Editor’s Note: This is the second of three posts about buying a house at a greater Phoenix metro-area auction (Maricopa and Pinal County). I’m not an attorney or expert when it comes to foreclosure. I’m not buying 3-5 houses a day at the courthouse steps. I don’t even purchase 3-5 houses a month. However, I’ve done my share of deals, about 20-30 a year for the past three years, so I feel like I’m qualified enough to explain in generalized terms how it works.
Do Your Homework
Before you show up at a trustee’s sale you better do your homework. That’s good advice from professional bidder Dusty Figgs of AZBidder.com. What does he mean by do your homework?
For starters, you need to know if the opening bid is set low enough to join the gang down at the courthouse steps. About 60-70% of the time the opening bid is set at what the homeowner owes, plus arrears. This is why so many houses go back to the beneficiary (the bank).
Where do you go to find out the opening bid? If you have a copy of the Notice of Trustee’s sale, which can be found on the Maricopa County Recorder’s website, there should be a phone number with the sale information. There are also third-party websites, like AZBidder.com, that publish this information for free. Many of the trustees have their own websites where you can check for opening bids. The trustees are required to publish the opening bid 24 hours prior to the sale, but they play fast and loose with the rules. Sometimes they’ll do a “drop” bid hours or minutes before the sale. If you’re not at the sale, or have some at the sale to represent you, you’ll have no idea the opening bid was lowered.
Next, you need to know what lien position you’re bidding on – anything but the 1st lien and you’ll have to pay off all senior lien holders. Let’s say, for example, you bid on a property with an opening bid of $90,000. You bid all the way up to $115,000 and win, only to find out there’s a senior lien of $150,000. Guess what? You now have to pay off that senior lien holder to get clear title to the property.
How do you find out what position the foreclosing lien holder is in? You order a title report from a reputable title company or bidding service. The title report will reveal all sorts of stuff – junior lien holders, child support judgments, state and IRS tax liens, HOA judgments, unpaid property taxes and pending bankruptcy.
Once you’re certain the foreclosing lender is in first lien position it’s not a bad idea to drive by the property you want to bid on and make sure it hasn’t burned to the ground. If the house is vacant you can probably peek through the windows and over the fence.
In the event the house is occupied you’ll have to take your chances. Sure, you could knock on the door, explain to the homeowner that you plan to buy their house at the auction and then ask for a guided tour. WARNING: This tactic usually doesn’t work. Expect to have the door slammed on your face, or to get punched in the face. If the house is occupied and you win the bid the homeowner must be evicted, like a tenant that hasn’t paid their rent. There are several law firms here in town specializing in evicting foreclosed homeowners. This process can be done in about 3-4 weeks. Of course, you can also bribe, I mean offer cash for keys to the occupant. I’ve found a $1,000 will get just about anyone to move out in 7-10 days.
Winning a Bid
The trustee’s sale works a lot like a traditional auction. Bids are placed in increments of $100, or more, depending upon how low the opening bid is set for and how many bidders are involved.
If you win a bid the auctioneer will require $10,000 in certified funds made out to the trustee. The remainder is due the following day at 5p in the trustee’s office. Don’t expect a traditional bank to finance the purchase of your property at the trustee’s sale. You’ll need cash, or a hard money loan. There are numerous hard money lenders in Phoenix that will finance your purchase in 24 hours for 25-30% down at 16-18% interest.
For more insight into this part of the process here’s another interview with Dusty Figgs of AZBidder.com: