Understanding How Trustee Sales Work- By: Karim El Sheikh
Real estate sold at trustee sale auctions are sold at reduced prices. These foreclosure properties are always sold in an ďas isĒ condition for cash to the highest bidders at the sales. Each state has different rules and regulations regarding trustee sales so you should consult with a real estate attorney or check the laws of the state in which the property is located before buying.
Trustee Sale Process
The process commences when the borrower is in default on his or her loan and the lender records a notice of trustee sale with the County Recorderís office and serves all interested parties with a copy of the notice. The notice is generally placed in a public place and at the property and recorded in a newspaper of general circulation in the county in which the property is located. Every property is issued a trustee sale number so investors and buyers and are able to track it. If the property has a tax lien, additional procedures must be taken by the lender. Bankruptcy properties are protected under the bankruptcy court and cannot be foreclosed upon until the bankruptcy is discharged.
What Investors Must Be Aware of
Investors should keep in mind that trustee sales offer no warranties and that the lucky bidder must conduct their own due diligence by doing inspections and checking the titles for liens. If you are purchasing a condo or townhouse at a foreclosure trustee sale, lenders are not required to provide you with any homeowner association documentation. You will have to obtain all that on your own directly from the association.
Some states allow the owner to redeem the property after the foreclosure sale so you need to check out your state laws to make sure you understand the redemption periods. Until the redemption expires, you donít want to spend any money rehabbing the property, because the owner may redeem the property, and you would be out the money you just spent.
Where Auctions are Held?
Most auctions are held at the courthouse steps by the trustee or the sheriff. The auctioneer will inquire before the auction starts as to who is bidding and ask to see their 10 percent deposit. There is a lot of competition at auctions. Arrive early so you have plenty of time to register. Some states require you pay for the entire property after the sale if your bid is chosen. Have your cash ready.
The auctioneer starts the bidding process. Generally, the lender sets a minimum bid. Final bids are accepted after the third call. Buying properties at trustee sales is not that easy because lenders donít usually accept bids for less than what is owed. They end up buying back the properties and then putting them on the market as REOís (real estate owned). If you are lucky to secure a foreclosure property at a trustee sale, then you have truly found a treasure at a bargain price even if it needs some rehabbing. Most foreclosure auction properties are in bad condition.
REOís are also good bargains. They offer more investors less risk because the lender already has paid off liens, title is clear and you can get your own financing if you donít have cash. You can also inspect the properties and obtain title insurance. Expect the property to be in poor condition and budget for repairs, however.
Foreclosure properties purchased at trustee sales or as REOís are great investments because you are acquiring property with built-in equity. There is a large selection of foreclosure properties available from which to choose in most price ranges and neighborhoods. Whether you are looking for a single-family home, condo, townhouse or multi-family units, you should be able to find a good bargain right now.
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