(This is Part 2 of a three-part series. Read Part 1 and Part 3.)
PROFIT OPPORTUNITY #2 — BUY FOR CASH AT THE FORECLOSURE SALE.
If the house isn’t sold or refinanced during the pre-foreclosure reinstatement period, it will go to either a court judicial sale or a non-judicial trustee’s sale. This can be a superb profit opportunity to buy at the foreclosure auction to wipe out the junior loans and liens (except IRS liens). However, if there are unpaid property taxes, they are never wiped out.
Purchase Bob Bruss reports online.
EXAMPLE: Suppose you are considering buying a house worth $350,000. It has a $150,000 defaulted first mortgage, which is going to foreclosure sale; a $50,000 second mortgage; a $35,000 mechanics’ lien; and unpaid property taxes of $3,000. The lender’s opening bid will be $150,000, plus costs. If you bid $150,001 and there are no other bidders, you just bought a tremendous bargain subject only to the $3,000 unpaid property taxes. The $50,000 second mortgage and the $35,000 mechanics’ liens were wiped out by the foreclosure sale on the senior loan.
Drawbacks of buying at the foreclosure sale:
1. Cash is required, either at the sale or shortly thereafter (for safety, bring cashier’s checks payable to yourself that you can endorse over to the foreclosing officer as he directs);
2. You probably won’t be able to get title insurance on your title until six months or more after the sale (so the title insurer can check for any irregularities in the conduct of the sale);
3. Unless you tried negotiating with the defaulting borrower before the sale, you probably won’t be able to inspect the house before the auction;
4. The foreclosing lender makes no warranties or representations (you might think you are bidding on a foreclosed first loan but there is a prior recorded loan so you’re really bidding on a foreclosed second loan); and
5. If you buy “subject to” a senior loan, which will become your obligation to take over payments, that lender could refuse to let you take over payments (although most lenders are only too happy to have a stronger buyer taking title).
Advantages of buying at the foreclosure sale:
1. Any junior loans and liens are wiped out;
2. If there is a senior loan, you can probably take over its payments without having to get new financing (but be prepared to refinance if necessary); and
3. You may get an incredible below-market-value bargain.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
