not keep their loans. They sell them so they can get more
money to make more loans. However, they often retain “servicing rights,”
which is another source of income. Loan payments and escrow activities
may continue to the same Bank that originated the loan even though the
loan was sold months or years before. In fact, the loan may have been sold
more than once – or several times.
Serial note sales and/or assignments could become an issue for a
Birddog if questions regarding the ownership of the note surface at
or after a foreclosure auction sale. While Banks are addressing the issue
now, it does occasionally happen that a foreclosure auction sale must be
"unwound" due to uncertain or defective lien perfection.
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Asset or Liability?
Just as you have a personal net worth consisting of your assets less your
liabilities, so does a Bank. An asset, to a Bank, is something that makes
money – like mortgage loans to customers who pay interest.
Non-performing loans are liabilities. Portfolios of foreclosed real estate are
BIG liabilities. If a Bank has more liabilities than assets, it has far worse
problems than you or I do when we go into “the red.” Bottom line – the
Bank prefers to loan money and collect interest, not own real estate that
produces no income while racking up holding costs in the form of legal
fees, taxes, insurance, repairs and maintenance, HOA fees, etc.
The federal government requires federal banking agencies to apply
strict accounting standards to their financial practices and, under
various circumstances, regulates how much they can lend or if they can
lend at all. Banks must maintain “reserves” against losses on bad loans as
well as maintain their capital levels to remain healthy and stay in business.
A word about HUD
The U.S. Department of Housing and Urban Development, created by the
U.S. Housing Act of 1937, is the watchdog and enforcement agency for
many mortgage lending related laws – the Fair Housing Act is an example.
HUD, like FHA, provides low interest rate loans and grants to qualified
lower income homebuyers. It also oversees many different programs
dealing with our nation’s housing inventory.
Because of the lower down payments and lower income
requirements for HUD/FHA loans, they tend to have the highest
foreclosure rates. In many markets, the majority of foreclosed homes will
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have had HUD or FHA-insured loans. There is always a strong retail and
wholesale market for these houses. You will rarely have problems lining up
a buyer or tenant.
The Secondary Mortgage Market & PMI
As noted before, Banks don’t generally retain all their loans. In order to
keep up with demand, Banks sell all or a portion of the loans they make to
investors to get more money to make more loans. Before 1938, this wasn’t
so easy. There was a limited pool of capital available with which to provide
mortgages.
So the federal government established the Federal National Mortgage
Association (FNMA) to buy mortgage loans and free up capital in times of
demand. In 1968, Fannie Mae (as it became known) went from government
lending program to private corporation. The Federal Home Loan Mortgage
Company (Freddie Mac) and the Government National Mortgage Company
(Ginnie Mae) are similar institutions. Only GNMA is authorized to issue a
government guarantee for the timely payment of principal and interest on
mortgage-backed securities issued by institutions approved by GNMA and
backed by pools of FHA and VA loans.
To raise the money to invest in the loan purchases to make new capital
available to Banks to make a new mortgage loan, these GovernmentSponsored Enterprises (GSEs1) bundle already purchased loans with
similar characteristics into pools and sell bonds called mortgage-backed
securities (MBS). Financiers and investors buy the securities, as they
would stocks or any other bonds. They are paid in increments over the life
1
A GSE is a federally chartered corporation that is privately owned, designed to provide a source of credit
nationwide, and limited to servicing one economic sector. Each GSE has a public or social purpose: to
improve the availability of credit to agriculture, education, or housing.
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of the bond as the underlying mortgages are paid off. Yields can drift
downward if loans in the pool fall out due to early payoff (lower interest rate
refinance), delinquency or default.
Historically, MBS funds were considered to be low risk investments, and
therefore carried low yields. That is, until the onset and flourish of subprime mortgage lending in the early 2000s. Which brings us back to
origination and underwriting.
The secondary mortgage market corporations require that loans meet their
guidelines and perform for certain amounts of time (“seasoning”) before
they can be bought and securitized. Banks follow Fannie Mae and Freddie
Mac guidelines more for reasons of being able to sell their loans in the
secondary market than for the sake of good lending practices. When the
secondary market relaxes its guidelines, the Banks follow suit, quickly.
These corporations had strict conditions for the types of loans they
purchase. Those conditions loosened during the frenzy leading up to the
near collapse of U.S. financial markets in 2008. In typical reactionary
fashion, they have once again tightened up to the point of causing Banks to
be very conservative in granting mortgage loans. We mention this because
underwriting standards may affect you, as a Birddog and/or Investor, when
trying to secure a buyer for a property.
Private mortgage insurers
Homebuyers who make less than a 20% down payment on a conventional
loan are normally required by the Bank to carry Private Mortgage Insurance
(PMI), or what is called Mortgage Protection Insurance (MPI) in some
states. This protects Banks from loss on a defaulted loan just like the FHA
and VA protect Banks on their loans. PMI is a good thing in that it enables
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borrowers to purchase a home with as little as 3.5-5% down. But PMI
premiums run about ½ of 1% (.005) of the loan amount and can add
hundreds of dollars a year to a borrower’s house payment.
Over the last decade many borrowers took out “piggyback” loans to avoid
paying for PMI, which was not tax deductible. So a $250,000 buyer might
take out an 80% first mortgage ($200,000) and a 15% second mortgage
($37,500) instead of a 95% loan. Assuming favorable terms and interest
rates, the borrower’s blended rate on the combined mortgages equaled
less than the payment on a $237,500 mortgage plus the PMI premium, and
all interest was tax deductible.
These arrangements usually involved adjustable rate first mortgages
with very low beginning interest rates. As ARM adjustments kicked in,
these loans became prone to default and foreclosure in many
markets. There are still plenty of foreclosures happening as a result of this
type of financing
However, from 2007 through 2010, PMI was fully tax deductible for
borrowers earning $100,000 a year or less. This, combined with the credit
crunch limiting second mortgages, made PMI more prevalent again and the
80/20 mortgages on lower to median range housing less attractive. So,
unless the PMI deduction is extended, expect to see foreclosures of this
type wane.
Loans in Default and Foreclosure
The financial meltdown, economic downturn and escalating unemployment
rates fueled foreclosures. But Borrowers who have met their mortgage
obligation for years can experience a life change at any time. Many
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defaults, and ultimately foreclosures, have nothing to do with the real estate
market. A borrower might:
Have a sub prime loan with a high interest rate
Have an adjustable-rate mortgage (ARM) and can’t service the new,
higher interest rate when it kicked in
Have obtained a zero down loan, taking on more debt than they could
really afford to begin with
Have obtained a loan modification to address a prior default and can’t
service the debt under new terms, either
Have experienced a loss/reduction of income due to illness or layoff
Have gone from two incomes to one due to job layoff, divorce or
death of a spouse
Have been unable keep up with rising tax, insurance and
maintenance expenses or have suffered a significant casualty loss
Have been a victim of mortgage fraud
Heading to Foreclosure
In most states, the total time from the first missed payment to auction is 810 months. There is usually a 3-4 month window between the first missed
payment and when the Bank issues an actual Notice of Default (NOD).
During this time, the borrower is “delinquent” or in “default,” but technically
the foreclosure clock doesn’t start ticking until an NOD is issued (we’ll see
shortly how that varies by state).
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The Three Phases of Foreclosure
PREFORECLOSURE
(PRIVATE)
PUBLIC AUCTION
(PUBLIC)
REAL ESTATE
OWNED (REO)
(PRIVATE)
Preforeclosure is the period between the Bank’s Notice of Default to the
Borrower and the property going to a foreclosure sale. This time frame
varies from state to state depending on the laws in effect there, but is
usually somewhere between six and 12 months. During this phase there is
private opportunity to buy the Note or the real estate, usually at a discount,
before fees and costs mount.
Public Auction is the second phase. This is where the property is sold “on
the courthouse steps” to the highest bidder. The opportunity in this phase is
public, and may or may not result in obtaining the property at a discount,
depending on who you are bidding against, including the Bank. This is
where your birddog skills and knowledge will pay off.
Remember our earlier discussion about assets and liabilities at
Banks? Banks must establish a “bid price” when they foreclose to
use as a “basis” when moving the loan asset to the owned real
estate side of the balance sheet. The difference between the bid price and
the amount owed (including costs of foreclosure) is the Bank’s loss, or
“write down,” should it be the successful bidder at the foreclosure sale.
There are many variables, unknown to you as the Birddog. Banks
implement bidding strategies at foreclosure sales to put themselves in
favorable positions to recover some (or all) of their losses post-foreclosure
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or to manipulate their loan loss reserve balances. When you buy at auction,
beware of bidding wars!
REO is the final phase of the cycle, where the Bank has foreclosed and
owns the property. The house is managed and marketed either by a
department within the Bank, or by a private management firm that
specializes in bank-owned properties, or by a real estate agent, or by a
combination of Bank personnel and vendors. Opportunity is once again
private, between Investor and Bank. The Bank will add all of its holding
costs to its “basis” and will price the property at or near appraised value to
recoup as much of that cost as possible. As a matter of fact, federal
regulations REQUIRE that they do so if they are federally insured. Rarely
will this result in a profit margin worth pursuing.
The Foreclosure Process and Timeline
Foreclosure proceedings vary by state and fall primarily into two categories,
judicial and non-judicial. Non-judicial foreclosure happens without the
courts. The Borrower in default is notified according to the laws of the state
and if the default is not cured within a given period, a Notice of Sale (NOS)
is sent and posted, published or recorded per the applicable law. After the
legally required time period passes, the house is sold by trustee’s sale at
public auction. Every non-judicial foreclosure state has different procedures
so you need to know the laws and rules in your state.
In non-judicial foreclosure states, the property is usually secured by a Deed
of Trust, which will usually include a power of sale clause. If there is no
power of sale clause, the Bank must file a public NOD to the court and all
applicable parties before the foreclosure sale can be scheduled and an
NOS posted. The entire process is generally faster than in judicial
foreclosure states.
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Judicial foreclosure is processed through the courts. The Bank will issue
an NOD if the delinquency is not cured within a time frame specified by the
loan documents and/or prior delinquency letters. After 30 days, if there is
still no cure, the Bank files a motion or complaint with the court and records
a notice of Lis Pendens with the county clerk stating what the debt is and
why the Bank should be allowed to foreclose.
The homeowner receives notice of the complaint (usually by mail) and is
allowed a hearing before the court. If the court finds the debt valid and in
default, it issues a final judgment for the debt (including costs of the
foreclosure) and a writ authorizing a sheriff's sale, where the house is sold
at public auction.
Some states, like California, allow for BOTH judicial and non-judicial
foreclosure. It all depends on how the documents securing the loan
are drawn. Some states also have what is called a Right of Redemption
period with a judicial foreclosure, during which time the homeowners can
take the house back if they can pay the debt – even after a foreclosure
auction. The window varies by state but can be as long as six to12 months.
Please refer to the Appendix at the end of this course for state-by-state
information.
Long Redemption Period States
While you might think you're out of the game if your state has a long
redemption period, the reality is quite the opposite – you can use a littleknown strategy to rake in more cash with little to nothing out of your pocket!
This strategy is thoroughly explained in our video interview with Chris
Gleize, one of the most successful real estate investors in Minnesota.
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A few states have longer redemption periods that allow for the homeowner
to redeem the property by paying the bid price plus the applicable interest
and court costs. For example, in Michigan if the amount owed is at least
66.66% of the original indebtedness, the homeowner will have six months
to redeem. This redemption, as is the case of Minnesota, is the bid price
plus the applicable interest.
Because of the long redemption periods, investors rarely buy these
properties with the intention of wholesaling them. But what does happen is
that the lenders will occasionally show their cards – they will indicate what
they really will be willing to take on the property with opening bids that are
lower than the final judgment amount.
In those cases, Chris Gleize's strategy is the obtain the deed from the
homeowner with a payment to them of anywhere between $500 and $1,000
(you could pay them this money the day of your flip closing, therefore doing
a no money down deal). Since Chris knows what the bank will take, he'll
then line up an end buyer and then pay the bank off at their requested
amount.
Please listen to our video for a more detailed explanation, but this is
certain: just because you are in a state that has a longer redemption
period, it does not mean that you can't make quick cash.
Alternatives to Foreclosure
There are ways to avoid foreclosure. Here are six methods of retaining
ownership of a house in default or pre-foreclosure:
Refinance: The borrower pays off the existing mortgage loan with the
proceeds from a new loan.
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Repayment Plan: The borrower is allowed to catch up on missed
payments by paying more than one full payment per month until the
account is brought current. This is very difficult if the financial problem
that led to default is anything more than a temporary glitch.
Forbearance Plan: The borrower is allowed to suspend all or part of a
monthly payment for a specified time period based on Bank
agreement. The missed payments may be rolled into the existing
balance, or become part of a Repayment Plan or Modification.
Loan Modification: Allows for changes to the original terms of a
borrower’s promissory note, which may include any combination of
the following: an adjustment to the interest rate; an extension of the
term of the loan; or an increase in the loan amount by the amount
past due.
Short Refinance: Allows the forgiveness of a certain amount of the
principal balance, in conjunction with Forbearance and a Repayment
Plan.
Bankruptcy: A borrower’s loan may be changed from the original
terms based on a Loan Modification as part of a court-approved
reorganization plan.
All of the above methods have one thing in common – the homeowner
must be in a position to make some sort of reasonable payment that is
agreeable to the Bank and make it on time every month.
For many who find themselves in a situation leading to foreclosure,
the preceding methods only postpone the inevitable. If they are
unable to service current debt they may also be unable to sustain
payments on a refinanced or modified mortgage, even under more
favorable terms, and may be back in the same boat within a period of
months.
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Final options for foreclosure avoidance
When all other options fail, a distressed homeowner must face facts and
accept the inevitability of losing the house, but may still avoid foreclosure.
Deed-in-Lieu of Foreclosure (DIL) allows for transfer of a property to the
Bank without going through the full foreclosure process. This is usually the
“last resort” option, following failed attempts to sell or refinance. The benefit
to the Borrower is slightly less impact on a credit rating than foreclosure.
For the Bank, it shortens the process and therefore the costs associated
with taking the house back and selling it to recoup debt. It also allows the
Bank to avoid any entanglements if the Borrower should decide to file
bankruptcy after the DIL is granted.
A DIL is done outside of a court and is a settlement of the entire debt. The
settlement amount is generally the fair market value of the property. A DIL
is a voluntary action and usually is initiated by the borrower – the Bank is
unlikely to suggest it (although the new Home Affordable Foreclosure
Alternative Program, commonly referred to as 'HAFA,' gives servicers more
financial incentive to pursue a DIL).
A Bank may not allow a DIL if other liens on the home exist, since receiving
a voluntary transfer by way of deed does not wipe out inferior liens the way
a foreclosure does. However, there are some types of liens a Bank may
accept with the DIL. A property scheduled for auction sale may be pulled at
the last minute if agreement for a DIL is reached.
Note Purchase. Not all lenders are receptive. Not all loans are eligible.
There is often difficulty getting to the right person, as Bank Loss Mitigators
may have no idea how to respond to a note purchase offer. But investors
are out there doing them, and this could pull a property from auction. As
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FORECLOSURE 101
Banks face unmanageable REO inventories and increased consumer-sided
legislation, they may become more agreeable to discounted note sales.
Short Sale. A short sale occurs when a Bank agrees to take less than is
owed to settle the mortgage in full (a discounted pay-off) and releases its
lien on the house upon a sale of the property. Because the homeowner
owes more than the property is worth on the open market, the Bank may
approve a sale for less than the debt and agree to this sort of arrangement
to avoid a costly foreclosure.
Before a Bank will accept a short sale, two conditions usually must be met:
There must be little or no equity in the property. Obviously, if
there were enough equity in the house to sell on the open market and
use the proceeds to pay the Bank in full, this would already have
been done, with “No harm, no foul” to either Bank or borrower.
The homeowner has a legitimate hardship, as defined by the
Bank. The problem(s) that are causing the borrower to be unable to
continue making the mortgage payments are not temporary (e.g. just
behind a month because of overspending). Poor financial decisions
are generally not considered hardship, and full financial disclosure
will be required to determine if the borrower has assets that can be
applied to the debt.
Having said that, in light of the high foreclosure rate environment, Banks
are becoming more cooperative in granting a short sale to an investorowner trying to bail out of a bad investment, even if legitimate hardship has
not been established. Note, too, that an owner-occupant who has not yet
missed a payment may be a short sale candidate as well. As a result,
Banks are backed up with proposed transactions and a short sale may take
3-4 months or more to accomplish.
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FORECLOSURE 101
Homeowners in Default
Real estate is cyclical. Even though we have experienced an economic
downturn with foreclosure rates higher in many markets than those in the
Great Depression, it will pass. But there will always be people who, for one
reason or another, face foreclosure regardless of market conditions.
Owner-occupied vs. Investor Properties
Houses bought as rental properties or investments can experience many of
the same problems as owner-occupied properties. Main differences are:
The investor-owner is usually not emotionally attached to the property
– and less inclined to fight foreclosure if the numbers don't work.
The Bank has different rules for non owner-occupied mortgages.
The investor-owner may be required to settle a deficiency judgment
or pay taxes on 1099-C (debt write off) “income.”
In late 2007 Congress passed legislation amending the Internal
Revenue Code of 1986 to exclude discharges of indebtedness on
principal residences from gross income. The “Mortgage Forgiveness
Debt Relief Act of 2007” eliminates taxation on debt forgiveness (1099-C
income) if the debt was used for the purchase, construction, or refinance of
a loan used for substantial improvement of an owner occupied home. It
does not apply to home equity loans taken for the purpose of debt
consolidation or to pay for vacations, cars, etc., or to loans made to
investor owners. This tax relief, which was in effect through 2010 for debt
discharged in 2007-2009, was extended to cover the years 2007 through
2012 under the "Emergency Economic Stabilization Act" signed into law
in October 2008.
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FORECLOSURE 101
On July 30, 2008, the “Housing and Economic Recovery Act of
2008” was signed into law. There are several parts to the Act.
Among other things, it includes The HOPE for Homeowners
program, to be administered by the FHA, effective October 1, 2008. The
program will continue until September 30, 2011. This voluntary program
allows qualified owner-occupants who are unable to afford their mortgage
payments the opportunity to refinance their mortgage as long as their
current lender or investors agree to take the write-down in value.
On May 20, 2009, the “Helping Families Save Their Homes Act
of 2009” was signed into law. It makes several changes to the
previous HOPE Plan putting it under the auspices of HUD, providing
incentives to lenders to voluntarily modify troubled mortgages and adding
protections for loan servicers. Noteworthy from a standpoint of our
discussion are other provisions of the Act that:
Provide for borrower notification when ownership of their mortgage
changes, not just servicer changes. This is an acknowledgement of
the fact that the mortgage owners are the decision makers when it
comes to loan modifications or short sales.
Provide protection for tenants living in houses in preforeclosure. The
tenant must be allowed to finish out the term of a bona-fide lease, or
be given a minimum 90-day notice to vacate, depending on the
circumstance.
There are many facets to these various acts of legislation,
including the Federal Housing Finance Regulatory Reform Act,
The Foreclosure Prevention Act and the Housing Assistance Tax
Act. A complete discussion is beyond the scope of this course, but as a
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FORECLOSURE 101
foreclosure investor and/or birddog, you should familiarize yourself with all
pertinent foreclosure related legislation, to know how it might affect your
ability to buy real estate in foreclosure with clear title.
Special Considerations
When evaluating foreclosure auction properties and investment
opportunities, there are a number of special considerations that may be
present. They don’t necessarily disqualify a property, but you should know
how a property is affected.
Second Mortgages
When a homeowner is unable to pay his first mortgage the second is
usually delinquent, too. Second mortgages (and third) are “inferior” and
recorded behind the first. They can take many forms, like a piggyback loan,
a home equity line of credit (HELOC) or a home improvement loan. There
could be more than one foreclosure being conducted on the same property.
If an inferior lien comes up for foreclosure and the Bank in first
position is not “upside down,” (i.e., its mortgage balance is below
fair market value) and/or its loan is not in default, buying at the foreclosure
auction may result in taking a piece of property over that is still subject to a
mortgage lien. Know what you are bidding on! A Bank in an inferior position
will have its lien wiped out if a Bank in a superior position forecloses – but
not the other way around!
Bankruptcy
This is a complex subject that can complicate matters. A bankruptcy stays
(stops) any foreclosure action in progress. But a stay can be lifted at any
time and the Bank may pick up where it left off in pursuit of its debt.
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FORECLOSURE 101
A last-minute bankruptcy filing can stay a foreclosure auction, even
if a certificate of sale has been issued. The sale can be “unwound.”
The three most common types of bankruptcy are:
Chapter 7 – the most severe, essentially a total liquidation where all
non exempt property is sold and the proceeds are distributed to
creditors. Unsecured debt is terminated, secured debt remains. It can
be taken by individuals and businesses.
Chapter 13 – typically used by individuals and small businesses, it is
a reorganization of debt. A plan is arrived at and payments are made
to the bankruptcy trustee, usually for 3-5 years, and the trustee pays
the creditors.
Chapter 11 – like Chapter 13 but with many more requirements and is
used by larger businesses, partnerships or corporations.
When a debtor files for Chapter 7, a “341 hearing” is set where creditors
have an opportunity to question the debtor about and the bankruptcy
trustee reviews the list of assets and liabilities as well as debtor income and
expenses. Creditors are given 60 days to object to the discharge. The
debtor usually receives a discharge in four or five months.
Chapter 13 is used by individuals who don’t qualify for Chapter 7 and who
want to keep their non-exempt property. The court uses living standards
provided by the IRS to determine reasonable expenses and a repayment
plan amount, with the IRS receiving priority followed by secured creditors
(mortgages), followed by unsecured creditors (credit cards). When the plan
is completed (3-5 years), the bankruptcy is discharged.
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FORECLOSURE 101
Florida – The Debtor’s Haven
Different states have different rules concerning bankruptcy and exempt
property amounts, particularly regarding homestead exemptions. Florida
protects 100% of a debtor’s homestead from a bankruptcy proceeding, as
well as IRAs, 401Ks, prepaid college plans and other things. Wage
garnishments are restricted and a creditor of one spouse cannot receive
joint property of both spouses. Typically, it is difficult to liquidate debtor
assets in Florida.
The Bankruptcy Abuse Prevention and Consumer Protection
Act of 2005 tried to make it more difficult for consumers to
discharge debt under Chapter 7, forcing them to reorganize under Chapter
13. Under the old law, anyone could file under Chapter 7, with the final
determination as to eligibility made by a bankruptcy judge. The new law
requires a means test to decide if filers can pay some of their debts and file
under Chapter 13. This generally rewards filers with assets that are
heavily mortgaged and hurts debtors with larger amounts of
unsecured debt.
To find detailed information about a bankruptcy filing, sign up for
PACER (Public Access to Court Electronic Records) at:
http://pacer.psc.uscourts.gov
Liens & Judgments
If a homeowner is in financial distress, there may be other junior nonmortgage liens filed against the property. These can include things like a
homeowners’ association lien for unpaid dues, M&M liens for materials or
labor (as in a roof replacement) or a tax lien. An investor-owner may have
other types of judgments out there.
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FORECLOSURE 101
A judgment lien holder cannot foreclose on a property, but when a
property is sold the lien must be satisfied. Judgment liens usually
provide for interest at a court-ordered rate. If a property is not sold for years
– the lien can grow to a sizeable amount.
Due diligence and good title searches are critical when evaluating
foreclosure auction properties. A records search in the county where the
property is located will unearth recorded liens and judgments. It is a very
good idea to run a preliminary title search up front to see what
encumbrances are recorded against the property.
Most likely, the lien or judgment holder has not been receiving payments.
An offer of five cents on the dollar in exchange for a lien release may be
acceptable. It's best to know up front what your total basis in a property
acquired at auction will be.
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IDENTIFYING PROPERTY
II. IDENTIFYING PROPERTY TO BID ON
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Identifying Prospective Properties
The amount of distressed housing inventory in certain markets across the
country is at an all-time high. In many MLS inventories, between 30 and 60
percent of houses offered for sale are short sales or already Bank-owned.
Foreclosure pipelines are impacting home prices and neighborhoods.
Predictions continue for distressed real estate sales dominating some
markets well into 2012 or 2014. This translates into another 24- to 36month window of opportunity to make some significant money investing in
foreclosure auction sales.
But how do you know which properties to bid on at auction? As an investor,
you'll need to develop a good set of criteria for properties that meet your
investment strategy, so your birddogs know what you want and expect. As
a birddog, you'll want to know the neighborhoods and markets so you can
shop a property scheduled for auction to the appropriate investor. Either
way, you'll need to do some research. Whenever possible, at least drive by
the property in question to see it first hand.
The #2 method to find properties headed for auction is to search the
County Clerk’s website for Notice of Sale, Lis Pendens or other recorded
lien enforcement actions.
The #1, easiest and fastest way to find prospective investment
properties is by using a foreclosure listing service. There are plenty of
them that have popped up lately, but we recommend you use an
established, reputable information provider like RealtyTrac®,
Foreclosure.comTM or ForeclosuresDaily.com.
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Foreclosure Listing Services
These services compile databases of property information from real estate
filings like Notice of Default, Lis Pendens, Notice of Sale and Auction Sales
across the nation. They also track FSBO and other sale activity. You’ll be
able to target by zip code to find prospective properties in your area. In
addition, they also provide timely and useful articles about the industry and
helpful information.
The amount of information available through these data providers varies
depending on whether you use a limited or full subscription service plan.
Cost can range from practically free to several hundred or thousands of
dollars annually. Choose a provider that fits your business plan in relation
to the volume you intend to do. Find local foreclosure listing services by
searching online using keywords “Foreclosure Listings.”
Foreclosure Listings are a hot product in some markets, so beware
of scams. Don’t pay good money for dated material that is nothing
more than a compilation of readily available information you can
download for free from your County Clerk’s office.
Of course, not all properties will end up at auction, so you'll definitely want
to subscribe to your local publication (paper and online) that lists the
scheduled sales.
What is it Worth?
Once you have determined what properties are posted for sale that meet
your investment criteria, you'll want to run a preliminary title search or use a
lien search service to determine if there are other liens outstanding on the
ones you have a serious interest in. Then you'll need to know how much
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the house(s) could reasonably sell or rent for and net out your purchase
price and costs to clear other liens, if any, to determine your position.
Thanks again to the Internet, it’s fairly easy to pull up comparable
information. The most detailed and reliable source for comparable sales
(and rental) information is your local Realtor association’s multiple listing
service (MLS). If you’re a member and have access, great. If not, develop a
close working relationship with a couple of local Realtors.
Realtor.com is also a good source for information on current listings, so you
can see what sellers are asking for comparable homes. What you won’t
see are closed sales.
The county tax-assessor / appraiser’s website is another source of fairly
reliable information on closed sales. You can pull up information by
neighborhood to see the dates and dollar amounts of property transactions.
Depending on the sophistication of your county’s software, you may also be
able to generate a comparable sale report. Unlike the MLS, you won’t see
details about a property’s features, upgrades, condition, terms of sale,
days-on-market, etc.
There are any number of real estate valuation websites that use data
downloaded from public records to generate home value estimates.
Zillow.com® is an example. Unfortunately, these computer generated
values often do not take into account natural neighborhood variances and
property condition, so the “valuations” can swing wildly in accuracy. When
pulling comparable data to determine value remember to:
Compare apples to apples
Determine if the sale is arm’s length, “in-law,” distressed or foreclosure
Only use sales made within the prior six months
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Before You Buy at Auction
Have access to a car with navigation. As noted before, it's always best to
personally view the property ahead of time whenever possible. You’re
going to need to look quickly at properties and you won't have a lot of time
to mess around with directions.
Have a access to someone who can pull a title search for you within
two hours. There are usually companies that show up at the auctions that
hand out business cards to sell this information to you very inexpensively.
But don't rely upon a bulk service like that – if you really want a property
make sure you do a more thorough title search. A video is included in this
system showing how one birddog does his own title searches. Watch it.
Have access to the local MLS by working with a Realtor. If you are not
a member of the local Realtor board, develop a good working relationship
with a Realtor. MLS comps will enable you to establish value quickly.
Unfortunately, we've heard horror stories of investors using websites such
as Zillow.com to establish value. This not a good idea – Zillow just uses
area statistics and has no clue about the condition of the property.
In the end, nothing takes the place of seeing the property so make sure you
make every effort to see it. See the Appendix for a property inspection
check list to help in your evaluation.
Problem Properties
There are many issues that can pop up after a property has gone into
foreclosure and you are considering buying it at auction. As you already
know, every deal is different. But here are a few of the most common
problems you’ll see regularly:
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Code Enforcement – Homeowners who had a hard time making the
mortgage payment may have been unable to keep up with basic home
maintenance, too. If a house was left sitting vacant for a number of months
before you buy it at auction, there could be code violations.
Typical violations are overgrown yards and yard debris, roof maintenance,
downed or damaged fences, and health and safety violations like open
pools. You’ll want to remedy the violation as soon as possible if you take
title in order to stop the accrual of fines and fees. Other violations may
include un-permitted or substandard structural alterations made to the
property by the previous owner.
Mold or toxic waste – you may need to hire a mold inspector. In many
parts of the country, practically all homes have some mold. There are
different types. The surface mold you may encounter in neglected or
abandoned properties is common and will clean up with bleach. But toxic
black mold is another matter entirely. Only a qualified mold inspector will be
able to tell what types of mold are present and at what levels a house is
contaminated.
If you can get a look at the inside of the house ahead of time, be on the
look-out for evidence of water intrusion, which can signal possible mold
growths. Look at the HVAC system, under sinks, and in closets around wet
areas (baths, kitchen, laundry) for evidence of mold.
Other toxic situations may include cans of paint, chemicals, or any
unidentifiable material containers left behind in the garage, or the
remainders of meth labs or drug paraphernalia. You may end up having to
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hire a haz-mat company that specializes in toxic waste removal and
disposal.
Uncooperative Homeowner Associations – beware the Condo
Commando. HOAs and condominium associations are run by staff that can
range in “perspective” from professional, hired management to Fred-in-Unit
503. Homeowners who default on their mortgage often don't keep their
HOA dues current either.
You may run across an HOA that, being owed several hundred or thousand
dollars of back dues on a unit in foreclosure, will attempt to hold you
hostage. By this we mean they will unnecessarily (and in most cases
illegally) refuse to provide community access or deny access to association
documents (CC&R, Rules & Regs, etc.) unless they “get their money.” The
laws are changing in many states as to how many months of HOA dues
you may be responsible for after a foreclosure sale. Know the laws and
your rights when dealing with these people.
In the end, you're looking for property that turns an acceptable profit with
the least amount of hassle, time and money. The more knowledgeable you
(or your birddog) are, the bigger that profit will be.
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CASE STUDIES
III. AUCTION CASE STUDIES
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CASE STUDIES
bird-dog b rd-d g\ noun: 1) a gundog trained to hunt or retrieve birds
2) one who seeks out something for another; intransitive verb: to watch
closely
I've purchased hundreds of properties. Done tons of deals. And I oversee
thousands of transactions per year. So why would I be willing to pay a
birddog a fee of over $17,000 just to buy a property at auction and
sell/assign it over to me?
Because a good deal is a good deal. And if I didn't buy it, it would be easily
sold to a competitor who might pay even more. I'm going to run through a
few actual transactions here, so you can get a feel how working with a
birddog – or being the birddog – puts cash in your pockets fast.
Statistics on foreclosure filings for the third quarter of 2010 complied
by RealtyTrac®, a California company that monitors NODs, auction
sales and Bank repossessions, showed a one percent decrease over the
same time in 2009, but a nearly four percent increase from the previous
quarter. One in every 139 U.S. housing units received a foreclosure filing
during the quarter. Nevada, Arizona, Florida, California, Idaho, Utah,
Georgia, Michigan, Illinois and Hawaii lead with the highest rates. Five
states accounted for more than 50 percent of the nation's total – with
California alone accounting for 21 percent.
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CASE STUDIES
1703 Sandalwood Circle SW, Winter Haven, FL
To begin, let's review the numbers on this deal. My birddog Matt bought a
property on Sandalwood Cir SW in Winter Haven, FL for $26,000 at
foreclosure auction and resold it to me for $43,500. He made a profit of
$17,500! But truly it was a win-win. A $17,500 profit was great for him and
a purchase price of $43,500 was great for me.
First, I was well aware that he bought it for $26,000. Good for him! I then
looked hard at the property itself. It sold for $160,000 in July 2006. It was in
very good condition and didn't need many improvements. It's a 3/2 built in
1984 with 1,238 SF heated and 1,695 SF under roof. I knew it would easily
rent for $850/month. I could easily wholesale this property and make a
quick $10,000, but instead I added it to my portfolio.
Now for the best part. I did $4K of improvements – just paint and some
carpeting – and the property appraised for $80,000. I didn't hire the
appraiser (the bank did) and it is an accurate appraisal. With that level of
built-in equity, the bank loaned me 100% of the money I used in the
transaction (any private lender would do the same for you). Now I have a
property with a nice cash flow of over $3,600 a year with $30K+ of equity.
Let me make a point. The birddog made $17,500. I got cash flow of
$3,600 a year and equity of $30,000 without any money out of my
pocket. It's a great time to be involved in real estate isn't it?
Important: don't hold your birddog back. Typically, my assignment
fees range from $3,000 to $7,000. But when a birddog hits one out of
the park, pay him well. Otherwise he'll shop the deal to other cash buyers
and you'll lose out in the end.
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CASE STUDIES
1448 Marigold Drive
Lakeland, FL
Here's a great deal that a birddog brought me – but it also tells a story of
how auctions can end up costing you a few thousand dollars more.
This house was an exceptional purchase. It was in great condition,
overlooked a small pond, and was bought in 2006 for $151,000. I
purchased it from my birddog for $52,700. There's a great lesson here,
which you will learn when you review the Primrose case study next.
I arguably overpaid by a few thousand because two birddogs that I use
were both bidding against each other to buy the property. Had they both
known they were going to buy it for me, they wouldn't have bid against
each other and instead would have worked together. It wasn't a huge deal,
and truthfully I would have purchased this property for anything under
$65,000. But you get the point.
I then put a few thousand into a minor rehab and sought to refinance the
property. I used a new lender to finance this property – after my purchase –
and the lender actually drove over to the property and was amazed at what
a great purchase this was. He then told his boss, so I'm expecting a lot of
future capital from this bank since they now know how I buy.
The bank's appraisal on the property came in at $97,000. I obtained a loan
on the property for $56,430. So this is essentially a no money down deal
that created over $40,000 of equity and a nice monthly cash flow of at least
$250 a month. Ka-Ching!
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CASE STUDIES
1327 Primrose Court, Lakeland, FL
On November 19th I received a call from our birddog that he had
purchased 1327 Primrose Court. Why did my birddog know that I'd want
this property? It's in the same subdivision as the property on Marigold.
I purchased the house on Primrose for a total of $49,000 (including
assignment fees) and it, too, was in excellent condition. Built in 1985, it is a
3/2 with 1,210 SF heated and was purchased in 2004 for $112,900. My two
birddogs purchased it at auction and I paid them a $6,000 assignment fee.
Note that two different birddogs were involved in this transaction. Both of
them knew that I wanted it so they worked together. They made a little less
than their typical $5,000 assignment fee, but they each put $3,000 in their
pockets within 24 hours.
Also note that I paid less for Primrose than I did for Marigold because these
two birddogs were working together instead of bidding against each other.
Lesson learned. By the way, the property appraised for $103,000 – and
the appraisal was arms length and directly hired by the bank, not by me. I
improved it with a few thousand dollars, giving me equity of over $50,000.
In this transaction I paid the entire amount so all that was needed from the
birddogs was the 5% deposit. I cut a separate check for that $2,095 deposit
to the Clerk of the Court, so they only had their deposit tied up for a few
hours. The four checks I cut were:
$40,804.30 to Clerk of Courts
$ 2,095.00 to Clerk Of Courts
$ 3,050.35 to JNE Investments (birddog #1)
$ 3,050.35 to Coy Properties (birddog #2)
$ 49,000.00
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CASE STUDIES
5521 Yarborough Lane, Lakeland, FL
I bought this property for $64,000.Occasionally you get an "oops" and so it
was with Yarborough Lane. But, I can tell you one thing – it is easy to make
mistakes in today's market!
This was one of those situations where you get the call, get busy and then
forget to check out the house. Our birddog called, we waited too long, and
then at the last minute we gave him the go ahead without seeing the
property. Oops.
When we finally did see the property it appeared from the street view to be
a great purchase in a very stable nice neighborhood. But when we walked
around, the back told a different story. The back side of the house revealed
a roof in shambles with tarp over an entire area, and it was very clear that a
whole new roof was needed. Then it became further evident that we would
have to rebuild a whole new truss system, so the entire re-roof cost over
$10,000.
The house was a nice sized 3 /2 with a 2-car garage that had 1,348 SF
heated and a total 2,196 SF under roof. It was purchased for $79,900 in
1996 but 15 years later fell to foreclosure. The 2008 tax assessed value on
the property was $145,564.
In the end, when I sought to get my cash back on the property it appraised
at $95,000. So I still made a good buy, but not the exceptional purchase
that I thought I had made. The good news is just what I said – you can
make a lot of mistakes in today's market and there is still plenty of equity
to make up for mistakes.
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CASE STUDIES
In this case, while I typically receive all of my money back at closing, I
ended up having to pay for that roof out of my own pocket – not something
I like to do, but frankly not a bad choice when you're deciding what to do
with excess cash.
The purchase price broke down to:
$55,287.10 to the Clerk of the Courts
$ 8,712.90 to JNE Investments LLC (birddog)
$64,000.00
Notice that the $8,712.90 birddog fee to JNE Investments LLC is a little
higher than normal. One of their birddogs needed money, so he partnered
with another private lender. This allows him to shop the properties around,
but, of course, it costs him – and me!
Even if you are low on cash, with this methodology there are plenty of
people with cash that will gladly front you the money for a percentage
of the profits. This can be a great way to get started in the birddog
business without any money or credit!
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CASE STUDIES
417 Longfellow, Lakeland, FL
Sometime you roll the dice and win, and sometimes you lose. In this
situation, the house on Longfellow had a judgment that was questionable
whether it would attach to the property. It was filed after the foreclosure
began, so most would say that it doesn't attach. But because it was a bit of
an unknown, some buyers at the auction didn't want to take the risk.
But my title company was able to have the lien completely removed and we
were able to buy this property for $36,500. This is a tremendous deal! The
3/2 house only required a few thousand dollars of repairs. By the way, it
was purchased in 2006 for $115,500.
The other issue that forced a lower than normal sales price was the
existence of a tenant. Actually, it was the former homeowner who had not
moved out. Rather than begin (expensive) eviction proceedings, we treated
this homeowner with dignity and allowed her two weeks to leave. And, we
gave her a cash payment of $1,000 towards moving expenses.
This is known as "cash for keys" and it keeps the property in good condition
before taking it over. Otherwise, a current occupant has no incentive to
keep the property clean and in the same condition.
The property appraised at $80,000 creating $40,000 of equity for me.
$ 1,405.00 to Clerk of the Courts
$27,390.70 to Clerk of the Courts
$ 7,704.30 to JNE Investments LLC (birddog)
$36,500.00
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CASE STUDIES
435 Lucille Street, Lakeland, FL
This property was actually purchased where you could watch it happen live
– it was secured in an online auction (which we recorded) where I
interviewed my birddog during the purchase. At the time I was online I
wasn't aware that I would be buying this particular property, as my birddog
already had another purchaser in mind and it didn't meet my criteria
because it had an in-ground pool.
One of my personal criteria for rental properties is no pools – they are a lot
of maintenance and increase my insurance as a landlord. And frankly,
nothing good ever comes from owning property with them.
But in this case we agreed to a $3,000 assignment fee since I secured the
purchase for the birddog's other duplexes he purchased – and typically he
would make at least $3,000. Since he had already paid the 5% deposit
from his escrow account, this is how our checks broke out:
$32,405.00 to Clerk of Courts
$
234.50 to Clerk of Courts (doc stamps + fees)
$ 4,675 to Coy Properties LLC (birddog)
$37,314.50
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The Right Investor for a Birddog
Without a doubt the major key to becoming a successful birddog is finding
the right investor(s). Typically, it should be someone who has strong cash
flow coming in from another business, stays in town and has strong ties
with a local community bank.
Let me explain. Model investors make money from something other than
buying property. If buying investment property is their primary focus, why
wouldn't they just spend the time doing what the birddog is doing for them
and save the assignment fee? Or, if they are a major player in purchasing
real estate they typically don't want to be bothered with the auction sale.
Either way – identify investors who don't want the hassles that a birddog
deals with.
Second, the model investors must be local because typically you'll need to
be able to contact them quickly to let them know they need to check out the
property. If they are constantly flying around the country, in airports, or are
otherwise hard to reach – they aren't going to be very responsive, and
therefore aren't your model client.
Third, strong ties at a local community bank are important. Why? Typically
you, as the birddog, rather than the investor will be picking up the cashier's
checks payable to the Clerk of the Court. A local community bank that
knows people's faces will help facilitate this. I often send a text to my local
banker, followed up with an email, instructing them as to how the cashier's
checks need to be made out. Then my birddog picks up the checks and
delivers them personally to the courthouse.
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IV. THE CALIFORNIA TRUSTEE SALE
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Without a doubt California is different than most states, which also means
that you can command a true premium when you become a birddog there.
Why? Others simply haven't mastered the material that you have. So we're
going to spend quite a bit of time on the State of California, because the
potential for serious cash is very real.
Quick Facts2
Judicial Foreclosure Available: Yes
Non-Judicial Foreclosure Available: Yes
Primary Security Instruments: Deed of Trust, Mortgage
Timeline: Typically 120 days
Right of Redemption: Varies
Deficiency Judgments Allowed: Varies
In California, lenders may foreclose on deeds of trusts or mortgages in default using
either a judicial or non-judicial foreclosure process.
Judicial Foreclosure
The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order
to foreclose, is used when no power of sale is present in the mortgage or deed of trust.
Generally, after the court declares a foreclosure, the home will be auctioned off to the
highest bidder. Using this type of foreclosure process, lenders may seek a deficiency
judgment and under certain circumstances, the borrower may have up to one (1) year to
redeem the property.
Non-Judicial Foreclosure
The non-judicial process of foreclosure is used when a power of sale clause exists in a
mortgage or deed of trust. A "power of sale" clause is the clause in a deed of trust or
mortgage, in which the borrower pre-authorizes the sale of property to pay off the
balance on a loan in the event of the their default. In deeds of trust or mortgages where
a power of sale exists, the power given to the lender to sell the property may be
executed by the lender or their representative, typically referred to as the trustee.
Regulations for this type of foreclosure process are outlined below.
Power of Sale Foreclosure Guidelines
2
Source: www.foreclosurelaw.org
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If the deed of trust or mortgage contains a power of sale clause and specifies the time,
place and terms of sale, then the specified procedure must be followed. Otherwise, the
non-judicial power of sale foreclosure is carried out as follows:
A notice of sale must be: 1) recorded in the county where the property is located at least
14 days prior to the sale; 2) mailed by certified, return receipt requested, to the borrower
at least 20 days before the sale; 3) posted on the property itself at least 20 days before
the sale; and 4) posted in one public place in the county where the property is to be
sold.
The notice of sale must contain the time and location of the foreclosure sale, as well as
the property address, the trustee's name, address and phone number and a statement
that the property will be sold at auction. The borrower has up until five days before the
foreclosure sale to cure the default and stop the process.
The sale may be held on any business day between the hours of 9:00 am and 5:00 pm
and must take place at the location specified in the notice of sale. The trustee may
require proof of the bidders ability to pay their full bid amount. Anyone may bid at the
sale, which must be made at public auction to the highest bidder. If necessary, the sale
may be postponed by announcement at the time and location of the original foreclosure
sale.
Lenders may not seek a deficiency judgment after a non-judicial foreclosure sale and
the borrower has no rights of redemption.
SO … although not typical, it's somewhat important to know if the sale is a
judicial sale instead of a regular Trustee Sale because of the possible
rights of redemption attached to a judicial sale. California is predominately
a non-judicial foreclosure state.
The Parties to a Trustee Sale
There are three parties that get involved right at the very beginning of a
California foreclosure. First is the Trustor, the homeowner or borrower (we'll
call him the homeowner from now on). If you have a mortgage payment,
you are a Trustor – it's the relationship you have with the bank.
The Bank or lender is known as the Beneficiary, abbreviated as the "Bene."
There could be a private Beneficiary, a private lender, if anyone attaches a
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loan to a property with a deed of trust. Most of the time, however, we're
talking about the Bank.
In the middle we have the go-between, which is the Trustee. The Trustee's
job is to keep the Trustor and Bene honest with each other. The Trustee is
the deed holder.
So we have an interesting setup. The Trustor may have put nothing down
on the property, but receives all rights of ownership. The Bank may have
put up 100% for the property, only to get payments from the Trustor but has
no rights of ownership. This is why in a Deed of Trust situation, even when
the purchase is funded 100% by the Bank and 0% by the Trustor, the Bank
still must foreclose in order to get the property back.
It's an odd little conundrum. If the Trustor doesn’t pay the Bank, the Bank
says, "Hey that's not fair. We've already paid for this house. You're living in
this property and you owe us the money," and they can foreclose on the
Trustor to take back the property. The Trustor, to make sure their bases
and their interests are covered, has a trustee in-between.
Why have a trustee? Well, the Bank could contact a homeowner and say,
"Hey you owe me more money!" To which the homeowner replies, "I made
my monthly payment. You can't ask for more money."
Although that rarely happens, that's why the Trustee exists. They're the
referee. In the foreclosure situation the Trustee has been given the power
of sale, which is why the foreclosure auctions are called trustee sales.
This is the basic and very short guideline to the trustee sale: if the Trustor
doesn’t pay the Bene, the Bene can instruct the Trustee to take it to sale.
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The Path to a Trustee Sale
Let's say that we have a house with a mortgage payable at $2,500 a
month. I'm making my payments, everything's going along fine. Month
number one happens when I miss a payment. The missed payment is
noted on the grace period plus a day – usually around the 16th day of the
month if my payment is due on the 1st. On that 16th day the red flag goes off
in the computer and I'm going to get a phone call.
Ring, ring. "Hey Mr. Smith, you missed a payment, what's going on?"
"Oops. I'm sorry. I thought I mailed that. I'll bring it right in." And if I make
the payment before the 30th of the month, it doesn't affect my credit rating,
no harm no foul. I'll pay a late fee and we're right back to paying $2,500
dollars a month. No big deal.
If I know I'm going down with the ship, my house is way over-encumbered,
maybe I've lost my job or I've just decided I don’t want to pay – it may go
differently.
Ring, ring. "Hey Mr. Smith, you missed a payment, what's going on?"
This time my story is changed. Or I lie. "I thought I made the payment, we'll
make that right away, sure thing. Check's in the mail."
But then month number two comes and I miss another payment. And I
have caller ID that shows me the Bank's incoming phone call, so I never
answer that phone again.
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From a textbook standpoint, the normal time line is that with three missed
payments, the Beneficiary's going to kick me over to the Trustee and say,
"Hey, we want to foreclose on these guys."
But we're not in normal times. And in California there have been numerous
steps by the government to delay a trustee sale, which started with
SB1137, and other local municipalities joining the chorus. The California
legislature has already extended the time to conduct foreclosures by 90
days over the prior (typically) four months. It now takes about seven
months or more to actually do a foreclosure, not including the 3-6 months a
Bank usually allows a delinquent homeowner to get current or restructure.
Currently in California there are homeowners who are more than a year in
into mortgage default. But the Bank still won't send a Notice of Default –
they instead will call the defaulted loan a non performing note as if they
filed the NOD that begins the foreclosure process.
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The Foreclosure Process in California
Notice of Default. Once the Bank decides it wants to begin the foreclosure
process, it files a Notice of Default. And let me also be clear – a
house/homeowner is "in foreclosure" once the NOD is filed. There is often
some confusion about being in foreclosure vs. pre-foreclosure, which is the
time period between when the homeowner misses the first payment and
when the NOD is filed.
The NOD is public record and begins a 90- to 180-day period prior to the
trustee sale. In June of 2009, as mentioned before, the California
legislature changed the time on owner-occupied properties from 90 to 180
days to allow for loan modifications. Of course, most homeowners are too
far under water, so it rarely works. The addition of 90 days is an example of
the state getting involved to try and solve a problem where, frankly, it's just
making matters worse. Why? Many homeowners would gladly get out from
under the albatross (house) around their neck if only they could get a sale
date. Gridlock.
Redemption Period. California has a 90 day period from the NOD where
the homeowner has a Right of Redemption prior to going to auction. The
Trustee says, " We’re going to give you 90 days to take care of this
property and the mortgage. You take care of it, that’s your right and you
keep your property. You don’t take care of it, it goes to sale a little bit later.
Once auctioned, the homeowner has no right to come back after the sale
and say, “Hey you bought my house in foreclosure. I have the right to buy it
back from you.”
There are other states where a homeowner has a right of redemption after
the sale – sometimes 3-6 months or more (in Minnesota it is six months).
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This is an advantage to being an investor or birddog in California vs. some
eastern states – it's unlikely you will face a redemption.
The Notice of Trustee Sale (NTS). The Trustee may then file a Notice of
Trustee Sale (NTS). This will set the time and place of the sale and must
be at least a 21 day period. The NTS is valid for a one year period only.
After one year, if the property hasn't sold, the sale must be canceled and a
new notice filed.
A sale may also be cancelled due to a legal mistake (e.g., 20 days instead
of 21) or if the homeowner is reinstated because they brought the loan
current or paid off the loan off (highly unlikely, but it could have been sold
as a foreclosure).
If a NOD is issued and a house is in foreclosure after three missed
payments, we're now looking at seven months minimum at the
earliest before the ultimate sale, 10 months if it is a homestead. And, of
course. we know that no bank foreclosures after three missed payments in
today's environment.
Postponed Sale. There are four reasons properties are postponed:
Bankruptcy. A bankruptcy filing will postpone the sale for at least 30
days. Until the stay is lifted, the NTS can not be filed.
By mutual agreement. Typically this could be a loan modification, but
it could mean other things. The homeowner might have negotiated to
make another payment to stay in the home longer or other
forbearance.
Beneficiary Request (BRQ) or trustee discretion. For any reason, the
Bank can request a delay. Or, it could be that the Trustee is unable to
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contact the Bene (e.g., there is a storm in NYC so we're unable to
contact the Bank). The Trustee can't sell the deed unless there is an
opening bid – and that comes from the Bank. If the Trustee is unable
to establish and opening bid the sale is delayed. For instance,
Trustee sales were postponed when there were the terrible fires in
Los Angles. A typical postponement is a month from the day.
Issuance of a Temporary Restraining Order (TRO). Judges typically
don't do this, but there could be something happening at the same
time – such as a divorce proceeding – and the judge needs it have
the sale postponed until the other matter settled.
Beginning the Birddog Process – Auction Websites
In California, Trustees have various websites where they list foreclosures.
For examples, we'll list a few important websites in Los Angeles:
http://www.RSVPforecloures.com – See all of the sales they (the
Trustee) have available. You're able to see everything by week, in
each specific county, etc. In fact, this website will have more detailed
information than the Auctioneer will typically have until such time as
the auctioneer actually contacts the homeowner.
http://www.REPSales.com
http://www.LPSASAP.com – This is the largest company that has
the most sales.
http://www.Tacforeclosures.com
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An Auctioneer's Auction Description
As noted before, the Trustee chooses to hold these auctions at the
courthouse out of convenience, but doesn't have to. Unlike a judicial
process in other states, the sales are held outside the courthouse or within
the corridors of the building. Here's how one auctioneer describes the
layout in Norwalk, how to navigate it, and who to talk to:
"There are four companies, five auctioneers every day, because the 10:30
sale splits in two. They're so big they have two auctioneers. As you get
used to it, you'll figure out who’s got what. Basically, Brenda is the woman
that sits off to the side. The courthouse is right there. There's the planter.
There's the little umbrella area over here. 10:30 is over here, this is Brenda,
she does the big companies, like Index West. When you go onto
LPSASAP3 you'll see the same Trustees, 200 or 300 from the same
Trustee. They're going to be over here. Doug – he calls himself JV, Junior
Varsity – he's going to have the ones that have 10 or 15 or 20 or something
like that. Smaller groups over here, 10:30, at that planter. Inside, they've
got the pillars right there, I'm 10:00 on this wall. The guy that stands in the
middle is 10:00 a.m. And a guy on the far wall, the farthest north wall, is the
11:00 sales. So, 10:00, 10:00, 10:30, and 11:00 – those are the sites you
need to get to. You come to a sales site and you have 30 or 40 houses that
you might be interested in buying. At 11:00 – I've seen it many times – that
at least three out of four are talking. Because 10:30 is past 11:00, the 11:00
guys starts right on time, and one of us is still reading or has our
information. Now, you're sitting there dizzy, saying, "Who do I go talk to?"
Get on the website. You can go through it, and as soon as you can start
3
LPS - Agency Sales and Posting, Inc. (ASAP) is a member of the Lender Processing Services (LPS)
family of companies and currently maintains offices in Arizona, California, Michigan, and New York. With
headquarters in Irvine, California, ASAP is the leading provider of foreclosure publication, posting and
auctioneer services for attorneys and trustees. http://www.lpsasap.com
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eliminating, you see you don't need to see Kyle anymore. Doug's still
reading postponements, so you run over here, and you can juggle it. If you
don't do this, you're going to be lost. You can do it with your iPhone;
sometimes you'll see a laptop with a phone card in it; sometimes you see
people on the phone calling back to their offices where they're doing it for
them there. It can be done. If you're a smaller operation, you may only be
coming for two or three or five houses in a day – it's not that confusing. If
you're coming for a lot, you're going to be running around. You're going to
need the help. There's a lot of technological help out there right now."
The Bidding Process
At the auction an opening bid is set by the Bank and the auctioneer. The
Bank establishes the bid price and if anyone pays a penny more, the Bank
is happy.
At times you might hear someone shout "HOLD." This is a request, not a
demand. And if it is after the foreclosure time frame, typically the auctioneer
will not hold up the process. But some may take the approach they are
charged with getting the highest and best – so they will, in fact, delay the
bidding so a more competitive bidding process can unfold.
Bring your money to the auction
Bring money in multiple denominations. Carry cashier's checks for $1,000,
$2,000, $4,000, $8,000, $16,000, etc. and double up depending on how
much you need. For example, if you purchase a property for $320,000, you
will be able to mix and match checks for deposits, etc. and only have to pay
$1,000 over. You will get the refund two weeks later from the Trustee.
The checks are made out to yourself. You will then endorse the back of the
cashiers' checks if you are the successful bidder. If you carry an investor's
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money, you'll need a notarized letter naming you as an authorized signer
for the investor/company for the purposes of buying at the trustee sale. You
will then endorse the check over to the Trustee after the sale.
Make sure you carry your ID with you so you can prove that you are
who you say you are.
As the successful bidder
When you make a purchase, there are two things you should do
immediately, on the same day as the sale. First, place hazard and liability
insurance on the property, usually in the form of a landlord's policy. Even if
you intend to rehab, flip, wholesale or hold – get a landlord policy, because
you never know what may change or if the property is really vacant.
Second, go to the property. Inspect it and knock on the door to determine if
anyone may still be living there. If the property is occupied, introduce
yourself and simply tell them you bought the property at auction. Determine
if they are a tenant or the former homeowner.
In California, a tenant with a lease must have that lease honored. You will
be required to allow them to stay for the remaining term of the lease. If they
are in a month-to-month situation under the terms of a valid lease, then you
may ask them to vacate within 90 days. But they must pay you for the
lease – they can't stay rent free. And remember, you can offer "cash
for keys" as an incentive to get them to vacate. See the Appendix for a
sample cash-for-keys Agreement to Vacate.
If the former homeowners answer the door and are still living there, you
must give them three days to vacate. In actuality, it will be longer than that
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from the sale date, as you don't yet have possession of the trustee's deed.
Once you obtain the deed you can then provide them the 3-day notice.
Regarding property conditions on possession and move-out – inspect
with video. Fill sinks with water and flush toilets to ensure occupants
haven't put anything down the pipes. If the former homeowner sees you
video taping the property, they will be less likely to damage or destroy it.
The Numbers Game
Buying foreclosures is a numbers game. On any given day, typically 80% of
the properties' sales cancel or postpone. Let's say there are 1,000
properties – 200 of them go to sale. Of that 200, 80% of those are going
back to the Bank, so only 40 properties will actually be purchased by third
parties at a trustee sale.
But in a place like Norwalk, CA, that number is 200 properties a week –
and that's a lot of houses. If we assume that birddogs are making an
average of $5,000 per transaction, that equated to $1MM in birddog fees
per week in Norwalk alone!
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A Birddog Case Study
In Norwalk, the Angel family is well known at the auctions, and Brian Angel
bids on their behalf. Here is one auctioneer's perspective on using Brian
and his services:
"Brain Angel is a guy that will bid on your behalf. There are positives and
negatives to this. There's a company called Angel's, it's a family name.
They have three or four people at the auctions every day. When you have
bids at all of us at the same time, he can have them covered. You have
bids going on here, plus there's one house in Pomona, but he's got people
over there as well.
I recommend that you pick a geographic area, and you track all the
foreclosures that are in your area. All the ones outside your area, you
should forget. The ones inside, you want. Anything down here (Norwalk),
the reason it's in green is because you're going to pay for it. All the ones in
green are at Norwalk and all the ones in blue are at Pomona. You could
literally have next-door neighbor houses, geographically, easy for you to
look at both, but one's in Norwalk and one's in Pomona. How are you going
to cover both bids? If you hire his company, they have people there. The
biggest bonuses are 1) they can cover all the sales, and 2) they've been
around long enough and buy enough properties that all the auctioneers are
very, very familiar with them. So, they get away with stuff that rookies don't
get away with. This is just experience. Like, "I have an opening bid on 123
Main Street, the opening bid is $100,000, anybody want to qualify?"
Nobody qualifies. "Going once, twice, third call", hit ring, go back to the
Beneficiary. Angel's girl is standing right next to me, and she says, "Plus a
penny." I'm not going to make her put out her checks. I know she's got the
money. I've seen her there every day for years. So, she says, "Plus a
penny." OK, "I have a bid of $100,000 plus a penny." You're now going to
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have from the time I say that until I say, "Going once, twice, third call, no
further bids," to decide if you want to jump in or not. She gave you about
eight seconds. Is that an advantage? Yes. You come up to me, I've never
seen you bid before, you say, "Plus a penny." I need to see your checks.
I'm not being mean to you, I'm not picking on you, I've got to make sure you
have the money. As soon as I see the checks, "I've got a bid plus a penny,
going once, twice..." But however long it took you to get your checks out
and for us to go through that, maybe it's 30 seconds, maybe it's a minute.
Maybe your checks are way in the bottom of your purse and it takes two
minutes. Things like that work to their advantage.
The other part is they're not going to get flustered in the bidding process.
There are some times where you're going to want to rush the bid.
Sometimes you're going to want to slow the bid down. Sometimes you see
several people interested and you might want to bid in $1,000 or $5,000
increments, and rush to a point. Maybe you know that the comps in the
neighborhood show that there's low comps and high comps. You're
confident it's a high comp, but it's even a deal at the low comps, so you run
to this number immediately. Then you find out who's going to back off, at
that point. You run hard to here and slow it down after that, and maybe you
get it for cheaper than if you had gone slow the whole way through.
They've been around for years. It's very interesting. Go to the sales and try
to get close enough to listen to people on the phones. You'll hear them
talking on the phone, and they are doing play-by-play. They're talking to the
boss. They'll tell you who's bidding, what they're bidding for. Or they'll say,
"There's an outsider." You want to be an outsider for as long as you can be
because that means they don't know anything about you. Literally, the big
guys have a book on people where they know. "I know you like to buy in a
certain area. And I know you like to buy in a certain area. You like to buy
there too, but you're not as strong as she is. Forget about you, let's start
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working on this number." They're playing poker with who's at the table.
Sometimes one way to play poker is to go all in and see who folds. That's a
way to rush a number, maybe you pay a little bit more than you had to, or
maybe you pay a lot less than you had to because it would have got drug
out. That's an advantage for these guys because they're good at that, too.
The biggest thing I'll say for them is they're going to buy the property with
their money today. You're going to pay them."
And how much does Brian typically get? $5,000. In an interview with
Dennis Angel, patriarch of the Angel family, he indicated that they typically
wholesale five to 20 units per month, they are also private lenders, and
they also buy for their own portfolio.
But the game is changing from the days of old. "Now there are 200 people
in L.A. and it takes a lot of money," noted Dennis. "Hedge funds are coming
in and I sometimes counsel newer clients not to buy, because things are
really getting bid up."
In addition, Dennis says there might be a new law hitting the California
books that requires back HOA dues be paid, so that is something to watch
out for in the future.
Birddog Fees
The Angels typically charge $5,000 per deal. On the first deal, they will
typically buy it in their corporate name then quit claim the property to the
investor once they receive the trustee deed (it usually comes in the mail
within 5-10 days). After the first deal, or when they reach a comfort level
with the client, they will buy in the client's corporate name. Dennis notes
that his team has cashier's checks in hand and is ready to buy in full at the
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courthouse steps. If you're interested in talking with the Angels, they can be
reached at (818) 881-0311.
Other Fees
What other fees night there be out there? In Los Angeles, the government
gets its pound of flesh when a foreclosure sells. In L.A. County you'll pay
$1.10 per thousand and the City of Los Angeles adds another $4.50 per
thousand. So if you buy a property for $400,000, you'll owe $2,240 in taxes.
Additionally, you'll be responsible for back property taxes and code
enforcements liens. Don't forget to allow these items into the budget when
running your numbers.
Unlike other states that allow for 24 hours to complete the purchase,
in California you will need 100% of the funds on the spot!
When a Bidder Disappears
What happens when a bidder disappears? How's it going to work if the
auctioneer qualifies a bidder and they bid up a property, and then they
suddenly disappear when they are supposed to pay up?
Says an Auctioneer: "If an auctioneer knows what they're doing, they will
not say "sold." They'll say, "Going once, twice, third call, no further bids.
Hand me your money." Now, you need to hand over your checks and sign
them over. If you start making the walk of shame, "I thought I was buying
123 Main Street," when it was 123 Broadway and you bid on the wrong
property … generally, the first clue I get on that is when I ask for the money
and the guy's on the phone and says "Just a minute," and he takes a step
away. The step away is a sign he wants privacy, and that's a red flag for
me to say "Is everything OK?" If he literally walks, I'm not going to run after
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him or tackle him and rip the checks out of his hands. Even if I did that, the
checks aren't signed, they're no good, he's got to sign them. If that
happens, I'm going to offer it to the next person down. First, I'm going to
call the Trustee and tell them what happened. They're going to say, "Did
you say sold?" And I can say, "I didn't say sold." So it's "Offer it to the next
guy down." That guy is going to have to complain and say, "Wait a minute.
He bid me up the last $50,000. He's leaving. Why should I pay $100 less
than what he's not going to pay? I don't want to pay you." So I'll relay that
to the Trustee. They'll say, "Re-read the sale." I've had it happen. It's very
rare. I had a whole bunch of people qualify on a sale. He bid it way up to
the moon, didn't pay for it. He didn't want to pay $100 less. We started the
auction over. He got it for opening bid plus a little bit because everybody
left. Don't leave until you hear the word "sold."
Avoiding Auction Traps
One California auctioneer said that he's seen mistakes made that can be
very costly. In fact, he estimated that there were at least six instances in
the past 12 months where an amateur investor made a mistake that cost
over $100,000!
How NOT to lose money – let's use an example: Let's assume you found a
property and you believe that after you purchase it, repair it and hold it, you
could resell it for $900,000. Let's assume the maximum bid was $700,000.
This property has three deeds of trust on it: a $300,000 first to Bank of
America; a $200,000 second to WAMU/Chase; a $100,000 third to
IndyMac.
This type of financing arrangement was more likely in the 1990s, but let's
use it as an example to learn how to protect yourself at the auction.
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The property comes up for sale. Which of the three Banks is foreclosing?
Well, most of the time it is the first lien holder. But could it not be the
second? Actually, any one of them could foreclose.
You are NOT at the auction to buy the house. You are at the auction
to buy the DEED that comes with a house. And the DEED comes
with a lot of other goodies, too!
Let's assume Bank of America forecloses its first. Their opening bid will be
$300,000, which includes principal, costs of foreclosure, etc. You show up
and buy the property for $300,000 plus a penny. BOOM! The second and
third lien holders, so long as they were properly noticed in the lawsuit, were
just were eliminated and you bought an incredible deed!
Now let's assume that you wanted to buy this property for $700,000 and did
so. The aggregate of the loans was $600,000. Who gets the extra
$100,000? The Trustor – the former homeowner does! Does this ever
happen in real life? Nope. But I share it with you now since you need to
understand where the excess money goes.
What if the second lien holder forecloses instead of the first – and does so
for $200,000? You will then take the deed subject to the first mortgage –
which means you will need to pay off the first – so you're actually in the
property for $500,000 even though you paid $200,000 at the auction. You
bought a deed of trust that was subject to a $300,000 lien. You did NOT
buy a house.
As an interesting side note: What if you bought the second lien deed at the
auction but didn't pay off the first? Would your credit be affected? Nope. In
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fact the former homeowner would continue to be affected, as that's the
person who signed the note!
Now, we indicated that $700,000 was our limit. How much would we be
willing to bid to pay off the second lien holder? $400,000. Why? At a
$200,000 bid we're into the property for $500,000 (we bought a deed
subject to a $300,000 first). The $200,000 would go to pay off the 2nd,
another $100,000 pays off the third, and another $100,000 would pay off
the former homeowner. We're still at our $700,000 limit for the property.
Sometimes the second lien holder will show up when the first goes to
sale, just to make sure the property is bid up to the full amount of
their second. So in this example, the second may show up just to ensure
that the bid is at least $500,000 so they will be made whole. Watch for this.
What if the third goes to sale? Opening bid is $100,000 and you buy it for
$100,001. You are into the property for $600,000. The max you could pay
would be $200,000, and the former homeowner would get the extra
$100,000.
The biggest mistake people make is when homeowners come to buy the
house instead of the deed! The second comes up for sale and the newbie
pays $700,000! What happens to these funds? The second gets his
$200,000, $100,000 goes to the third, and the happiest guy in foreclosure
ever – the former homeowner – receives a huge check for $400,000!
Newbie actually bought the house for $1,000,000 because he bought the
second for $700,000 still subject to a $300,000 first lien.
The second biggest mistake is when real estate agents get "escrow" on
their minds and think since there's enough money to cover everyone then
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everyone gets paid. WRONG. The money ALWAYS goes DOWN, never
UP, in the chain of superiority. If the second brought the foreclosure, you
don't have anything to do with the first at an auction.
BE CAREFUL! There could be a day when you have the first and
the second liens being foreclosed on the same day! Don't confuse
the two!
To illustrate, let's say there is an 80% first and a 20% second with Bank of
America in the auction. Let's assume they were both recorded on
7/11/2006. You can tell which lien is the first by the doc number. One doc
reads 061234, which is the first, whereas the other doc number is 0612345,
recorded second. (Note that it is possible for a second lien to be recorded
first on accident, at which point the bank probably did a subordination
agreement to fix the problem.)The "5" is after the "4", so most likely that's
the order of the second and first. BUT, always double check in these
situations and look for subordination agreements.
Here is an Insider Secret! DSL, Downing Savings and Loan, (which
failed and the FDIC arranged for it to be sold to US Bank) was
famous for a sneaky way of bidding. What would they do? Let's assume
they were in the first position. Let's also assume the loan amount was for
$400,000. The bank makes the opening bid $200,000 but then gives
instructions to the auctioneer to bid on behalf of the bank to $300,000,
using $1,000 increments. How can the bank do this? Well, the bank can
competitively bid against you. They were owed $400,000. They decided
that they wanted $300,000 for the property BUT they also want to play with
their own financial books – so they would buy the property back for
$250,000 instead of $300,000. That's better for the bank, since they pay
less fees when they take it back at that number.
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Another Insider Tip for you: If the auctioneer tells you their high bid, it is
considered VERY discourteous to bid anything less than the high bid. In the
case above, the auctioneer probably doesn't want to waste time bidding in
$1,000 increments – so he might signal to those around him that the "high
bid is really $300,000, opening bid is $200,000." If you were to bid
$205,000 for this property, you would end up on the auctioneer's black list
and you'll never know the high bid again.
Here is some Food for Thought: Will a bank EVER bid more than what is
owed? Well, just ask O.J. Simpson. O.J. lost his civil suit against the
Goldmans, and so he stopped making payments on his residence. The
opening bid was $1,875,000. The Bank, Hawthorne Savings, paid $2.63
million for it at that auction and overbid another investor seeking to just
make Hawthorne whole. The Bank later sold the house at an auction for
$3.95 million and reportedly made over $1.2 million dollars in profit (there
were other liens on the property). Note that the Bank had to show up as a
bidder with cash just like everyone else (minus their loan balance). In O.J.'s
case, the Bank competitively bid against an investor for the property and
won. From my understanding, the home was torn down and a new mansion
was built.
Liens & Judgments in California
Property Taxes: As in every state, property taxes sit on the roof of the
house and they travel with the house! This is the FIRST post-purchase cost
that you have. Recall in our numerous examples where the Trustor (former
homeowner) actually received money because the other notes were
satisfied? The money received at auction isn't used to pay taxes – it is used
to pay the first, second, third mortgage lien holders and former homeowner.
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Liens: Any type of lien such as state income tax, homeowners association
dues, mechanic's liens, etc., might attach to the property and must be paid.
As an example: You buy the second lien at auction for $200,000. A guy has
a judgment for $100,000 that attaches to the property. The lien was
recorded on 12/20/06. The lien sits between the second and third in terms
of recording. Because it was recorded after the second, you do not owe
that lien. BUT if you bought the third instead of the second, you would now
owe payment of the lien.
There are a few VERY rare situations where you might have a
mechanic's lien on a property that hasn't been built. This is why you
MUST partner with competent title researchers – you can't know
everything! This person might know that a mechanic's lien is only good for
one year. So if the M&M lien was filed a few years ago, it doesn't matter.
IRS Liens: An IRS lien attaches to the property. When was the lien
recorded? Let's assume (using the same scenario) that the lien was
recorded 01/05/08 in last position. Typically, an IRS lien will be at the end
because you won't get a loan with a tax lien. So you buy the second lien.
Do you owe the IRS lien or not?
No you don't owe the lien. BUT an IRS lien stays on a property for 120
days. What happens on day 121? It falls off. What are your options?
You wait. But there's opportunity cost.
Pay in full. If the lien is small, you could pay it off.
Settle with the IRS for less than is owed.
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The IRS can redeem the property. They can buy it from you for what
you paid at auction – plus six percent! This is VERY rare. The IRS
doesn't write checks, it cashes checks.
Hard Money Lenders For Auctions
For those buying at auction, the hard money lenders are plentiful, but they
typically want a pound of flesh from your investor. Why? They are putting
up a lot of money.
One hard money lender, who asked not to be identified, said that his terms
are as follows: Buyer must put down 30% of purchase price; interest rate of
15% with five points. He will hold the property for a term of 6-12 months.
Those terms are on the high end of what is generally available. There
seemed to be a bit of secrecy regarding the mechanics that this hard
money lender goes through, but in general it is a standard deed of trust,
note, and a personal guarantee.
If you put down 25% for the auction, there are guys that will lend for you.
Dave Witherow is a very sharp guy. His number is (949) 294-6599. His
terms are generally: 30% of purchase price down with an interest rate in
the 15% range and points in the five point range. Term is 6 -12 months.
Dave does a handful of these hard money loans a month.
Another recommended source for hard money is Clark Griffin at River
Forest Financial. He can be reached at (206) 972-9456.
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Running Title Work
As mentioned before, you should have a title search run on a property you
are looking to purchase, to eliminate bidding errors at the auction. Here is a
list, also provided in the Appendix at the end of this manual, of Seven Title
Questions to ask about a prospective property for sale:
1. What is the actual correct address and the APN# (tax ID)?
2. What are the property taxes owed?
3. What position is the deed in – first, second, third? Remember, you
are buying a deed. (Always give the document date number.) If
buying junior liens, always check senior liens.
4. Are there any other liens on the property? If so, when were they
recorded? If they are senior to what you're buying, obviously be
careful!
5. Are there any IRS liens? (Ask them to do a name search.) Make sure
that any IRS lien is in a junior position from what you are buying.
While you should have discovered this when you asked #4 above,
double check.
6. Does anything senior to me have a Notice of Sale?
7. Is there a notice of default on anything senior to me? You are then
able to calculate how much the first is owed. Is it a 90 or 180 notice
of default? You then know how much time you have to take care of
the first before it goes to sale.
One experienced investor recommend Simon Moon at Stewart Title to
handle title work. His number is (626) 589-8822.
Regarding senior lien positions, a deed cannot go to sale unless a
notice of sale is recorded. It could be that you have the third going
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today and the first is going to sale in a week. If you bought the third when
the first had already filed a notice of sale, you are out some serious cash!
While you might think you can take care of the first, you probably won't get
your trustee deed on the third for a week or two, so that first won't even talk
to you! Therefore you might not be able to buy it.
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V. NEVADA FORECLOSURE AUCTIONS
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Nevada Auction Overview
Nevada is a non-judicial foreclosure state, like California, so you will want
to reference the previous section of this course regarding Trustors,
Trustees and Beneficiaries, as it works very much the same in the state of
Nevada.
Quick Facts4
Right of Redemption: Yes
Deficiency Judgments Allowed: Yes
In Nevada, lenders may foreclose on deeds of trusts or mortgages in default using
either a judicial or non-judicial foreclosure process.
Judicial Foreclosure
The borrower has one year (12 months) after the foreclosure sale to redeem the
property if the judicial foreclosure process is used.
Non-Judicial Foreclosure – Power of Sale Foreclosure Guidelines
1. A copy of the notice of default and election to sell must be mailed certified, return
receipt requested, to the borrower, at their last known address, on the date the notice is
recorded in the county where the property is located. Any additional postings and
advertisements must be done in the same manner as for an execution sale in Nevada.
Beginning on the day after the notice of default and election was recorded with the
county and mailed to the borrower, the borrower has anywhere from fifteen (15) to thirty
five (35) days to cure the default by paying the delinquent amount on the loan. The
actual amount of time given is dependent on the date of the original deed of trust.
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2.The owner of the property may stop the foreclosure proceedings by filing an "Intent to
Cure" with the Public Trustee's office at least fifteen (15) days prior to the foreclosure
sale and then paying the necessary amount to bring the loan current by noon the day
before the foreclosure sale is scheduled.
3.The foreclosure sale itself will be held at the place, the time and on the date stated in
the notice of default and election and must be conducted in the same manner as for an
execution sale of real property.
Lenders have three (3) months after the sale to try and obtain a deficiency judgment.
Borrowers have no rights of redemption.
In general, once the Notice of Default is filed in Nevada, the homeowner
has 90 days to work something out with the Bank. Failing that, a Notice of
Sale will be posted and the property could be at auction within 30 days
from that Notice date.
In all practicality, Nevada is dealing with so many foreclosures that the
auctions are typically selling property that has been in default for well over
a year.
The Bidding Process
Unlike California, in Nevada there is one company that has cornered the
foreclosure auction market – and that's NevadaLegalNews.com. This
company not only publishes the auctions in its hard copy publication, and
provides a daily updated listing of all new and postponed trustee sales, it
also hosts the actual auctions in its parking lot.
Anyone bidding on properties must come with cashiers' checks, as 100% of
the funds are due immediately following the sale. Typically, cashier's
checks are made out in $10,000 increments, and any overage paid is
remitted back to the purchaser.
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Another big difference in Las Vegas (Clark County) is the fact that the
auction begins at 10:00 a.m. but continues throughout the day – sometimes
until 4:00 p.m. That means that birddogs have to do their work early.
In our interview with Curtis Eddy, an experienced auction buyer with the
Horizon Realty Group in Las Vegas, he indicated that he sends a crew of
seven out at 4:30 a.m. to review all 200+ properties that might go to auction
that day.
Why is this important? Often times the "opening bid" is unknown until the
actual auction begins. Any properties that have known opening bids that
are well below the final judgment amount will get a lot more attention from
bidders, so the "sweet spot" could be bidding on a property that had an
unknown opening bid – because others didn't have the time to inspect or
review the title work.
Curtis believes this is one of his biggest competitive advantages, and
obviously it is. His team of seven is able to do the review work, and the
financial rewards of having important information before the auction begins
more than makes up for the staffing costs.
Nevada Closing Costs
Nevada mandates a closing cost fee of $5 per thousand be added to the
purchase price. This means that if you purchase a property for $100,000,
there will be a tax of $500 on top of your purchase price.
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HOAs
At the time of publication it was generally understood that Nevada requires
nine months of unpaid HOA dues to be paid, but there continues to be
much controversy surrounding this. It would be your safest and best
practice to contact a title company and see what the "current" HOA dues
guidance is and not rely upon the nine-month figure, as laws are changing
constantly.
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VI. ARIZONA FORECLOSURE AUCTIONS
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Quick Facts5
Right of Redemption: None
Deficiency Judgments Allowed: Varies
In Arizona, lenders may foreclose on deeds of trusts or mortgages in default using
either a judicial or non-judicial foreclosure process
Power of Sale Foreclosure Guidelines
The trustee must record a notice of sale in the office of the recorder of the county where
the property is located. Within five (5) days after the notice is recorded, the trustee must
mail, by certified mail, a copy of the notice of sale to each of the people who are parties
to the trust deed, except for himself. Additionally, the notice must appear in a
newspaper in the county where the property is located once a week for four (4)
consecutive weeks, with the last notice being published not less than ten (10) days prior
to the date of the sale.
Optionally, if it can be done without a breach of the peace, the trustee can post the
notice at least twenty (20) days prior to the date of the sale, in some conspicuous place
on the property to be sold and/or he or she can post the notice at the courthouse or at a
specified place at the place of business of the trustee in the county in which the property
is located.
The trustee or the trustee's agent must conduct the sale. The sale is for cash to the
highest bidder, except that the lender can make a "credit bid," which means to cancel
out some part (or all) of the money the borrower owed the lender on the lean, instead of
paying cash. A successful high bidder must pay the bid price by 5 pm of the day after
the bid, other than a Saturday or legal holiday. Every bid is an irrevocable offer until the
sale is completed, which happens when the bidder pays the bid price to the trustee's
satisfaction. If the high bidder fails to make the payment by 5:00 pm, the day after being
notified of the option to buy, then the trustee may postpone the sale.
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The trustee may postpone the sale to another time, or another place, by giving notice of
the new date, time and place by public declaration at the last place and time the
property was offered for sale. No other notice is required. A trustee may also, by written
agreement, extend the time for a buyer to come up with the payment.
Once the sale is complete, the proceeds will go to the payment of the obligations
secured by the deed of trust that was foreclosed, then to junior lien holders in order of
their priority. The successful bidder gets a trustee's deed, which provides conclusive
evidence that the trustee conducted the foreclosure sale property.
A note regarding Deficiency Suits: A lender may not bring a deficiency suit against a
person who lost a property that is 2.5 acres or less at a foreclosure, provided the
property was a single one-family or a single two-family dwelling. This is so even if the
high bid at foreclosure was less that the balance due on the loan. However, in
foreclosures against other types of property, a deficiency suit is allowed, but is limited to
the difference between the balance owed and the fair market value of the property, and
then only if the suit is brought within ninety (90) days of the power of sale foreclosure.
The Arizona Auction Process
I interviewed Spencer Caldwell, the owner of BuyLowAZ, on the Arizona
auction process. Make sure you watch this video which is included in this
system – it contains valuable insight and breaks down the auction process
in more easily understood terms.
It makes sense to use a bidding service such as BuyLowAz even if
you are the birddog. Why? There are so many different auctions
taking place, some simultaneously, that you can't possibly cover
everything without a more extensive setup. That's why it pays to use a
bidding service, which will charge anywhere from $1,500 - $2,500 in
Arizona. In addition, the bidding service does a lot of the heavy lifting when
it comes to evaluating the various trustee sales – allowing you more time to
focus on your end buyers and the actual properties that you want to buy.
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Non-Judicial Process
Like Nevada and California, the Arizona auction process is primarily nonjudicial. Arizona primarily operates as a title theory state, where the
property title remains in trust until payment in full occurs for the underlying
loan. Foreclosure is a non-judicial remedy under this theory. The document
that secures the title is usually called a deed of trust, but in Arizona, this is
also referred to as a trust deed.
Establishing an Arizona Mortgage or Trust Deed
The securing document is known as the trust deed or deed of trust and, in
a commercial transaction, a security agreement. Sometimes the mortgage
document is combined with the security agreement. Alternatively, a
mortgage is filed to evidence the underlying debt and terms of repayment,
which is set forth in the Note.
Arizona law also permits mortgages to serve as liens upon real property
and for judicial foreclosures to occur through the courts. Because the
power of sale provisions in trust deeds is a faster mechanism to effectuate
foreclosure, this is the primary vehicle to foreclose.
Power of sale notice requirements
As noted above, prior to initiating a foreclosure the lender must publish a
notice of sale date at least once a week for four consecutive weeks in a
newspaper of general circulation in the county in which the property is
located. Within 20 days of the proposed sale, notice must be posted at the
property to be foreclosed. A notice of the proposed sale must also be
recorded with the recorder where the trust property is located.
Notice of foreclosure sale must contain certain information, including the
date, time and place of sale, the street address and legal description of the
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trust property, the county tax assessors parcel number, the original
principal balance as referenced on the trust deed, the name of the
beneficiary (lender) and trustee – to include the trustees qualifications and
telephone number.
Foreclosure Sales
Foreclosure sales must take place between 9:00 a.m. and 5:00 p.m. on a
day other than a Saturday or legal holiday at the time, place and date
designated in the notice of sale as part of a public auction. The Trustee will
auction the property to the highest bidder, including the lender, which is the
only party who can make a credit bid. Typically, $10,000 is due immediately
upon sale with the balance due the next day.
The foreclosure sale may be postponed by the party conducting the sale by
providing a declaration of the changed date, time and location, which must
be within 90 days of the original sale.
A sale that occurs during a pending undisclosed bankruptcy (which would
have been a violation of the automatic stay) typically will be postponed for
28 days. A sale cannot occur sooner than 90 days from the date of the
filing of the Notice of foreclosure sale and not less than 10 days from the
date of last publication. A trustee's deed is issued after the foreclosure
sale is completed.
Arizona Foreclosure Timeline
Depending on the timing of the various required notices, it usually takes
approximately 120 days to effectuate an uncontested non-judicial
foreclosure. This process may be delayed if the borrower contests the
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action in court, seeks delays and postponements of sales, or files for
bankruptcy.
No Right of Redemption in Arizona
Arizona has no post-sale statutory right of redemption, which would allow a
party whose property has been foreclosed to reclaim that property by
making payment in full of the sum of the unpaid loan plus costs.
Deficiency Judgments in Arizona
Yes, a deficiency judgment may be obtained when a property in foreclosure
is sold at a public sale for less than the loan amount that the underlying
mortgage secures. However, lenders are prohibited by statue (33-729) from
obtaining deficiency judgments in foreclosures where the land size is 2.5
acres or less and where the property was used as either a single onefamily or single two-family dwelling. So, in practice, most residential
foreclosures are not subject to a deficiency action, which must be brought
within 90 days of a power of sale foreclosure. Any judgment is limited to the
difference of the balanced owed and the fair market value of the property.
Statutes that Govern Foreclosure in AZ
The laws that govern Arizona foreclosures are found in Article 33, chapters
6, 6.1 of Arizona Revised Statues. To view these laws in their entirety on
the Web, visit:
http://www.azleg.gov/ArizonaRevisedStatutes.asp?Title=33
Tax and Title Issues
Property Taxes – As is the case in all 50 states, property taxes must be
paid. If you're buying in Maricopa County (Phoenix/Scottsdale/Mesa/Tempe
areas), you can search online for property tax status at:
http://treasurer.maricopa.gov/Parcel/Default.aspx
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Type in the 8-digit tax parcel number associated with the home and choose
View Tax Information.
IRS Tax Liens – You can search for IRS tax liens in Maricopa County by
going to:
http://recorder.maricopa.gov/recdocdata/GetRecDataSelect2.aspx
As in other states, IRS Tax liens remain with the property for 120
days, during which time the IRS has the opportunity to buy the
property – although they rarely do. Once the 120 days run out you
will need to obtain a lien release from the IRS and ensure that the release
is properly recorded.
Title Report – You must ensure that you're taking title properly, which
means that you must make sure you're buying the right position. Be careful
if you buy a second mortgage if there are superior liens on the property,
especially a first mortgage!
BuyLowAZ, the bidding service run by Spencer Caldwell, who we have
interviewed on audio CDs, does not provide a thorough title report because
they seek to buy only first mortgages, They don't bid on second liens
unless specifically asked to do so.
If investors would like to order a full title report, Spencer recommends that
you contact locally:
Fidelity National Title
Julie Redmond
Direct: 480-214-4568
[email protected]
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Winning the Bid
Deeding – At the time of placing a bid, vesting information will need to be
provided. The vesting information is how you will take title on the deed.
Examples of vesting are:
John Smith, a single man
My Company, LLC
John Smith and Jane Smith, joint tenants with right of survivorship
Receipts – If you are a successful bidder at the auction, a deposit of
$10,000 is required. The auctioneer then provides the bidder with a receipt.
Receipts typically do not include the property address and only include the
trustee information associated with the sale. If you bid through BuyLowAZ,
they will email you the receipt and breakdown of the payment to the
Trustee. Full balance is due to the Trustee by 1:00 p.m. in BuyLowAZ's
office the following business day so they can drive to the Trustee's office
and pay for the property. If you're wiring the funds, the wire must be sent
no later than 10:00 a.m. and the office must be notified.
Timeline – The Trustee will issue a deed one to two weeks after the sale.
The procedure at BuyLowAZ is to receive the deed and electronically
record it online through Maricopa County. The recorded deeds are then
mailed to the investors.
If you are not using a bidding service, make sure that you record the
deed!
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The Trustee – There are several well known Trustees in Arizona. Here is a
list of a few:
California Recon
Cal-West Recon
Lewis & Roca
Old Republic
CR Title
Default Resolution
Executive
Perry & Shapiro
Quality Loan
Recontrust
First American
TD Service
Les Zieve
Trustee Corps
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VII. FLORIDA FORECLOSURE AUCTIONS
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The Florida Foreclosure Process
Unlike the foreclosure process in non-judicial states (California, Nevada,
Arizona, etc.), Florida's process is more time consuming. But the process of
buying at the courthouse allows for an easier assignment of bid, and
multiple escrow accounts can easily be utilized by a birddog. In short –
Florida offers great opportunities for buying at auction.
Quick Facts6
Non-Judicial Foreclosure Available: No
Primary Security Instruments: Mortgage
Right of Redemption: Yes
Deficiency Judgments Allowed: Yes
In Florida, all mortgages are foreclosed in equity. In a mortgage foreclosure action, the
court severs, for separate trial, all counterclaims against the foreclosing lender. The
foreclosure claim shall, if tried, be tried to the court without a jury.
The court order of foreclosure will specify how the foreclosure must take place, and the
foreclosure must take place on those terms. Whenever a legal advertisement,
publication, or notice relating to a foreclosure proceeding is required to be placed in a
newspaper, it is the responsibility of the lender or their representative to place such
advertisement, publication, or notice.
Equitable Right of Redemption ends at the foreclosure sale (or at another time specified
by the courts, but this rarely happens). There is a period of time after the sale that "the
court reviews the sale to ensure a fair price has been paid." Basically, this period of
time allows parties to object to the sale on the basis that proper procedures were not
followed or collusion existed between the bidders, for example. This period is usually
10 days, after which the Certificate of Sale is filed and title passes, if the sale is
confirmed. If the sale is not confirmed, another sale is ordered. (Reference F.S.
Chapter 702). The lender may sue to obtain a deficiency judgment in Florida.
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Live Courthouse Auctions
Our system offers an in depth overview of the live courthouse auction
process with Lee Kearney, as well as another video describing how to
search title in Florida with Jim Coyle. But to begin, I'd like to provide an
overview of this process.
About "Rocket Dockets"
Due to the huge backlog of foreclosure cases that was clogging the court
systems in Florida, the Sunshine State came up with a unique solution. It
brought in retired judges from the golf courses and fishing boats, and gave
them the authority to handle foreclosure judgment disposition – at what
some found to be an alarming pace. It's been reported that cases were
signed off on at the rate of 25 per hour in these special foreclosure courts –
and so the courts have been dubbed Rocket Dockets. With the "robo
signing" scandal came questions of sloppiness related to speed, if not outright fraud, and the courts favoring Banks over homeowners. While the
backlog has had a bite taken out of it, whether the Rocket Dockets survive
much longer remains to be seen.
Getting Started
Obtain local information from your courthouse on where and when the
auctions will be held. Typically the sales are at 10:00 a.m. or 2:00 p.m.
Typically also the Clerk of the Court will have the auction rules available for
your review, so make sure to ask the Clerk for an overview of the process
in your locale. Counties have different policies (for example, Hillsborough
County no longer allows for escrow accounts).
If your county allows for an escrow account, stop by the Clerk of the Court,
usually an office within the courthouse, to obtain a bid number and to place
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escrow into the courthouse. Your cashiers' check must equal at least 5% of
whatever you plan to bid upon. Five percent of the purchase price is
normally due immediately at Florida auctions, with the balance due by noon
the next day.
If this is your first Florida courthouse auction, I recommend that you
watch the dynamics of the room before you bid. You'll want to
quickly identify who is in what clique. The last thing you want to do
is irritate the number one buyer in the room by unnecessarily bidding up his
properties – especially when you have no interest in actually buying the
property! If you attempt to outbid an “every day auction-goer” you are at
serious risk of being black listed. This means when YOU bid others will bid
up your property just to return the favor! Be careful. Learn who's who.
The Bidding Process
When you're ready to bid, the process will go something like this:
1. The staff will typically read the auctions that have been cancelled or
postponed. Then the legal description of the property that is for sale will
be read by the courtroom staff.
2. The lender will typically say, “David Smith Law Firm on behalf of Bank
of the Universe bids $50,000 with a top bid of $130,000.” They “show
their cards” most often because otherwise you would waste time. In
some counties the bank representative won't reveal their top bid – but
nine times out of ten they will tell you before the auction starts. That's
why it is important to know the players, and after awhile you'll know the
people who represent the Banks.
3. To bid, you state something along the line of “Happy Foreclosure Home
LLC bids $100,000.” Bid in increments of $100 (this is by local rule but
most counties want $100 bid increments). Again this differs from county
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to county – in some they require you to identify who you are as you bid;
in others it is not required until after the bidding is complete.
4. Was the bank’s bid LESS than the total judgment amount? Typically
they bid at judgment. If they bid LESS, PAY ATTENTION! That means
the property is in "play" and will have multiple bidders.
Unless there is equity in the property (highly unlikely) when a Bank
reveals that their top bid is the final judgment amount, the Bank picks
up that property for just the initial bid of $100 and avoids paying for
higher doc stamps. In Florida the doc stamps cost $.70 per $1,000
($700 for a $100,000 purchase), so it is important to recognize that a
good bank representative would not want his bank buying the property
back for the final judgment amount. Why? Because it's a waste of the
Bank's money!
5. If you win the bid, you must walk forward and sign paperwork to place
escrow into the court, presumably in a pre established escrow account.
6. Double check EVERYTHING – property condition, liens, taxes, etc.
You'll only have until noon the next day to pay the 95% balance owed!
Things to Watch Out For
1. Are there outstanding property taxes that you were unaware of?
Always check this! ALL property taxes must be paid – the government
doesn’t accept a short sale on property taxes – ever.
2. There is a lien holder who was NOT named in the foreclosure auction.
This means the property will be purchased subject to that lien, even if
the lien was a junior lien – because the lien holder wasn't provided
proper notice in the impending foreclosure. This is why novice investors
are scared – which means a bigger opportunity for you!
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3. You are buying the correct mortgage, right? So often the "newbie"
auction bidder actually bids on a second or third mortgage instead of
the first, and are therefore taking title subject to the higher priority liens.
Sometimes buying the second mortgage could make you money. But
you must ensure there is plenty of equity in the property!
4. Code enforcement liens. These vary by community – there could be
“amnesty” within your local government (for instance, I just removed a
$1,400 lien for $500). Typically you are allowed to fix the problem and
then just pay administrative fees – but not always. CE liens are most
often the biggest missed item, but they MUST be cleared up.
5. Super Liens. Homeowner’s or condo association fees are governed by
statute. Many states' HOAs have “super lien” status. In Florida, if the
first mortgagee is taking back the property, condos and HOAs now can
claim up to 12 months of dues or one percent of the original mortgage
amount whichever is less. However, recent case law regarding
subordination on first mortgage holders calls this into question so you
will want to stay abreast of changes in the law.
The statue on the Florida association fees issue (720.3085)
currently reads:
"Notwithstanding anything to the contrary contained in this section, the liability of a first
mortgagee, or its successor or assignee as a subsequent holder of the first mortgage
who acquires title to a parcel by foreclosure or by deed in lieu of foreclosure for the
unpaid assessments that became due before the mortgagee’s acquisition of title, shall
be the lesser of: 1) The parcel’s unpaid common expenses and regular periodic or
special assessments that accrued or came due during the 12 months immediately
preceding the acquisition of title and for which payment in full has not been received by
the association; or 2) One percent of the original mortgage debt. The limitations on first
mortgagee liability provided by this paragraph apply only if the first mortgagee filed suit
against the parcel owner and initially joined the association as a defendant in the
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mortgagee foreclosure action. Joinder of the association is not required if, on the date
the complaint is filed, the association was dissolved or did not maintain an office or
agent for service of process at a location that was known to or reasonably discoverable
by the mortgagee."
Note that if the property is sold to a third-party bidder at a foreclosure sale,
then there are no safe harbor protections in the statute for the successful
bidder and therefore the HOA lien must be paid. In the case of an REO
auction purchased after foreclosure, as long as the certificate of title was
taken in the name of the Bank or its assigns, then that REO seller is
entitled to the safe harbor protections of the statute and would not need to
pay additional HOA fees beyond what the statute calls for.
County Policies on Payment; full payment is due ASAP – in Florida
most counties ask for five percent down payment and require the 95
percent balance due, along with doc stamps, to be paid by noon the next
day. But sometimes it will be required on the day of the sale. This is why it
is very important to check your local county rules. Most counties allow you
to establish an escrow account, so every morning before an auction you
would obtain a bid sheet that verifies how much in escrow you hold with the
clerk. But in some counties, such as Hillsborough (where Tampa is
located), you are required to bring cashiers checks with you. In the counties
that have online auctions, you can deposit your five percent with the Clerk
of the Court and have it linked to your online account.
As a birddog, you can ask your investor to give you three checks.
The first check is the reimbursement of closing costs ($.70 per
$1,000). The second check is the reimbursement of the down
payment that was paid out of your birddog escrow account (Note: It could
be that you used your investor's escrow account so this check may not be
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necessary). The third check is the one made payable to you as the birddog
for the balance of the purchase and the assignment fee. This way, you
make your assignment fee within just 24 hours.
IRS Liens
As discussed before, an IRS liens will stay with the property for 120 days,
but these liens can sometimes be extinguished earlier if you go down to
your local IRS office and ask. Since the IRS is not in the business of buying
real estate, rarely if ever will they buy the property from you during this
redemption period. Typically this 120 lien period simply prevents you from
reselling the property as there is a cloud on the title. After the 120 period
ends you typically need to contact the IRS to have the official lien release
given to you to record and properly remove the lien (be sure to record it!).
Assignment of Bid
Remember that if you intend to wholesale the property and your end
purchaser is planning on flipping the property, title seasoning will typically
only allow for one flip after a purchase at auction. One way to ensure that
your end investor is considered the first "flip" is to file an "Assignment of
Bid" immediately following the auction. This should be done at the time
when your investor pays you (assuming you are a birddog). The
Assignment means that your investor is now taking the place of the bidder,
and when the 10-day redemption period runs you will be provided the
certificate of title.
The 10-Day Redemption Period
In Florida, there is a 10-day redemption period that allows the homeowner
to pay the final judgment amount within 10 days after the auction and
reclaim the property. While I'm not aware of this occurring in this
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foreclosure environment, back in 2004 and 2005 investors would approach
homeowners and pay them to take title back after the auction and then sell
the property to the investors. Those were the days when equity existed, of
course.
Why file an assignment of bid? To save on closing costs. If, as an investor,
you received a warranty deed from the birddog after the birddog had
received the certificate of title, you would end up paying doc stamps again
on the second transaction.
While there is a 10-day period, you must make sure that you give the
Clerk of the Court enough time to allow for the assignment of bid.
We are told that they generally needed the form at least 3-4 days before
the end of the 10-day period in order to properly process the certificate of
title. Make sure when you record the assignment you ask the clerk if you
are within the appropriate period and if not, don't record it!
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Online Auctions with RealAuction.com
In Florida, RealAuction.com has partnered with local clerk of the court in
order to provide online auctions. As of January 1, 2011, the following 18
counties offer online bidding for foreclosures:
Bay County – Foreclosures
visit www.bay.realforeclose.com
Broward County – Foreclosures
Miami-Dade County – Foreclosures
visit www.miamidade.realforeclose.com
visit www.broward.realforeclose.com
Nassau County – Foreclosures
Charlotte County – Foreclosures and Tax
Deed Sales
visit www.nassau.realforeclose.com
Okaloosa County – Foreclosures
visit www.okaloosa.realforeclose.com
visit www.charlotte.realforeclose.com
Duval County – Foreclosures
visit www.duval.realforeclose.com
Orange County – Foreclosures (Coming
Soon)
visit www.myOrangeClerk.realforeclose.com
Escambia County – Foreclosures
visit www.escambia.realforeclose.com
Pasco County – Foreclosures
visit www.pasco.realforeclose.com
Indian River County – Foreclosures and Tax
Deed Sales
Pinellas County – Foreclosures
visit www.indian-river.realforeclose.com
visit www.pinellas.realforeclose.com
Lee County – Foreclosures
visit https://www.lee.realforeclose.com
Polk County – Foreclosures
visit www.polk.realforeclose.com
Manatee County – Foreclosures and Tax
Deed Sales
Sarasota County – Foreclosures
visit www.manatee.realforeclose.com
Walton County – Foreclosures and Tax
Deed Sales
visit www.sarasota.realforeclose.com
Martin County – Foreclosures
visit www.martin.realforeclose.com
visit www.walton.realforeclose.com
What does this mean for birddogs? It means you can bid on behalf of your
clients from anywhere in the world! It means that birddogs in California can
now start gobbling up properties for clients in Florida (they only need to
establish a few relationships in Florida, such as with property inspectors
and title examiners). This is happening right now. In our video on long
redemption states, we interviewed a very experienced investor named
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Chris Gleize from Minneapolis, MN. Chris' state of Minnesota has a longer
redemption period than most, so it makes buying and flipping at auction
more challenging (but watch this video for the opportunities it does open
up!). So Chris is now actively allowing his birddog to bid for him on
properties in Jacksonville, FL. The birddog uses Chris' money and they
split the profit 50/50.
Auction Example
The overall Florida auction process is described by Lee Kearney in our
video, but let's go over some important highlights by reviewing two
properties that were up for auction. On the following page you'll see what
the online foreclosure auction winning bid screen looks like:
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Look at the property on Feather Drive that I asked my birddog to bid on for
me. Notice that the Plaintiff Max Bid is "Hidden," which means that we just
don't know what the bank will take for this property. LaSalle Bank's
judgment was $140,933.27 but instead of indicating that they wanted the
full amount of $140,933.27, their legal representative indicated that the bid
was "hidden."
Most likely LaSalle wanted the full amount – but this is how their
representative stupidly cost them money. Since I didn't know what they
wanted, I bid the property up as follows:
5138 tied high bid
5136
$52,000.00
Auto Bid
5136
Auto Bid
5138
Auto Bid
5138
Auto Bid
5136
Auto Bid
5138
Auto Bid
5138
winning bid
Auction Closed
12/21/2010 10:01:23 AM
$52,000.00
$52,100.00
$52,600.00
$52,700.00
$53,000.00
$53,100.00
$55,000.00
$55,100.00
$55,200.00
$55,300.00
$56,000.00
$56,100.00
$57,000.00
$57,100.00
12/21/2010 10:01:10 AM
12/21/2010 10:01:32 AM
12/21/2010 10:01:55 AM
12/21/2010 10:02:16 AM
12/21/2010 10:02:41 AM
12/21/2010 10:02:58 AM
12/21/2010 10:03:42 AM
12/21/2010 10:05:00:00 AM
The final bid was made by Plaintiff, LaSalle Bank, in the total amount of
$57,100. My bid number was 5138 (technically, this is my account but my
birddog was doing the bidding for me while I was on the phone with him
since I didn't have access at that moment to a computer). I bid all the way
up to $57,000 and automatically the bank bid $57,100 – then I stopped.
You will note that the bank bought their own property back for $57,100,
which meant that they now paid $390.70 in doc stamps that they never
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would have had to pay had they told us that their maximum bid was
$140,933.27. No one would have paid that amount so the Bank would be
able to purchase the home for just $100, and pay just $.70.
Now look at the bid history for the property on Fox Ridge Run:
Proxy
Bidder ID
Bid Info
No proxy items for this auction.
Auction
Bidder ID
Bid Info
Opening Bid
winning bid
Auction Closed
Bid
Bid
$0.00
$100.00
Date/Time
Date/Time
12/21/2010 10:08:00 AM
12/21/2010 10:10:00:00 AM
The final bid was made by Plaintiff : FLAGSTAR BANK
In the total amount of: $100.00
You will note that Flagstar Bank repurchased the property for just $100,
keeping their closing cost to $.70. This is because they went ahead and
told everyone that the bid was the final judgment amount of $182,410.30.
No one wanted to waste time bidding for this – the Bank rep saved his
client a lot of money.
It should be noted that this is the after-the-fact "bid history" from
realauction.com. When the actual bidding is taking place you do not see or
know the bid numbers of those who are bidding until after the auction is
closed. Please watch our video that shows exactly how to buy online for a
thorough understanding of the process.
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VIII. APPENDIX
Every effort has been made to ensure that all information appearing in
this course and the Appendices is current as of the date of
publication. However, appendix exhibits are for instructional and
informational purposes only. We are not responsible for errors and
omissions. The student is urged to check sources and utilize
reasonable care and due diligence to obtain updates and current
information.
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SUMMARY of FORECLOSURE LAWS & PROCEDURES BY STATE
(Source: www.RealtyTrac.com)
State
NonJudicial Judicial
Process
Period
(Days)
Sale
Redemption
Publication Period
(Days) (Days)
Sale/NTS
Alabama
•
•
49-74
21
365
Trustee
Alaska
•
•
105
65
365*
Trustee
Arizona
•
•
90+
41
30-180*
Trustee
Arkansas
•
•
70
30
365*
Trustee
California
•
•
117
21
365*
Trustee
Colorado
•
•
145
60
None
Trustee
Connecticut
•
•
62
NA
Court Decides Court
Delaware
•
•
170-210
60-90
None
Sheriff
District of
Columbia
•
•
47
18
None
Trustee
Florida
•
•
135
NA
None
Court
Georgia
•
•
37
32
None
Trustee
Hawaii
•
•
220
60
None
Trustee
Idaho
•
•
150
45
365
Trustee
Illinois
•
•
300
NA
90
Court
Indiana
•
•
261
120
None
Sheriff
Iowa
•
•
160
30
20
Sheriff
Kansas
•
•
130
21
365
Sheriff
Kentucky
•
•
147
NA
365
Court
Louisiana
•
•
180
NA
None
Sheriff
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APPENDIX
Process
Period
(Days)
Sale
Redemption
Publication Period
(Days) (Days)
Sale/NTS
Maine
•
•
240
30
90
Maryland
•
•
46
30
Court Decides Court
Massachusetts
•
•
75
41
None
Court
Michigan
•
•
60
30
30-365
Sheriff
Minnesota
•
•
90-100
7
1825
Sheriff
Mississippi
•
•
90
30
None
Trustee
Missouri
•
•
60
10
365
Trustee
Montana
•
•
150
50
None
Trustee
Nebraska
•
•
142
NA
None
Sheriff
Nevada
•
•
116
80
None
Trustee
New Hampshire
•
•
59
24
None
Trustee
New Jersey
•
•
270
NA
10
Sheriff
New Mexico
•
•
180
NA
30-270
Court
New York
•
•
445
NA
None
Court
North Carolina
•
•
110
25
None
Sheriff
North Dakota
•
•
150
NA
180-365
Sheriff
Ohio
•
•
217
NA
None
Sheriff
Oklahoma
•
•
186
NA
None
Sheriff
Oregon
•
•
150
30
180
Trustee
Pennsylvania
•
•
270
NA
None
Sheriff
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APPENDIX
Process
Period
(Days)
Sale
Redemption
Publication Period
(Days) (Days)
Sale/NTS
Rhode Island
•
•
62
21
None
Trustee
South Carolina
•
•
150
NA
None
Court
South Dakota
•
•
150
23
30-365
Sheriff
Tennessee
•
•
40-45
20-25
730
Trustee
Texas
•
•
27
NA
None
Trustee
Utah
•
•
142
NA
Court Decides Trustee
Vermont
•
•
95
NA
180-365
Court
Virginia
•
•
45
14-28
None
Trustee
Washington
•
•
135
90
None
Trustee
West Virginia
•
•
60-90
30-60
None
Trustee
Wisconsin
•
•
290
NA
365
Sheriff
Wyoming
•
•
60
25
90-365
Sheriff
The foreclosure process varies somewhat from state to state, and depends
primarily on whether the state uses mortgages or deeds of trust for the
purchase of real property. Generally, states that use mortgages conduct
judicial foreclosures; states that use deeds of trust conduct non-judicial
foreclosures. The principal difference between the two is that the judicial
procedure requires court action on a foreclosed home.
To foreclose in accordance with the judicial procedure, a lender must prove
that the mortgagor (borrower/homeowner) is in default. Once the lender
has exhausted its attempts to resolve the default with the homeowner, the
next step is to contact an attorney to pursue court action.
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The attorney contacts the mortgagor to try to resolve the default. If the
mortgagor is unable to pay off the default, the attorney files a lis pendens
(lawsuit pending) with the court. The lis pendens gives notice to the public
that a pending action has been filed against the mortgagor. The purpose of
the action is to provide evidence of a default and get the court’s approval to
initiate foreclosure.
Non-judicial foreclosures are based on deeds of trust that contain the
power of sale clause. The clause enables the trustee to initiate a mortgage
foreclosure sale without having to go to court. The trustee is typically
required to issue a notice of default and notify the Trustor (borrower/
homeowner) accordingly about the default status. If the Trustor does not
respond, the trustee then initiates the steps for conducting the mortgage
foreclosure sale of the home.
The above table represents our current knowledge of which states use
mortgages (judicial) or deeds of trust (non-judicial) or both. The table also
includes estimated foreclosure timelines for each state. Please check with
your local county government to verify this information. Inform the good
people at RealtyTrac of any errors at [email protected].
The map on the following page illustrates states that use primarily Judicial
or Non-Judicial foreclosure processes in an easy to follow format.
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Golden/light gray states denote Judicial Foreclosure States and the blue/
dark gray states denote primarily Notice or Non-Judicial Foreclosure States
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FORECLOSURE LAW ANALYSIS BY STATE
ALABAMA
Alabama allows both judicial and non-judicial foreclosures, although the
former is much more rare, with more lenders preferring to directly sell
properties of borrowers who have defaulted on their payments.
Judicial foreclosure involves filing a lawsuit and obtaining a court order to
foreclose the property. Once a court order is obtained, foreclosure
proceedings may commence.
Judicial foreclosure is used when there is no power of sale clause in the
mortgage or deed of trust signed between lender and borrower. In rare
cases, judicial foreclosures are resorted to if there are problems with the
title of the property to be foreclosed.
Non-judicial foreclosure involves foreclosing a property without going
through the courts. Instead, the lender supplies his attorney with the
required documents and the attorney schedules the sale of the mortgage.
Non-judicial foreclosure is often used when there is a power of sale clause
in the mortgage or deed of trust signed between lender and borrower. Even
if there is no power of sale clause, non-judicial foreclosures are still
allowed, so long as the process is followed.
If the mortgage or deed of trust contains a power of sale clause that
stipulates the time, place, and terms of sale in case of foreclosure, then
that procedure is followed.
If the time, place, and terms of sale are not given in the power of sale
clause, then the foreclosure sale is scheduled at the front or main door of
the courthouse of the county where the property is located.
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Before the foreclosure sale can take place, a notice of sale should be
published for four (4) consecutive weeks in a newspaper published in the
county where the property is located. If the property is located in two or
more counties, then the publication must be done in all the counties where
the property is located. If no newspaper is published in the county or
counties where the property is located, the notice of sale may be published
in a newspaper published in an adjoining county.
The notice of sale must indicate the time, place and terms of sale, as well
as a description of the property.
Unless otherwise stipulated in the mortgage, the borrower may pay off the
debt at any time before the foreclosure sale, thus effectively putting an end
to the foreclosure proceedings.
The sale can only take place 30 days after the publication of the last notice
of sale. A deed of sale is given to the winning bidder after the foreclosure
sale. The borrower may redeem the property at any time within 365 days
from the foreclosure sale.
The foreclosure process for a mortgages with NO power of sale clause is
essentially the same as above, except that foreclosure proceedings may
also be initiated judicially, or through the courts.
ALASKA
Alaska allows lenders to initiate either judicial or non-judicial foreclosure
proceedings after a borrower defaults on a deed of trust or mortgage. As in
other states, judicial foreclosures are often resorted to when no other
recourse is left to the lender to recover the amount from the borrower.
Judicial foreclosure begins with the filing of a complaint and Lis Pendens
(notice of pending lawsuit) in court. The notice is then sent to the borrower.
The borrower does not need to be 30 days in default for foreclosure
proceedings to push through. The borrower should respond within 20 days
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after the complaint is delivered, otherwise the court will rule that the
borrower is in default and that the property can now be disposed of and
sold.
Non-judicial foreclosure is resorted to when a borrower has been in default
for 30 days. A written notice containing the deed of trust information, a
description of the property, the amount owed, and the date, time, and
location of the sale, is sent to all affected parties. This same information
must also posted on the property itself. The borrower can stop the
foreclosure proceedings from pushing through by paying the defaulted
amount plus other coincidental expenses, if any.
Judicial and non-judicial foreclosures require the posting of the notice of
sale in three public places, including a U.S. post office nearest to the
foreclosed property, at least 30 days before the sale. Publication of the
notice in a local newspaper once every week for four weeks is also
required.
In judicial foreclosures, the auction may be postponed for up to one week
without requiring republication of the notice of sale. However, a new notice
of sale is required to be republished in a local newspaper if the sale is
postponed for more than 30 days. The winning bidder receives a certificate
of sale after the auction. Borrowers may redeem the property for 12 months
after the sale by paying the sale price plus 8% interest and other applicable
costs. The winning bidder becomes the rightful owner of the property if the
borrower does not redeem it within 12 months.
ARKANSAS
Arkansas allows both judicial and non-judicial foreclosures. Both types of
foreclosures are equally used throughout the state.
The lender must have the property appraised before it can initiate
foreclosure proceedings. The location of the sale may vary for non-judicial
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foreclosures. A deed transferring ownership of the property is given to the
winning bidder after the sale.
In judicial foreclosures, the court gives the borrower time to pay the debt to
the lender. If the borrower fails to pay the full amount owed within the
schedule set forth by the court, the lender may then put the property on
sale. The borrower may redeem the property by paying the purchase price
from the auction plus interest before a year lapses from the date of the
sale.
As in other states, non-judicial foreclosures may be initiated when a
mortgage has a power-of sale clause in case of a borrower defaulting on a
payment. To start foreclosure proceedings, the lender files a notice of
default containing information on the property and the proposed foreclosure
sale with county records. A copy of the notice should be mailed to the
borrower within 30 days from the filing of the notice of default. The lender
must also post a notice of sale in the office of the county recorder as well
as publish it in a local newspaper for four consecutive weeks. The final
notice must be published at least 10 days before the foreclosure sale.
The borrower must pay off the amount owed before the foreclosure sale to
stop the foreclosure proceedings.
An auctioneer runs the sale. With the exception of the trustee, who bids on
behalf of the lender, anyone can bid on the property. The highest bidder
must pay the full bid price within 10 days of the sale. The borrower can no
longer redeem the property after the sale.
The property must sell for no less than two-thirds (66%) of its appraised
value or no bidder will be awarded with the property during the auction. If
this happens, the property must be offered for sale again within 12 months
of the original sale date. This time, the property is awarded to the highest
bidder, regardless of the appraisal price.
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COLORADO
Colorado allows both judicial and non-judicial foreclosures of properties
when borrowers default on their mortgage payments. However, judicial
foreclosures are uncommon. For judicial foreclosures, when a court finds
the borrower in default, the property is auctioned off to the highest bidder.
Like most other states, non-judicial foreclosures are allowed when the deed
of trust or mortgage has a power-of-sale clause. Non-judicial foreclosure
proceedings are initiated when the lender files a request to sell the property
with the public trustee of the county where the property is located. Although
the foreclosure sale can be scheduled at this point, the lender is required to
obtain a court order allowing the sale, otherwise the lender cannot proceed
with the foreclosure. The court summons all affected parties to a hearing. If
the borrower raises no objection to the foreclosure, the court allows the
lender to proceed with the sale.
To stop the foreclosure, the borrower must file an intention to pay off the
defaulted amount with the public trustee at least 15 days before the sale
date. The borrower then has until noon of the day before the sale to pay off
the default and stop the sale.
The foreclosure sale is scheduled 110-125 days after the lender files the
notice of action with the public trustee. The notice of sale must be
published in a local newspaper for 12 weeks and a copy provided to the
borrower.
The sale is normally held at the courthouse. The lender submits a written
bid, which the public trustee reads aloud. Anyone may then place a bid on
the property. If the lender doesn’t win the auction, the highest bidder is
required to deliver the bid amount in cash or cashier’s check to the public
trustee, who then gives a certificate of purchase to the winning bidder.
The borrower can no longer redeem the property after the foreclosure sale.
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CONNECTICUT
Connecticut only allows judicial foreclosures of properties where the
borrower has defaulted on payments to the lender. To get the judicial
foreclosure underway, the lender files a civil action with the Superior Court,
and asks for a motion for a judgment of foreclosure. The Judge then orders
a “strict foreclosure” or a “foreclosure by sale.”
In a strict foreclosure, no actual foreclosure auction is held. The court
determines that there is no equity in the property, and assigns “law days” in
reverse order of priority, which allows interested parties to redeem the
property. If no party redeems the property, the lender is granted the title to
the property. The lender is then given 30 days to record a certificate of
foreclosure containing a description of the property, the foreclosure
proceedings, the mortgage and the date the title became absolute.
In a foreclosure by sale, which is ordered if there is equity in the property,
the court establishes the time and manner of the sale and assigns a
“committee attorney” to handle the foreclosure sale. The “committee
attorney” is different from the attorney who handles the foreclosure
proceedings for the lender. Once the sale is complete, the attorney
petitions to court to approve the sale of the property so that the title can be
passed on to the winning bidder.
The foreclosure proceedings can be stopped at any time before the sale if
the borrower pays the balance due on the mortgage. The court also
determines the period when a borrower may redeem a foreclosed property.
DELAWARE
Delaware only allows judicial foreclosures for properties where the
borrower has defaulted on a payment.
The foreclosure proceedings begin with the lender filing a complaint in
court, which then orders the borrower to appear before it within 20 days
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and provide evidence as to why the foreclosure should not take place. The
period of notice may last up to three months if the borrower could not be
located. If the summons has been served and the borrower fails to appear
before the court within 20 days, the court may rule the borrower to be in
default. The lender may then submit a request for the county sheriff to
conduct a sale of the property 11 days after the court rules the borrower is
in default.
The county sheriff is required to advertise and give notice of the sale, a
process which may last up to three months. The sheriff must post the
notice of sale on the property and in other public places at least 14 days
before the sale date. The notice of sale should include a description of the
property as well as the date, time, and location of the sale location. The
borrower must also be informed about the sale at least 10 days before the
sale date. The notice sale is published in two local newspapers during the
last two weeks prior to the sale.
Generally, the sale is conducted by the sheriff and takes place at the
property or at the local courthouse. After the sale, confirmation of the sale
occurs within 1-3 months, and the sheriff transfers ownership to the winning
bidder. Prior to confirmation, the borrower may contest the sale procedure,
but the borrower has no right of redemption after the sale.
The sheriff oversees the sale, which may be held at the property or at the
local courthouse. The court confirms the sale within 1-3 months after the
sale, after which the sheriff transfers ownership to the winning bidder.
The borrower can no longer redeem the property after the sale.
GEORGIA
Georgia allows both judicial and non-judicial foreclosures in case a
borrower defaults on a mortgage payment.
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Judicial foreclosures are resorted to when there are problems with the title
to the property or the mortgage or trust deed does not contain a clause
giving the lender the right to initiate foreclosure proceedings. In a judicial
foreclosure, the lender files a petition describing the situation, the property,
and the default amount with the court, which then gives the borrower 30
days to pay the defaulted amount to the court or a foreclosure sale is
scheduled.
After a judicial foreclosure, the sale must be confirmed. If the winning
amount is equal to or more than the property’s appraised market value, the
sale is confirmed. Otherwise, the court orders a new sale to be scheduled.
Non-judicial foreclosures are more common in Georgia though since
power-of-sale clauses are present in most mortgages and deeds of trusts.
Non-judicial foreclosure proceedings start with the lender scheduling a
foreclosure when a borrower defaults on a payment. The lender is not
required to notify the borrower before initiating the foreclosure proceedings,
although they must notify the borrower in case the mortgage or deed of
trust says so.
Once foreclosure proceedings start, depending on whether the mortgage or
deed of trust allows it, a borrower may stop the foreclosure by paying off
the default amount. However, if the mortgage or deed of trust does not
contain such a provision, the borrower can only stop the foreclosure by
paying the total loan balance.
A notice of sale that includes a description of the property, the mortgage
information, the names of both lender and borrower, and the foreclosure
sale’s date, time, and location must be published once a week for the last
four weeks prior to the sale. The borrower must also be informed of the
foreclosure sale at least 30 days before the sale date.
Foreclosure sales are scheduled from 10:00 a.m. to 4:00 p.m. on the first
Tuesday of every month. The sale is done at the county courthouse. If the
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lender is not the winning bidder, payment of the full bid amount immediately
after the sale is required.
If at any time the foreclosure sale is cancelled, the law requires the lender
to start foreclosure proceedings all over again.
The borrower can no longer redeem the property after a foreclosure sale.
HAWAII
Hawaii allows both judicial and non-judicial foreclosure of a property in
case a borrower defaults on a payment.
In a judicial foreclosure, the lender files a motion asking the court to rule
that the borrower is in default. The lender is required to notify the borrower
of the foreclosure proceedings. If the lender has trouble contacting the
borrower, the lender may have the notice published instead. The borrower
must respond to the court filings within 20 days or the court will rule him to
be in default. Once the court rules that the borrower is in default, the lender
can schedule the foreclosure sale. The borrower may still appeal the ruling
within 30 days of the court’s original ruling finding the borrower in default.
Even if the foreclosure sale is scheduled, the borrower can still stop the
sale by paying off the entire debt plus any associated costs at least three
days prior to the sale.
Once the court finds the borrower to be in default, it appoints a
commissioner to auction off the property. A notice of sale that includes the
auction date and open house dates is published in a local paper. At the
auction, any party may place a bid, with the winning bidder required to pay
at least 10 percent of the bid in either cash or a cashier’s check. However,
the winning bidder does not automatically get the property, as bids can still
be submitted at a confirmation hearing for the sale. The court confirms the
sale once it rules the winning bid as a fair price for the property.
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For non-judicial foreclosures, the notice of sale must include a description
of the property, the terms of the sale, the names of both lender and
borrower, as well as the time and location of the sale. The notice of sale
must be published in a local newspaper for three consecutive weeks, with
the last one at least two weeks before the sale. The highest bidder wins the
sale.
For both types of foreclosures, the borrower can no longer redeem the
property after the sale.
IDAHO
Lenders don’t have recourse to judicial foreclosures in Idaho, as only nonjudicial foreclosures are allowed in the state.
To initiate a foreclosure, the lender mails a notice of default to the borrower
and any other interested party. The borrower is given 115 days to stop the
foreclosure process by raising the full amount due, including costs, and
paying the lender. Some lenders even allow the borrower to stop the
foreclosure up to the date of the foreclosure sale.
After filing the notice of default with the county recorder, the lender can
schedule the foreclosure sale.
The lender then sends a notice of sale to the borrower (it is required that
the notice be sent at least 120 days before the sale date). The notice of
sale must include a description of the property, the names of the trustee,
lender, and borrower, the amount owed, and the date, time and location of
the sale. The notice of sale must be published in a local newspaper once a
week for four weeks, with the final publication at least 30 days before the
sale date.
The lender appoints a representative known as the trustee to take care of
the foreclosure proceedings. The trustee’s attorney is the one who actually
conducts the sale. Any person may place a bid on the property. The
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winning bidder must post full payment before the actual turnover of the
property 10 days after the sale.
The foreclosure sale may be postponed up to 30 days by public
announcement at the originally scheduled sale.
The borrower can no longer redeem the property after the sale.
ILLINOIS
Lenders only have recourse to the courts when a borrower defaults on a
payment in Illinois, as non-judicial foreclosures are not allowed in the state.
Before a lender can foreclose a property, a title search is conducted so that
any liens that appear senior to the lender’s lien prior to foreclosure is
addressed. Also, junior lien holders, if any, must be named as defendants
in the lender’s foreclosure suit to ensure that the property is free of liens at
the time of the sale.
To initiate foreclosure proceedings, a lender files a Complaint to Foreclose
Mortgage with the court. The borrower and other defendants, if any, are
then served with the complaint. If a defendant cannot be found, the
complaint may be published in a local newspaper instead.
A defendant must file his answer with the court 30 days after being served
with the complaint. Otherwise, the court may declare the defendant in
default upon request of the lender. If a defendant files an answer contesting
the foreclosure, the case goes to trial.
Once the court rules in favor of the lender, the borrower is given 90 days
(30 days if the property is abandoned) to redeem the property. The
redemption period may be extended at the court’s discretion.
The sale date is scheduled once the redemption period is over. A Notice of
Sheriff's Sale is published in a local newspaper in the county where the
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property is located once a week for three weeks, with the last publication
not later than seven days after the final notice of sale. The opening bid is
usually the full debt amount and comes from the lender. The highest bidder
receives the Certificate of Purchase right after the sale.
The sheriff makes a Report of Sale within 10 days to the court. The lender
then files a Motion to Confirm Sale for the court to confirm the sale. The
Sheriff’s Deed is issued only after the court confirms the sale.
INDIANA
Indiana is one of the few states that does not allow non-judicial
foreclosures. Instead, all foreclosures in the state must go through the
courts.
To initiate foreclosure proceedings, the lender files a complaint against the
borrower with the courts. The lender may choose to send a notice of default
to the borrower, although this is not required under Indiana law.
The date the mortgage was signed controls the mandatory pre-foreclosure
period before the actual foreclosure sale. The pre-foreclosure period may
be as short as three months and, for older mortgages, be as long as six or
12 months. This waiting period is not required for abandoned properties.
The borrower may agree to forego the pre-foreclosure period and proceed
with the foreclosure sale post-haste. However, in such a case, the lender
loses its rights to pursue any debt that may remain unpaid after the
foreclosure sale.
Once the pre-foreclosure period is over, the court issues an order of sale
and judgment and passes this on to the sheriff, who then proceeds with the
foreclosure sale.
The borrower can pay the full debt amount, interest, and costs at any time
before the sale. If this happens, the court dismisses the complaint.
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An auctioneer appointed by the sheriff conducts the actual foreclosure sale.
The sheriff should have the notice of sale published once a week for three
weeks in a local newspaper, with the first publication 30 days before the
sale. The notice must also be posted on the county courthouse and at least
three other public places. The sheriff also serves the borrower with the
notice of sale.
The sheriff transfers the property to the winning bidder right after the sale.
The borrower can no longer redeem the property once the sale is complete.
However, the borrower can stay on in the property without paying any rent
until the foreclosure sale.
IOWA
Iowa allows both judicial and non-judicial foreclosures for properties where
the borrower has defaulted on a payment.
The lender must notify the borrower about the default at least 30 days
before commencing foreclosure proceedings. If the borrower fails to pay
the amount in default, the lender may initiate foreclosure. If the court finds
the borrower in default, it orders the foreclosure sale. Normally, the sale is
ordered within two months from the time judgment is rendered. However,
the borrower may delay the sale for 6-12 months, particularly if the lender
wants the property foreclosed without giving the borrower a chance to
redeem the property.
The sheriff handles posting of the notice of sale at the courthouse and at
least three other public places. The notice of sale must be published for at
least two weeks in a local newspaper, with the first notice appearing at
least four weeks before the sale date. If the borrower is still occupying the
property, the sheriff must also provide the borrower with the notice of sale.
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The actual foreclosure sale normally occurs between 9:00 a.m. and 4:00
p.m. under the supervision of the sheriff. The sheriff opens and reads the
sealed written bids during the sale.
If the sale is postponed for more than three days from the original
foreclosure date, the sheriff must cause the announcement of a new notice
of sale.
If a lender chooses foreclosure without redemption, the winning bidder
receives a deed without redemption. Depending on the situation,
redemption periods for judicial foreclosures may last from 30 days to one
year.
To pursue a deficiency judgment, lenders must agree to a one-year
redemption period. If the lender waives his right to a deficiency judgment,
the redemption period decreases to just six months.
A foreclosure suit can be avoided if the borrower voluntarily conveys all
rights, including the right to reclaim or occupy the property, to the lender. In
return, the lender waives the right to file for a deficiency judgment against
the borrower. The borrower and lender also files a joint affidavit with the
county recorders office stating that they have chosen to proceed with a
voluntary foreclosure instead of going through judicial foreclosure
proceedings.
KANSAS
Kansas only allows judicial foreclosures for properties when owners have
defaulted on a payment. This means that all foreclosures have to go
through the courts. Although a foreclosure sale can be completed in as little
as 60 days, Kansas has a long redemption period of anywhere from three
to 12 months, depending on how much of the principal balance has been
paid. Thus, a Sheriff’s Deed that transfers the title to the new owner may
not be released until after three to 12 months from the foreclosure sale.
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A title search is conducted before the start of foreclosure proceedings. This
is done so that senior liens can be addressed prior to foreclosure. If not, the
property is subject to the senior lien at the time of the foreclosure sale.
To ensure that title to the property is free of liens at the time of the
foreclosure sale, junior lien holders, if any, are included as co-defendants in
the lender’s foreclosure suit.
To initiate foreclosure proceedings, a lender files a Complaint to Foreclose
Mortgage with the court. The borrower and other defendants, if any, are
then served with the complaint. If a defendant cannot be found, the
complaint may be published in a local newspaper instead.
A defendant must file his answer with the court 30 days after being served
with the complaint. Otherwise, the court may declare the defendant in
default upon request of the lender. If a defendant files an answer contesting
the foreclosure, the case goes to trial.
A Notice of Sheriff's Sale is published in a local newspaper in the county
where the property is located once a week for three weeks, with the last
publication not later than seven days after the final notice of sale. The
opening bid is usually the full debt amount and comes from the lender. The
highest bidder receives the Certificate of Purchase right after the sale.
Once the borrower's right of redemption expires and the property has not
been redeemed, a Sheriff’s Deed will be recorded evidencing the transfer
of ownership of the property.
KENTUCKY
Kentucky does not allow non-judicial foreclosures. Instead, all foreclosures
in the state, with the exception of abandoned properties, must go through
the courts. In the case of abandoned properties, the lender takes
possession of the property when a default occurs.
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Judicial foreclosure begins with the filing of a complaint and Lis Pendens
(notice of pending lawsuit) in court. The notice is then sent to the borrower.
The borrower should respond within 20 days after the complaint is
delivered, otherwise the court will rule that the borrower is in default and
that the property can now be disposed of and sold.
If the borrower responds within 20 days, the court determines whether
there really is a default on the part of the borrower. If court renders
judgment against the borrower, the lender may schedule the foreclosure
sale. The property must be appraised prior to the sale.
A notice of sale containing the date, location, and terms of the sale, is
required to be published for three weeks in a newspaper. Postponement of
the sale is not allowed, unless it is given through a court order. The actual
sale is conducted by a court official called a master commissioner and
usually occurs at the courthouse. The winning bidder may pay in cash or
post bond to pay in installments. After the sale, a motion to confirm is filed
before the court. Once the sale is confirmed, the deed is turned over to the
purchaser.
The borrower may redeem the property for a period of one year from the
foreclosure sale by paying the sale price and interest, if the sale price is
less than two-thirds (66%) of the appraised value.
LOUISIANA
Lenders in Louisiana go through the courts when foreclosing properties of
borrowers who have defaulted on their payments. Judicial foreclosure
proceedings are divided into two types, namely, executory and ordinary.
Ordinary judicial foreclosure proceedings are just like lawsuits – they take
longer (about six months) and, thus, cost more. On the other hand,
executory judicial foreclosures are applicable for mortgages that include a
clause where the borrower accepts the obligations under the mortgage.
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The foreclosure proceedings start when the lender files a petition before
the court declaring the borrower in default. The court then orders the
borrower to pay the default amount within three days. If the borrower fails
to pay the amount, a writ of seizure and sale is ordered and the sheriff is
tasked with serving the notice of foreclosure sale to the borrower.
The sheriff must have the notice of sale published twice in a local
newspaper. During the sale, anyone, including the borrower, may place a
bid for the foreclosed property. The winning bidder must pay the sale price
in cash, although sometimes this rule is relaxed, as long as a 10 percent
deposit is made. However, the winning bidder must pay the rest of the
amount within 30 days of the sale.
Once fully paid, the winning bidder gets the deed from the sheriff.
Borrowers can no longer redeem the property once the foreclosure sale is
over.
MAINE
Maine foreclosures are of the judicial variety – meaning they go through the
courts. Before a lender can initiate foreclosure proceedings, it must serve
the borrower with a default notice. The borrower must pay the full amount
in default, plus any interest and fees, within 30 days from receipt of the
default notice.
If the borrower fails to pay the full default amount, the lender may start
foreclosure proceedings by filing action in court and notifying the borrower
of the action. The borrower may choose not to contest the foreclosure
action, in which case, the case does not go to trial. The lender then
schedules a foreclosure sale for the property.
If the borrower opposes the foreclosure, the court schedules the case for
trial. If the court renders judgment against the borrower, the borrower is
given 90 days to pay all amounts due and stop the foreclosure.
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Once the foreclosure sale is set, the lender publishes a notice of sale for
three weeks in a local newspaper. The actual sale may take place at the
office of the foreclosure attorney, at the courthouse or on the property itself.
Anyone, including the lender, may bid on the property. The winning bidder
may pay off the balance within 30 days from the sale date. The property is
then transferred to the winning bidder.
MARYLAND
Maryland only allows judicial foreclosures for properties where owners
have defaulted on their payments. Maryland law does not require the
lender to notify the borrower of the foreclosure proceedings.
To initiate foreclosure proceedings, the lender files a complaint against the
borrower with the court, which then determines whether the borrower is in
default. If the court rules in favor of the lender, it fixes the amount that the
borrower has to pay and the date when payment should be made. If the
borrower fails to pay the amount, the court authorizes the sale of the
property.
Once the foreclosure sale is scheduled, a notice of sale must be published
in a local newspaper for three consecutive weeks. The borrower and other
lien holders, if any, must be notified of the foreclosure sale at least 10 days
before the sale date.
The sale normally takes place outside the courthouse under the
supervision of a licensed auctioneer. Once the property has a winning
bidder, a notice that the sale has occurred and that any objections to the
sale must be made within 30 days from the foreclosure sale is published in
a local newspaper. If there are no objections, the court confirms the sale
and the winning bidder takes ownership of the property.
Maryland law does not fix the redemption period for foreclosed properties.
Rather, the courts set a redemption period on a case-by-case basis.
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MASSACHUSETTS
Massachusetts allows both judicial and non-judicial foreclosures for
properties where owners have defaulted on their payments. However, most
foreclosure proceedings are done judicially.
Before they can initiate foreclosure proceedings, lenders are required to
send a 90-day demand letter to borrowers in default. As in other states,
non-judicial foreclosures are used when a mortgage has a power of sale
clause, which authorizes the sale of the property to pay off the loan balance
in the event of a default.
Once the foreclosure sale is set, the lender must cause the publication of
the notice of sale in a local newspaper for three weeks prior to the sale.
The notice of sale must also be sent to the borrower’s last known address.
Other interested parties must also be provided with a copy of the notice of
sale. During the sale, the property is awarded to the highest bidder.
The borrower can no longer redeem the property once the foreclosure sale
is completed.
MICHIGAN
Although lenders in Michigan may foreclosed a property in default through
the courts, most foreclosure proceedings in the state are handled nonjudicially. This is because most mortgages in the state contain a power-ofsale clause, which gives the lender the right to sell a property once a
borrower defaults on a payment.
Once a lender initiates foreclosure proceedings, it is required to publish a
notice of sale for four weeks prior to the foreclosure sale in a local
newspaper. The notice of sale is also posted on the property. Normally, the
foreclosure sale is held at the county courthouse between 9:00 a.m. and
4:00 p.m. Anyone may bid, and the highest bidder wins the auction.
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Although ownership of the property is transferred to the winning bidder right
after the sale, borrowers can still redeem the property even after the sale
by paying an amount equivalent to the winning bid amount plus other costs,
if any. The redemption period may vary, although in most cases it is six
months.
MINNESOTA
Minnesota allows both judicial and non-judicial foreclosures for properties
where owners have defaulted on their payments.
Judicial foreclosures start with the lender sending a notice of default to the
borrower. Once the default notice is sent to the borrower, the lender may
then petition the court to rule the borrower in default. If the court rules in
favor of the lender, a foreclosure sale can then be scheduled.
Like in most states though, many foreclosures are handled extra-judicially
through a power-of-sale clause in the mortgage. Under the terms of most
mortgages, before a foreclosure can be scheduled the lender must also
mail a notice of default to the borrower.
The borrower can pay the default amount, plus fees and other costs, if any,
at any time before the scheduled sale of the property to effectively put an
end to the foreclosure proceedings.
MISSISSIPPI
Mississippi allows both judicial and non-judicial foreclosures for properties
Like most states, the non-judicial foreclosure process is more common in
Mississippi, since most deeds of trust include a clause enabling the lender
to sell the property in case a borrower defaults on a payment.
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Before initiating foreclosure proceedings, the lender sends a notice of
default to the borrower at least 30 days before the foreclosure sale. The
borrower may pay the amount due plus foreclosure expenses at any time
before the foreclosure sale, effectively putting an end to the foreclosure.
Once foreclosure proceedings start, the trustee must have the notice of
sale published once a week for three successive weeks in a local
newspaper. The notice of sale, which must include a description of the
property, deed of trust information, the names of both borrower and lender,
and the time, place, and terms of the sale, must also be posted at the
county courthouse.
The foreclosure sale is usually held between 11:00 a.m. and 4:00 p.m. at
the county courthouse. Anyone, including the lender, may place a bid. The
winning bidder is required to give the full amount, in cash or certified funds,
immediately after the sale. If the winning bidder is not able to do this, the
sale is rescheduled and republished. The winning bidder is also given the
deed to the property right after payment has been made at the conclusion
of the sale.
The borrower can no longer redeem the property after the foreclosure sale.
MISSOURI
Missouri allows both judicial and non-judicial foreclosures for properties
Judicial foreclosure involves filing a lawsuit to obtain a court order to
foreclose. It is normally used when the mortgage or deed of trust does not
have a power of sale clause. After the court declares the borrower in
default, a foreclosure sale where the highest bidder wins the title to the
property is scheduled.
Non-judicial foreclosure is used when a power of sale clause exists in a
mortgage or deed of trust. This clause allows the lender to sell the property
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in case the borrower defaults on a payment. In most cases, the foreclosure
process for the property is detailed in the deed of trust or mortgage with a
power of sale clause. If this is not the case, the following procedure may
then be applied:
1. At least 20 days before the foreclosure sale, the trustee must provide
the borrower with a copy of the notice of sale, which must also be
published in a local newspaper.
2. The foreclosed property is sold for cash at public auction to the
highest bidder. Anyone, including the lender, may bid for the
property.
3. If the lender wins the property, the borrower is given 12 months to
redeem the property. If the winning bidder is other than the lender,
the borrower has six months to redeem the property.
MONTANA
Montana allows both judicial and non-judicial foreclosures for properties
In judicial foreclosures, the court determines the total amount to be paid to
the lender and the amount of time the borrower is allowed to pay the debt.
If the borrower fails to pay the debt in the allotted time, the court orders the
lender to proceed with the foreclosure sale.
Non-judicial foreclosures are more common in Montana, due primarily to
the fact that the mortgage or deed of trust often allows the lender to sell the
property in case a borrower defaults on a payment. To initiate foreclosure
proceedings, the lender files a notice of sale with the county recorder. The
sale must be scheduled at least 120 days after the filing of the notice of
sale.
At any time before the foreclosure sale, the borrower may pay the full
default amount plus other costs, effectively stopping the foreclosure
proceedings.
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A copy of the notice of sale is mailed to the borrower at least 120 days
before the sale date. In addition, the notice of sale must be posted in an
obvious spot at the property at least 20 days before the sale and published
once a week for three consecutive weeks in a local newspaper.
Foreclosure sales are held between 9:00 a.m. and 4:00 p.m. at the county
courthouse. Anyone, including the lender, may placed a bid, with the
highest bidder being declared the winner.
The borrower cannot redeem the property after the sale. Moreover, the
lender cannot sue for a deficiency judgment against the borrower.
NEBRASKA
Nebraska only allows judicial foreclosures for properties when owners have
defaulted on their payments. Thus, all foreclosures go through the courts.
If the borrower fails to pay the debt in the allotted time, the clerk of court
puts the property up for sale.
Either the entire property or a portion of it may be sold. The borrower may
file a written request to delay the order to sell for up to nine months, thus
allowing the borrower enough time to come up with the full amount of the
debt. The request to delay the sale must be filed within 20 days from the
time the court renders judgment. Otherwise, the mortgaged property will be
put up for sale.
The borrower may pay the delinquent amount, plus interests and other
costs, owed on the mortgage. If this happens, the court may still enter a
decree of foreclosure and sale, which may be enforced if the buyer goes
into default again in the future.
Notice of the time and place of the sale must be posted on the courthouse
door and at least five other public places in the county where the property
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is located. The notice of sale must also be published once a week for a
period of four weeks in a local newspaper.
After the foreclosure sale, the court must confirm the sale before titles
passes on to the winning bidder. The borrower can no longer redeem the
property after the foreclosure sale.
NEW HAMPSHIRE
New Hampshire allows both judicial and non-judicial foreclosures for
properties when owners have defaulted on their payments. In addition,
lenders may avail of three special methods to foreclose a property, namely,
Entry under Process, Entry and Publication or Possession and Publication.
Judicial foreclosures require the lender to file a complaint against the
borrower and obtain a decree of sale from the court. If the court rules in
favor of the lender, the borrower is given a set period of time to pay the
debt plus other costs. If the borrower fails to settle the obligation, the court
issues an order to sell the property. Anyone, including the lender, may bid
at the foreclosure sale, with the highest bidder winning the property.
Non-judicial foreclosures are used when there is a power of sale clause in
the mortgage or deed of trust. This clause stipulates that the lender can sell
the property in case a borrower defaults on the payment.
The foreclosure process may be detailed in the deed of trust or mortgage,
in which case the process must be followed. If the deed of trust or
mortgage does not detail the foreclosure process, the procedure below
must be followed.
A notice of sale must be recorded in the county where the property is
located. The notice should contain a description of the property and the
default as well as the time, date and place of sale. The notice must also
contain a “warning” to the borrower, informing him the property is being
foreclosed and what he can do to stop the procedure.
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The notice of sale must be mailed to the borrower at least 25 days prior to
the sale. It must also be published once a week for three weeks in a local
newspaper, with the first publication appearing not less than 20 days prior
to the sale.
Normally, the foreclosure sale is held on the property itself. In some cases,
the power of sale clause specifies a different location for the foreclosure
sale, in which case, the power of sale clause is followed.
Aside from judicial and non-judicial foreclosures, lenders may follow the
special methods of foreclosure in case of a default on the part of the
borrower. These methods are explained below.
1. Entry under Process – The lender forecloses the property by entering
the property under process of law and maintaining actual
possession of the property for one year.
2. Entry and Publication – The lender forecloses the property by
peaceable entry onto the property and continued, actual, peaceable
possession for a period of one year. The lender must also cause the
publication of a notice stating the time of possession, the lender and
borrower or borrowers’ names, the date of the mortgage and a
description of the property in a local newspaper. The notice must be
published for three consecutive weeks, with the first publication
appearing at least six months before the end of the redemption
period.
3. Possession and Publication – The lender forecloses the property by
actual possession of the property and publishing a notice stating
that the property will be held for default of the mortgage and the
borrower’s rights to the property will be foreclosed. This notice must
be published in a local newspaper for three consecutive weeks and
must give the lender and borrower or borrowers’ names, the date of
the mortgage, a description of the property and the lender’s intention
to hold possession of the property for at least a year.
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NEW JERSEY
New Jersey only allows judicial foreclosures for properties when owners
have defaulted on their payments. Thus, all foreclosures go through the
courts. Before starting foreclosure proceedings, the lender must notify the
borrower of the impending foreclosure via mail. The borrower can stop the
foreclosure by paying off the amount in default.
If the borrower fails to settle the amount in default, the lender files a lis
pendens (notice of pending lawsuit) with the county clerk. The lender may
sue for either the amount in default or the unpaid principal balance on the
loan. The borrower must be notified of the foreclosure action either in
person or by publication. The borrower is given at least 35 days to file a
response to the suit. If the borrower fails to file a response, the court issues
a ruling against the borrower. If the borrower files a response before the 35
days are up, the case goes to trial. If the court rules in favor of the lender, a
foreclosure sale is then scheduled.
Once the court rules against the borrower, a notice of sale is posted on the
property and in the county office where the property is located. The notice
of sale must also be published in two local newspapers, with one
publication in either the largest municipality in the county or county seat.
The borrower must also be provided with a copy of the notice of sale at
least 10 days before the sale date.
The sheriff or another county officer oversees the foreclosure sale, which is
a public auction that awards the property to the highest bidder. Ownership
must be transferred to the purchaser within 10 days from the date of sale.
The court must also confirm the sale. The borrower may redeem the
property at any time during the 10 days following the sale.
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NEW MEXICO
New Mexico only allows judicial foreclosures for properties when owners
courts. Power-of-sale clauses are banned in New Mexico. This is the
reason non-judicial foreclosures are non-existent in the state.
The lender is not required to notify the borrower of the impending
foreclosure, although the lender may give notice if the mortgage or deed of
trust requires it. To initiate foreclosure proceedings, the lender files a
foreclosure complaint against the borrower in court. The lender then files a
lis pendens (notice of pending lawsuit) with the county clerk.
The borrower must be notified of the foreclosure action either in person or
by publication. If the borrower is given notice personally, he is given 30
days to file a response to the suit. If the borrower cannot be located, he is
given 20 days from the last publication of the notice to file a response. In
both cases, if the borrower fails to file a response, the court issues a ruling
against the borrower. If the borrower files a response before the 30 days
are up, the case goes to trial. If the court rules in favor of the lender, a
foreclosure sale is then scheduled.
At any time before the foreclosure sale, the borrower may pay all arrears
plus other costs, effectively stopping the foreclosure proceedings. If the
court rules in favor of the lender, a notice of sale must be published at least
once a week for four consecutive weeks in a local newspaper. The sale is
scheduled at least 30 days after the court ruling, with the final publication of
the notice occurring at least three days before the sale date.
Bids must be at least 80 percent of the fair market value of the property at
the time of the sale. The highest bidder wins the property. The court must
approve the sale before ownership can be transferred to the winning
bidder.
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The original borrower or other parties with a stake in the property are given
a month to redeem the property. In some cases, the redemption period
may last nine months. To redeem the property, the borrower files a notice
to redeem and pays an amount equivalent to the sale price plus taxes and
interest.
NORTH CAROLINA
North Carolina allows both judicial and non-judicial foreclosures for
properties when owners have defaulted on their payments.
Judicial foreclosures are resorted to when there are problems with the title
to the property. The lenders files a lawsuit to obtain a court order of
foreclosure, and the court oversees the foreclosure proceedings.
Non-judicial foreclosures are more common though, as in most other
states. Non-judicial foreclosures are initiated for mortgages with power-ofsale clauses. Such clauses allows the lender to sell the property in the
event a borrower defaults on a payment.
In a non-judicial foreclosure, a preliminary hearing must be conducted
before foreclosure proceedings can take place. The county clerk conducts
the hearing to determine whether a foreclosure sale should take place.
In some cases, the deed of trust or mortgage details the foreclosure
process to be followed in the event of a default. If this is the case, this
process is followed. If not, the foreclosure proceedings must follow the
process below.
The lender drafts a notice of sale that includes the names of both lender
and borrower, a legal description of the property, and the date, time and
location of the sale. This notice of sale must be sent to the borrower and
other concerned parties at least 20 days before the sale date. The notice of
sale must also be published in a local newspaper once a week for two
weeks, with the last publication not more than 10 days before the sale date.
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The notice of sale must also e posted at the county courthouse at least 20
days before the sale.
Foreclosure sales are in auction form, with the property being sold to the
highest bidder. The sale normally takes place between 10:00 a.m. and 4:00
p.m. at the courthouse. The borrower has 10 days from the date of sale to
redeem the property by paying the debt in full plus other costs. Any other
party may enter an upset bid during that same period. The new bidder,
though, must pay at least five percent of the bid price for his upset bid to be
considered.
NORTH DAKOTA
North Dakota only allows judicial foreclosures for properties when owners
courts. In judicial foreclosures, the court determines the total amount to be
paid to the lender and the amount of time the borrower is allowed to pay
the debt. If the borrower fails to pay the debt in the allotted time, the clerk of
court puts the property up for sale.
Thirty days before initiating foreclosure proceedings, the lender must notify
the borrower of their intent to foreclose. If the borrower cannot be located, a
notice of the lender’s intent to foreclose must be published in a local
newspaper.
After the required notice period has elapsed, the lender may then initiate
foreclosure proceedings by filing the appropriate documents in court. The
court assesses the amount of the debt and sets a timeframe for the
borrower to pay off the debt. If the borrower fails to pay the amount within
the allotted timeframe, the clerk of court puts the property up for sale.
The borrower may pay the delinquent amount at any time within the 30-day
period prior to foreclosure, effectively stopping the foreclosure proceedings.
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Once a foreclosure sale is scheduled, notice of sale must be provided to
the borrower. In addition, the notice must be published in the county
newspaper at least 10 days before the foreclosure sale.
The sheriff’s office oversees foreclosure sales, which are made through
public auction, with the highest bidder winning the property and paying in
cash. The winning bidder is awarded a certificate of sale until the end of the
six-month redemption period, after which the sheriff then transfers
ownership of the property to the winning bidder.
OHIO
Ohio only allows judicial foreclosures of properties where owners have
defaulted on their payments. Thus, all foreclosures go through the courts.
To initiate a judicial foreclosure, the lender files suit against the borrower in
court. The lender then notifies the borrower about the court filing either by
mail or personal service. If the borrower cannot be located, the notice of the
court filing may be published instead.
After delivery or publication of the notice, the borrower must file a response
in 28 days, otherwise the court may find the borrower in default. Once the
court rules against the borrower, the county clerk orders the sheriff to
proceed with the foreclosure sale. The court may give a timeframe for the
borrower to pay the debt. If the borrower fails to settle the obligation in that
timeframe, the court orders the foreclosure sale to proceed.
The sheriff must obtain at least three appraisals of the property and have
the notice of sale published in a local newspaper for three weeks.
Foreclosure sales are public auctions held at the courthouse. The sale
price must be at least two-thirds (66%) of the appraised value, with the
highest bidder winning the auction.
The court must review and issue an order confirming the sale before the
sheriff turns over the deed transferring ownership to the winning bidder.
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The borrower may redeem the property at any time before the court
confirms the sale by paying the balance owed plus the court costs.
Redemption is no longer possible once the sale is confirmed.
If the borrower fails to pay the debt in the allotted time, the clerk of court
puts the property up for sale.
Thirty days before initiating foreclosure proceedings, the lender must notify
the borrower of their intent to foreclose. If the borrower cannot be located,
a notice of the lender’s intent to foreclose must be published in a local
newspaper. After the required notice period has elapsed, the lender may
then initiate foreclosure proceedings by filing the appropriate documents in
court. The court assesses the amount of the debt and sets a timeframe for
the borrower to pay off the debt. If the borrower fails to pay the amount
within the allotted timeframe, the clerk of court puts the property up for sale.
The borrower may pay the delinquent amount at any time within the 30-day
period prior to foreclosure, effectively stopping the foreclosure proceedings.
Once a foreclosure sale is scheduled, notice of sale must be provided to
the borrower. In addition, the notice must be published in the county
newspaper at least 10 days before the foreclosure sale.
The sheriff’s office oversees foreclosure sales, which are made through
public auction with the highest bidder winning the property and paying in
cash. The winning bidder is awarded a certificate of sale until the end of the
six-month redemption period, after which the sheriff then transfers
ownership of the property to the winning bidder.
OKLAHOMA
Oklahoma allows both judicial and non-judicial foreclosures for properties
where owners have defaulted on their payments. However, due to
restrictions under the law that make non-judicial foreclosures more difficult,
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judicial foreclosures are more common in Oklahoma. Still, non-judicial
foreclosures are allowed, so long as the mortgage or deed of trust gives the
lender the authority to do so.
Before initiating a judicial foreclosure, lenders are required to warn the
borrower of its intent to foreclose. Once notice is given to the borrower, the
lender files suit against the borrower for a default on the loan. A notice of
this court action is also delivered in person and/or by mail to the borrower,
who is normally given 20 days to respond to the suit. If the court rules in
favor of the lender, the property is scheduled for public sale.
The lender files the notice of sale with the county recorder. The notice of
sale is also published daily in a local newspaper for four consecutive
weeks, with the first publishing date at least 30 days before the sale date.
The county sheriff oversees the public auction of the property. The opening
bid must be no less than two-thirds (66%) of the property’s appraised
value. If no appraisal was made prior to the sale, no minimum bid is
required. The highest bidder must provide cash or certified funds equal to
10 percent of their bid amount to be judged the winner of the auction. If for
any reason the sheriff's sale is cancelled, the entire foreclosure process
starts over.
After the sale, the court confirms the sale, a process which may take as
long as 15 days. The borrower may redeem the property by paying off the
debt in full until the sale is confirmed.
Once the sale confirmed, the borrower can no longer redeem the property.
OREGON
Oregon allows both judicial and non-judicial foreclosures for properties
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Judicial foreclosures are resorted to if the mortgage or deed of trust does
not include a power-of-sale clause. Once the court finds in favor of the
lender, the property is put up for sale.
Non-judicial foreclosures are more common in Oregon. In the event of a
default, and if there is a power-of-sale clause in the mortgage, the lender
may sell the property extra-judicially to recover the remaining loan balance.
In a non-judicial foreclosure, the lender must file a notice of default with the
county recorder and deliver the notice of default to the borrower at least
four months before the scheduled sale date. The borrower may pay the
loan plus costs at least five days before the sale to stop the foreclosure
proceedings.
For non-judicial foreclosures, the notice of sale is published in a local
newspaper once a week for four consecutive weeks before the sale, with
the last notice being published at least 20 days before the sale date.
Foreclosure sales are public auctions, with the highest bidder winning the
auction. The winning bidder must pay the full sale amount in cash at the
time of the auction. The trustee transfers ownership of the property to the
highest bidder within 10 days after the sale. The borrower can no longer
redeem the property after the foreclosure sale.
PENNSYLVANIA
Pennsylvania only allows judicial foreclosures for properties where owners
courts.
The lender can only start foreclosure proceedings if the borrower is 60 or
more days late on payments. The lender sends the borrower two demand
letters before starting the foreclosure. The borrower is allowed anywhere
from two to four months to settle the obligation before the lender takes
further action.
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If the borrower is unable to pay the debt, the lender files suit against the
borrower for payment of the amount due. The borrower is notified of the
foreclosure action in person. If that is not possible, notice may be served
either by mail or publication.
The borrower is given one month to respond to the suit. Otherwise, the
court orders a foreclosure sale. If the borrower responds to the suit, the
case goes to trial. The borrower can pay the full amount owed up to one
hour before the sale to stop the foreclosure proceedings.
The county sheriff posts a notice of the sale on the property and delivers a
copy of the notice of sale to the borrower. The notice of sale is published at
least once a week for three consecutive weeks in both a local generalinterest newspaper and a local legal newspaper.
The county sheriff oversees the foreclosure sale, which is a public auction
that awards the property to the highest bidder. The sheriff effects transfer of
the property to the winning bidder after the sale. A one-time postponement
of the sale for a period of up to 100 days is allowed. Any further
postponements require court approval. Borrowers can no longer redeem
the property after the foreclosure sale.
RHODE ISLAND
Rhode Island allows both judicial and non-judicial foreclosures for
properties where owners have defaulted on their payments.
Aside from the above two types of foreclosures, lenders may also file a
lawsuit to evict the borrower from the property, or the lender can take
possession of the property peaceably. It may also happen that the borrower
will voluntarily give up possession of the property, in which case, the lender
takes over the property. If the lender is able to maintain possession of the
property for a given period of time, the property’s title is eventually turned
over to the lender.
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In a judicial foreclosure, the lender files suit against the borrower and asks
the court to declare the borrower in default. Once the court rules in favor of
the lender, the foreclosure sale is scheduled, with the property being
auctioned off to the highest bidder. Judicial foreclosures are resorted to
when there is no power-of-sale clause in the mortgage or deed of trust that
allows the lender to foreclose the property in the event of a default.
In a non-judicial foreclosure, the lender initiates foreclosure proceedings
once the borrower is in default. The lender does so on the strength of a
power of sale clause in the mortgage or deed of trust. It may happen that
the mortgage or deed of trust also details the foreclosure process to be
followed in case of a default. If not, the procedure is as follows:
The lender must draft a notice of sale containing relevant details, including
the names of both lender and borrower, a description of the property, the
mortgage date, the amount due as well as the time and place of sale.
The borrower must be copied with the notice of sale at least 20 days before
the sale date. The copy should be mailed to the borrower’s last known
address.
The notice of sale must be published in a local newspaper at least once a
week for three consecutive weeks.
Any person, including the lender, may bid at the sale, with the highest
bidder getting the property.
SOUTH CAROLINA
South Carolina only allows judicial foreclosures for properties when owners
courts. To initiate foreclosure proceedings, the lender files a lis pendens, or
notice of pending lawsuit, with the court. The lender must then personally
deliver a foreclosure notice to the borrower within 20 days from the filing of
the suit. If the borrower cannot be located, the lender will have to publish
the notice in a local newspaper for three weeks.
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A borrower is given 30 days to file a response to the action. The borrower
may pay off the default to stop the foreclosure proceedings. If the borrower
is unable to settle the obligation, the case is referred to a hearing officer,
who orders a notice to be sent to all relevant parties. The officer may then
order a foreclosure sale on the property.
Once the hearing officer orders a foreclosure sale, a notice containing a
description of the property, the time and location of the sale, and the lender
and borrower’s names is posted at the courthouse and published in a local
newspaper at least three weeks before the sale date.
Foreclosure sales are normally held at 11:00 a.m. on a Monday and
overseen by a court officer or special referee. Five percent of the winning
bid is required to be deposited at the sale. The winning bidder has 20 to 30
days to pay the bid amount.
The lender may waive the right to file a deficiency judgment. In this case,
the borrower can no longer redeem the property after the foreclosure sale.
If the lender chooses to exercise the right to a deficiency judgment, upset
bids can still be posted for a period of up to 30 days after the foreclosure
sale. Ownership of the property is transferred to the winning bidder once
the remaining bid balance is paid and the court confirms the sale.
SOUTH DAKOTA
South Dakota allows both judicial and non-judicial foreclosures for
properties when owners have defaulted on their payments. However,
judicial foreclosures are more common in the state.
not include a power-of-sale clause. Once a lender brings suit for default, a
borrower is given 30 days to answer the suit. Once the court finds in favor
of the lender, the property is put up for sale.
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Non-judicial foreclosures are applicable when a mortgage or deed of trust
contains a power-of-sale clause, allowing the lender to sell the property
extra-judicially to recover the remaining loan balance. For both judicial and
non-judicial foreclosures, the notice of sale is published in a local
newspaper and provided to the borrower at least 21 days prior to the sale.
Foreclosure sales are public auctions, with the highest bidder winning the
auction, and normally held between 9:00 a.m. and 5:00 p.m. The winning
bidder is given a certificate of sale. After the redemption period has
elapsed, the bidder is provided with a deed of transfer of ownership.
The borrower and other interested parties may redeem the property for a
maximum period of six months after the foreclosure sale. The redemption
period for vacant properties is two months.
TENNESSEE
Tennessee allows both judicial and non-judicial foreclosures for properties
when owners have defaulted on their payments. However, non-judicial
foreclosures are more common in the state, with lenders rarely resorting to
judicial foreclosures.
not include a power-of-sale clause. Once a lender brings suit for default, a
borrower is given a certain amount of time to answer the suit. Once the
court finds in favor of the lender, the property is put up for sale.
extra-judicially to recover the remaining loan balance.
The borrower may pay the total amount owed plus any applicable fees at
any time before the sale, effectively stopping foreclosure proceedings.
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If the deed of trust or mortgage contains a clause that specifies the time,
place, and terms of sale, then the specified procedure must be followed. If
not, the process below is followed:
1. The lender writes a notice of foreclosure sale that includes the names
of the affected parties, a description of the property, and the date,
time, and location of the sale. The notice must also include all other
liens on the property.
2. The notice of sale is published three times in a newspaper, with the
first one appearing at least 20 days before the sale date.
3. Although state law does not require notifying the borrower, it’s
common to mail a notification of the sale to the borrower.
4. The sale is held between 10:00 a.m. and 4:00 p.m. After the sale,
ownership of the property passes on to the highest bidder.
Deeds of trust commonly waive borrowers' rights to redeem the property
after the foreclosure sale. If the deed of trust does not waive this right, the
borrower is allowed to redeem the property within two years from the
foreclosure sale.
TEXAS
Texas allows both judicial and non-judicial foreclosures for properties when
owners have defaulted on their payments. However, non-judicial
foreclosures are more common in the state, with lenders resorting to
judicial foreclosures only when there is no power-of-sale clause in the
mortgage or deed of trust. Moreover, it is easier to foreclose properties in
Texas than in other states.
In a judicial foreclosure, the lender brings suit for default against the
borrower. Once the court finds in favor of the lender, the property is put up
for sale. Before initiating a non-judicial foreclosure, the lender is required to
notify the borrower of its intent to foreclose. The borrower is given 20 days
to settle the obligation. If the borrower fails to pay the default amount, the
lender sends a second notice, this time asking for payment of the full
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balance and informing the borrower that a foreclosure sale has been
scheduled to recover the amount.
Once a foreclosure sale is scheduled, the lender must post a notice of sale
at the door of the county courthouse, file a foreclosure notice with the
country clerk, and mail a copy of the notice of sale to the borrower’s last
known address. All of the above must be accomplished at least 21 days
before the sale date. Texas does not require publication of the notice in
newspapers.
The foreclosure sale is a public auction, with the property going to the
highest bidder. Sales are normally held on the county courthouse steps
between 10:00 a.m. and 4:00 p.m. on the first Tuesday of the month,
regardless of holidays. The winning bidder must pay in cash.
The property is transferred to the highest bidder subject to senior liens, if
any, and free and clear of any junior liens, if any. If the bid amount is higher
than the amount owed, the surplus is equally divided among the junior lien
holders, if any. The borrower can no longer redeem the property after the
foreclosure sale.
UTAH
Utah allows both judicial and non-judicial foreclosures for properties when
owners have defaulted on their payments. However, non-judicial
foreclosures are more common in the state, with lenders resorting to
judicial foreclosures only when there is no power-of-sale clause in the
mortgage or deed of trust.
In a judicial foreclosure, the lender brings suit for default against the
borrower. The court gives the borrower a certain amount of time to settle
the debt. If the borrower fails to settle the obligation, the court will order that
the property be put up for sale.
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In a non-judicial foreclosure, the lender uses the power-of-sale clause in
the mortgage or deed of trust to initiate foreclosure proceedings. If the
mortgage or deed of trust specifies the procedures to be followed in case of
default, then the lender must follow those procedures. If not, the following
procedure applies:
A notice of sale must be published once a week for three consecutive
weeks in a local general-circulation newspaper, with the last publication at
least 10 days but not more than thirty days before the sale date. The notice
of sale must be posted in a conspicuous place on the property subject to
foreclosure and at the office of the county recorder at least 20 days before
the sale date. The sale must be held between 8:00 a.m. and 5:00 p.m. at a
place clearly advertised in the notice of sale.
Borrowers are allowed to redeem the property even after the foreclosure
sale. There is no set time for redemption.
A deficiency judgment may also be obtained against the borrower so that
the lender can recover the difference between the amount owed and the
foreclosure sale price. It may also be possible for the lender to seize the
property until the deficiency is fully paid.
VERMONT
Vermont allows both judicial and non-judicial foreclosures of properties
when owners have defaulted on their payments.
In a judicial foreclosure, the lender files suit against the borrower in the
county where the property is located. The borrower is summoned to appear
before the court, which may render a summary judgment upon the lender’s
request and order the borrower to pay the default amount or face
foreclosure.
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The redemption period may vary depending on the year of the mortgage.
For post-1968 mortgages, the redemption period is six months. On the
other hand, pre-1968 mortgages have a one-year redemption period.
Unlike most states that allow non-judicial foreclosures, mortgages or deeds
of trust with power of sale clauses do not automatically go through nonjudicial foreclosure proceedings. Rather, depending on the type of property
securing the deed of trust or mortgage, the power-of-sale clauses may be
enforced either judicially or extra-judicially.
Foreclosure of a property with a power of sale clause in the deed of trust
requires the lender to file a complaint in court, particularly if the property to
be foreclosed includes a dwelling of two units or less, and the said property
is the borrower’s principal residence. The sale of this type of property may
only be held seven months after the court’s issuance of the decree of sale.
If the property to be foreclosed is not the borrower’s principal residence, the
lender may exercise power of sale even without a foreclosure order from
the courts.
Once a foreclosure sale is scheduled, the lender must send a notice of
intent to foreclose to the borrower. The notice of intent must include
information on the mortgage to be foreclosed, state which condition of the
contract has been breached, mention the lender’s right to accelerate the
mortgage and collect the full amount, and include the total amount owed.
The lender must also inform the borrower that he or she is entitled to
receive a notice of sale at least sixty days before the sale date.
Payment of the full amount due plus costs at any time prior to the
foreclosure sale stops the foreclosure proceedings.
Unless otherwise ordered by the court, the sale is held on the property
itself, and the highest bidder gets the property. If the bid amount is higher
than the amount owed, the surplus may be given to the borrower. However,
the lender may sue for a deficiency judgment if the sale price is not enough
to cover the amount of the mortgage in default.
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If the property is sold without court action, as in non-judicial foreclosure by
power of sale, the notice of sale must include the following language:
“The mortgagor is hereby notified that at any time before the foreclosure
sale, the mortgagor has a right to petition the superior court for the
county in which the mortgaged premises are situated, with service upon
the mortgagee, and upon such bond as the court may require, to enjoin
the scheduled foreclosure sale. Failure to institute such petition and
complete service upon the foreclosing party, or their agent, conducting
the sale prior to sale shall thereafter bar any action or right of action of
the mortgagor based on the validity of the foreclosure, the right of the
mortgage holder to conduct the foreclosure sale, or compliance by the
mortgage holder with the notice requirements and other conditions of
section 4532 of Title 12. An action to recover damages resulting from the
sale of the premises on the date of the sale may be commenced at any
time within one year following the date of the sale, but not thereafter.”
VIRGINIA
Virginia allows both judicial and non-judicial foreclosures of properties
when owners have defaulted on their payments. Judicial foreclosures are
rare in the state, though, with many lenders relying on non-judicial
foreclosures for the most part.
county where the property is located. The court then declares a foreclosure
and dictates the terms of the foreclosure sale.
In a non-judicial foreclosure, the lender is allowed to initiate foreclosure
proceedings without going through the courts. Before initiating a nonjudicial foreclosure, the lender is required to send a notice of default to the
borrower, who must then pay the amount in default within 30 days. If the
borrower fails to settle the obligation, the lender may then schedule a
foreclosure sale.
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The court must approve the newspaper where the notice of sale is to be
published. The notice of sale must include a description of the property, the
terms of the sale, and the location, date, and time of the sale. The borrower
must be informed about the foreclosure sale at least 14 days before the
actual sale date.
The sale is normally held between 9:00 a.m. and 5:00 p.m. at the local
courthouse. The lender opens the sale with its own bid. If no one bids, the
lender wins the bidding. Once the auction is completed, all necessary
documents to transfer ownership of the property are given to the highest
bidder.
Although the sale can’t be postponed, it may be canceled. However,
cancellation will result in the restart of the foreclosure process. The
borrower cannot redeem the property once the sale becomes final.
However, the lender may cancel the sale and give the property back to the
borrower if the latter is able to pay the amount owed.
The lender may seek a deficiency judgment against the borrower in case
the highest bid is less than the total amount due plus other costs. Payment
of the full amount due plus costs at any time prior to the foreclosure sale
stops the foreclosure proceedings.
Unless otherwise ordered by the court, the sale is held on the property
itself, and the highest bidder gets the property. If the bid amount is higher
than the amount owed, the surplus may be given to the borrower. However,
the lender may sue for a deficiency judgment if the sale price is not enough
to cover the amount of the mortgage in default.
If the property is sold without court action, as in non-judicial foreclosure by
power of sale, the notice of sale must include the following language:
“The mortgagor is hereby notified that at any time before the foreclosure
sale, the mortgagor has a right to petition the superior court for the
county in which the mortgaged premises are situated, with service upon
the mortgagee, and upon such bond as the court may require, to enjoin
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APPENDIX
the scheduled foreclosure sale. Failure to institute such petition and
complete service upon the foreclosing party, or their agent, conducting
the sale prior to sale shall thereafter bar any action or right of action of
the mortgagor based on the validity of the foreclosure, the right of the
mortgage holder to conduct the foreclosure sale, or compliance by the
mortgage holder with the notice requirements and other conditions of
section 4532 of Title 12. An action to recover damages resulting from the
sale of the premises on the date of the sale may be commenced at any
time within one year following the date of the sale, but not thereafter.”
WASHINGTON, D.C.
Washington D.C. only allows non-judicial foreclosures of properties when
owners have defaulted on their payments. This is because mortgages or
deeds of trust issued in the District of Columbia often have power-of-sale
clauses that allow the lender to sell the property when a borrower defaults
on a payment.
To initiate foreclosure proceedings, the lender sends a notice to the
borrower that the terms of the mortgage or deed of trust have been
violated. The foreclosure sale can be scheduled right after the notice is
sent to the borrower.
The borrower may pay the default amount plus other charges as late as
five days before the sale to stop the foreclosure proceedings.
The lender must record the notice of sale with the recorder of deeds, mail a
copy of the notice of sale to the mayor or the mayor’s appointed
representative, and notify the borrower about the foreclosure sale by
certified mail at least 30 days before the sale. The lender may also inform
other lien holders, if any, about the sale.
If the mortgage or deed of trust includes a particular time and place of the
sale, the procedure as set forth in the applicable instrument must be
followed. If not, the court specifies the sale terms. If the mortgage does not
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contain any advertising requirements, the lender must advertise the
foreclosure sale in The Washington Post or The Washington Times at least
five times before the sale date. If the mortgage contains advertising
requirements other than posting to The Washington Post or The
Washington Time, the lender must follow these requirements:
A licensed auctioneer oversees the foreclosure sale, which is typically held
at the auctioneer’s office. If the sale is postponed for any reason
whatsoever, a new notice of sale must be republished and resent. Once
the sale is complete, the trustee’s deed is recorded and the property is
turned over to the winning bidder. The borrower can no longer redeem the
property after the foreclosure sale.
WASHINGTON
Washington allows both judicial and non-judicial foreclosures of properties
when owners have defaulted on their payments. Judicial foreclosures are
rare in the state, though, with many lenders relying on non-judicial
foreclosures for the most part.
county where the property is located. The borrower is given 30 days to
respond to the suit (60 days in case the borrower is from out-of-town or a
non-resident of the state). If the court rules against the borrower, a
foreclosure sale is scheduled six to eight weeks after the ruling.
In a non-judicial foreclosure, the borrower is served with a notice of default.
If the borrower can’t be found, the notice may be posted on a conspicuous
area of the property to be foreclosed instead.
The borrower must respond to the notice of default within 30 days,
otherwise, a foreclosure sale is scheduled. If the borrower responds within
the allotted timeframe, the court hears the merits of the case. If the court
rules in favor of the lender, a foreclosure sale is then scheduled.
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APPENDIX
The borrower may pay the past due plus other costs anytime before the
10th day prior to the sale, effectively stopping the foreclosure proceedings.
If the borrower fails to pay the obligation within 30 days after receiving the
notice of default, the lender records a notice of sale with the county
recorder. The notice of sale must be recorded at least 90 days before the
sale date. The borrower and other affected parties must be informed about
the sale date.
The notice of sale must also be published twice in a local newspaper, with
the first publication between the 32nd and 28th days before the sale, and
the second and final publication between the 11th and seventh day before
the sale.
Foreclosure sales are public auctions and require the highest bidder to pay
in cash. For non-judicial foreclosures, ownership is transferred to the
winning bidder right after the sale. The winning bidder may also take
possession of the property 20 days after the sale. The borrower can no
longer redeem the property after a non-judicial foreclosure sale.
For judicial foreclosures, the borrower may redeem the property within one
year from the date of sale. To redeem the property, the borrower must pay
the full amount due plus other costs. If the property is the borrower’s
primary residence, the borrower can remain in possession of the property
until the end of the redemption period.
WEST VIRGINIA
West Virginia allows both judicial and non-judicial foreclosures of properties
when owners have defaulted on their payments. However, judicial
foreclosures are rare in West Virginia. Instead, many lenders prefer to
foreclose outside the court system.
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APPENDIX
Non-judicial foreclosure is used when a power of sale clause exists in a
mortgage or deed of trust. This clause allows the lender to sell the property
in case the borrower defaults on a payment.
In most cases, the foreclosure process for the property is detailed in the
deed of trust or mortgage with a power of sale clause. If this is not the
case, the following procedure may then be applied:
1. The lender must draft a notice of sale that contains the following
information: the time and place of the foreclosure sale, the names of
the involved parties, the date of the deed, recording information, a
brief description of the property, and the terms of the sale.
2. The notice of sale must be posted on the front door of the county
courthouse and three other public places, one of which must be the
property itself, at least 20 days before the sale. The notice must also
be served upon the borrower and subordinate lien holders at least
20 days prior to the sale date.
3. Additionally, the notice must be published as a Class III legal
advertisement in the county where the property is located once a
week for four consecutive weeks.
4. The sale must be held at the time and place stated in the notice. The
highest bidder wins the auction. Unless the deed specifies
otherwise, the winning bidder must pay one-third of the bid amount
in cash at the sale.
WISCONSIN
Wisconsin allows both judicial and non-judicial foreclosures of properties
when owners have defaulted on their payments. However, judicial
foreclosures are more common in the state.
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APPENDIX
extra-judicially to recover the remaining loan balance. Before initiating
foreclosure proceedings, the lender must notify the borrower about its plan
to foreclose.
Once the borrower is notified, the lender can then file a motion to rule the
borrower in default with the court. Again, the lender must send notice of the
filing to the borrower and other interested parties, if any, otherwise the
court may rule adversely on its filing. If the requirement to notify the
borrower and other parties about the suit is fulfilled, the court may then rule
in favor of the lender. The court may also order adding other costs that the
lender incurs during the filing of the suit to the total amount owed.
Once the court has issued a judgment of foreclosure, the borrower can stop
the foreclosure by paying off the amount owed. A reinstatement period is
customary and may vary depending on the mortgage date and terms, the
size of the property, and occupancy status. Most properties have a
reinstatement period of six to 12 months. On the other hand, abandoned
properties have a two-month reinstatement period.
Once the foreclosure sale is scheduled, the local sheriff announces the
time and place of sale. In most cases, the foreclosure sale cannot occur
until after the end of the reinstatement period. The notice of sale is
published within the reinstatement period, with the first publication at least
10 months after the court’s foreclosure ruling.
The sheriff oversees the foreclosure sale, and anyone may bid at the sale.
The winning bidder is required to pay 10 percent of its maximum bid at the
sale. The 10 percent deposit must be payable to the county sheriff. Within
10 days from the sale date, the sheriff must file a report of the sale and
deposit the proceeds with the clerk of the court. The court may then confirm
the sale, after which the clerk pays the parties entitled to the sale proceeds
and delivers the deed transferring ownership to the winning bidder, who
must then pay the balance of the sale price.
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APPENDIX
If the buyer fails to pay the balance of the bid price within 10 days after the
court confirms the sale, the deposit is forfeited and paid to the entitled
parties, and a new sale is scheduled. If the court does not confirm the sale,
the clerk refunds the deposit and a resale occurs.
In the case of a surplus, or when the winning bid is higher than the amount
owed, other lien holders, if any, may file a notice with the clerk of the court,
and the court then determines who is entitled to the surplus.
If the property sells for less than the default amount and sale costs, the
court will not confirm the sale. A resale will then be held.
WYOMING
Wyoming allows both judicial and non-judicial foreclosures of properties
when owners have defaulted on their payments. However, non-judicial
foreclosures are more common in the state.
extra-judicially to recover the remaining loan balance.
Wyoming law requires the lender to inform the borrower of its intent to
foreclose at least 10 days before the first publication of the notice of sale.
The notice of sale must be published in a local newspaper at least once a
week for four consecutive weeks.
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APPENDIX
The county sheriff or the sheriff’s representative oversees the auction. The
sale is held at the front door of the courthouse in the county where the
property is located and takes place between 9:00 a.m. and 5:00 p.m.
Anyone, including the lender, may bid and the highest bidder receives a
certificate of purchase right after the sale. However, the winning bidder only
receives full ownership of the property at the end of the redemption period.
The borrower may redeem the property within three months from the sale
date. The borrower must pay an amount equivalent to the purchase price
from the auction plus interest and taxes due to redeem the property.
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Quick Cash System
APPENDIX
PROPERTY INSPECTION REPORT
Date: ___________
Tax ID #:___________________
Property Address: _______________________________________________________
1) What is the condition of the exterior of the property?
Poor 1
2
3
4
5 Excellent
Notes:___________________________________________________________
________________________________________________________________
________________________________________________________________
2) What is the condition of the interior of the property, if possible to view?
Poor 1
2
3
4
5 Excellent
Notes:___________________________________________________________
________________________________________________________________
________________________________________________________________
3) How is the neighborhood?
Poor 1
2
3
4
5 Excellent
Notes:___________________________________________________________
________________________________________________________________
________________________________________________________________
4) Is the property vacant or occupied?
5) Is the property located on an interior residential street, busy street, main artery?
6) Based on your visual inspection, what is your estimated cost of repairs?
Special Notes:
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
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APPENDIX
CALIFORNIA TITLE QUESTIONS
1. What is the correct address and APN #?
2. What are the property taxes owed?
3. What position is the deed in? (Always give the document date number.)
If buying junior liens always check senior liens.
4. Are there any other liens on the property? (If yes, when recorded?)
5. Are there any IRS liens? (Ask them to do a name search.) Make sure
that an IRS lien is in a junior position from where you are buying.
6. Does anything senior to me have a Notice of Sale?
7. Is there a Notice of Default for anything senior to me?
Note: Questions 6. & 7. only apply when buying junior liens.
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Quick Cash System
APPENDIX
REPRESENTATIVE/BROKER TO ATTACH
BUSINESS CARD HERE
AGREEMENT TO VACATE
1.
This notice will confirm that LJRD, LLC (the "Owner”) is the owner of the property located at:
16011 Hart St, Van Nuys, CA 91406
It is the understanding of the Owner that you are currently occupying this Property. The Owner has
obtained the Property as a consequence of a foreclosure sale.
This is to inform you that the Owner has retained the following representative/broker (business card
attached above) to work with you regarding your occupancy of the Property.
You may have already received, or you will shortly receive, a Notice to Vacate or Quit from the
Owner's attorney, confirming that the Owner is seeking to recover possession of the Property. The
Owner may also seek to recover from you the fair market value of the Property for the period of time
commencing on the date of the foreclosure sale and ending on the date on which you vacate the
Property.
2.
While the Owner has the right to pursue these legal actions against you, the Agreement to Vacate
Program provides that, in the event you vacate the Property on or before May 14, 2010 (the
"Delivery Date"), the Owner: (a) will not file, or will voluntarily dismiss, any legal actions against you
for possession of the Property or for fair rental value payments, and (b) will make payment to you, on
the date on which you vacate the Property, of:
Two Thousand Five Hundred Dollars ($ 2,500.00) (the "Cash Incentive")
The Owner's representative/broker has no authority to increase the amount of the Cash Incentive or
to extend the Delivery Date.
If you vacate the Property by the Delivery Date, the Owner's representative/broker will make a final
inspection of the Property. If you have returned all keys and have left the Interior and Exterior of the
Property (including all fixtures, facilities, and appliances) in broom clean condition, and in no worse
condition as they are now, ordinary wear and tear exempt, then upon signing a simple release form,
the Owner's representative/broker shall pay you by check the Cash Incentive.
3.
If you choose to participate in the Relocation Program, then until the Delivery Date, to the maximum
extent permitted by law, you agree that: (a) the Owner will not be liable for any injury or damage to
person or property on the Property (the same being at your sole risk), and (b) you agree to release,
indemnify and hold the Owner and its agents harmless from, and against, any and all claims arising
out of the condition of the Property and/or your use and occupancy thereof.
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APPENDIX
AGREEMENT TO VACATE - PAGE 2
4.
You also agree to cooperate with the Owner in allowing reasonable access to the Property upon at
least 24 hours notice for the purpose of inspection, appraising, marketing, and showing of the
Property to prospective purchasers.
5.
IN NO EVENT SHALL THIS NOTICE CONSTITUTE AN ACCEPTANCE OF YOUR CONTINUED
OCCUPATION OF THE PROPERTY, AND NOTHING HEREIN SHALL BE DEEMED TO CREATE
ANY TENANCY. THIS PROGRAM DOES NOT PRECLUDE THE OWNER FROM INITIATING ANY
EVICTION PROCEEDINGS PERMITTED BY LAW DURING THE TIME LEADING UP TO THE
DELIVERY DATE.
6.
In the event you wish to take LJRD, LLC of this Agreement to Vacate Program, please return a copy
of this notice to the Owner's representative/broker, signed by you and all other adult occupants of
the Property on or before May 6, 2010 at 6 P.M. otherwise, you will no longer be eligible to
participate in this Program.
OCCUPANT'S PRINTED NAME:
___________________________________
___________________________________
___________________________________
Occupants Signature
Date
___________________________________
Occupants Signature
Date
Social Security# _____________________
Social Security #: ____________________
___________________________________
___________________________________
___________________________________
Occupants Signature
Date
___________________________________
Occupants Signature
Date
Social Security# _____________________
Social Security #: ____________________
OWNER:
____________________________________
Owner Representative/Broker Signature
______________________________________
Phone#
Date
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APPENDIX
AGREEMENT TO VACATE RELEASE
The undersigned hereby acknowledges receipt of ________________________________ ($
from
OWNER
. Prior to acceptance and in consideration of said payment and other good and
valuable consideration, the undersigned hereby acknowledges and agrees that I/we have vacated the
property ("the Property") in broom clean condition located at:
__________________________________________________________________________________
Which [/we were occupying, and hereby release any and all rights of possession or occupancy in and to
the Property, and further release
OWNER
its officers, directors, employees, attorneys, agents
and/or successors and assigns from any and all claims, demands, causes of action, suits, and damages
and liabilities, in connection with the Property and/or our use and occupancy thereof.
Signed this _________day of _________________, 20__
___________________________________
___________________________________
___________________________________
Occupants Signature
Date
___________________________________
Occupants Signature
Date
Social Security# _____________________
Social Security #: ____________________
___________________________________
___________________________________
___________________________________
Occupants Signature
Date
___________________________________
Occupants Signature
Date
Social Security# _____________________
Social Security #: ____________________
OWNER:
____________________________________
Owner Representative/Broker Signature
____________________________________
Phone#
Date
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Quick Cash System
APPENDIX
WHO ARE CHRIS McLAUGHLIN and NATHAN JUREWICZ?
Chris McLaughlin is a Realtor® and real estate broker licensed in the state
of Florida, actively engaged in the practice of real estate
brokerage with four offices in Tampa, Lakeland and Winter
Haven with nearly 450 agents. He and his agents have
done hundreds of short sale and REO transactions. He
holds an MBA from Georgetown University School of
Business and a JD from Georgetown University Law
Center, and is a licensed attorney and member of the
Florida Bar Association. Previously he was the President
of SmartPortfolio.com, an online financial media company that sold to
TheStreet.com (Nasdaq: TSCM) in 2000.
Chris is currently the President of The Loss Mitigation Training Institute,
LLC and is a sought-after speaker and trainer. Through seminars, systems
and coaching programs, he has helped hundreds of Realtors, mortgage
brokers, investors and others engaged in real estate related businesses
understand the ramifications of declining markets and the foreclosure
environment. His thorough, knowledgeable and ethical approaches to
navigating foreclosure sales create win-win deals time and again in all
different types of market places.
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APPENDIX
Nathan Jurewicz always marched to the beat of a
different drummer, which may account for how, by age 27,
he made more money in a bad economy than he ever
made in good times. After being home schooled through
high school and “just barely” graduating, Nathan went into
retail sales and management at the age of 18, making a
good living in no time. “So I figured I would just skip
college,” says the gonzo real estate investor. After moving into commercial
equipment finance he finally “got sick of the rat race” at the ripe old age of
24 and started buying and selling houses on the side.
When Nathan’s boss found out he was doing real estate on the side he
offered the ultimatum, “Stop selling real estate or stop working here!” The
rest is real estate history. Two months later (with no job, no money in the
bank and $30K in credit card debt) Nathan did his first short sale and resale, making $25K on the deal. He was hooked and has been refining his
real estate investment processes ever since. As a licensed Realtor® living
and working in Tampa, Florida, he’s seen one of the hottest real estate
markets in U.S. history and one of the worst, all in just a few short years.
He admits to making every mistake a real estate investor could possibly
make. But he’s still making money hand over fist today.
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The Foreclosure Auction - shortsalesrichesmembers.com

Transcription

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