Monday, November 12, 2012

Texas Tuesday

Texas Tuesday!

I've been asked a lot of questions about how the auction works and what to expect when going down to the court to purchase real estate.  I hope that this article can shed a little light on some of the questions that I've been asked in the time that I have been going down with our team to buy houses.

The above two pictures show how packed the auction can get at 10 a.m. Texas Tuesday.  Over the last six months there have been more and more people showing up each month.

The picture above shows how many people stick around until the middle of the auction (around 1:30 p.m.).   There are just as many properties being sold now in the trustee sale as there are at 10 a.m.

The Sales

Sheriff's Sale

The first thing to note is beginning at 10 a.m. there are two types of sales taking place simultaneously. The Sheriff's sale takes place on the left side of the court steps and is a sale of all properties in foreclosure for delinquent taxes.  You must be registered for each sale with the sheriff's office (the sale for that particular month).  These houses have delinquent taxes owed to the county and bidding begins at the amount owed.  If you should purchase a property here you must take into account a time period called right of redemption.  For most properties this is a six month period during which the party being foreclosed upon can repurchase the property, no questions asked, back from you for the amount you paid for the property plus a 25% interest premium.  Houses that have been homesteaded have a TWO YEAR right of redemption.  

The message here?  Know what you're buying.  Buying a house for $500 can seem like a pretty sweet deal until you find out that there is a $100,000 federal tax lien against the property. (The IRS has a 120 day right of redemption and are pretty serious about collecting).  The lesson to be had here is that if you're looking at getting into investing in real estate, if you're not a full time real estate pro, if you saw a show on TV, this is not the place for you to roll the dice on your cash.  Any property you purchase here you are going to be holding for a while.

Trustee Sale

November's list of houses potentially for sale at the trustee sale was 1,310 properties.  These are released on the 15th of the month to people who purchase the list from on of the several providers.  That leaves you roughly three weeks to research and look at your potential buys; a formidable task to say the least.  The trustee sale is what people generally think of when they think of the auction at the court steps.  This is an all cash sale, so if you didn't bring your cashier's checks with you it's best not to get in the way of the people who did as it can get quite crowded.   By my estimates nine out of ten people who show up are not buyers in any way, shape, or form.  

Not all of the properties that have notice posted for foreclosure are actually sold at the auction.  A more realistic figure would be about one third of what appears on the initial list, however you never know which properties will be sold and which are coming off.  This can happen because the borrower worked out an arrangement with the bank or one of many other reasons.  Typically, multiple trustees will be auctioning off property at the same time.  Certain private companies that provide lists of the properties before the auction will have representatives present holding up numerical identification cards for which properties are currently up for sale (make sure you're paying attention to the correct numbers!).  

When a property comes up for sale it is referred to by it's legal description (lot and block).  The bank will almost always have an opening bid for the property.  This is the price at which the bank has agreed to purchase the property in the event that there are no higher bidders.  Most houses have so much debt attached to the asset that it doesn't make sense for an investor to out bid the bank for the property.  This is how a property because an REO or Real Estate Owned by the bank.  If the bank's minimum bid is lower than what you would pay for the property you can voice your bid to the trustee.  After winning the bid you will typically wait until the trustee has auctioned off all of the properties that they came to sell to present your cash and receive the deed.

What's the Game Plan?

Talk with someone.  You're not going to get good advice from someone who doesn't actively buy at the auction.  I'm sure most real estate agents know how the auctions work and how to participate but when it comes to throwing out hundreds of thousands of dollars in cash in one day make sure the person you're getting advice from knows what they're talking about.  It's far easier to make a bad buy than it is to make a good one.  Asking for advice at the auction is also not advisable.  The sheriff and the trustees don't have time to answer questions for new buyers and actual buyers are certainly not looking out for your best interests.  The people that make money buying here are possibly the hardest working individuals in the real estate market I have ever met and have been doing it for quite some time.  If you think that you're going to out smart a seasoned vet or have some information that no one else has access to, you may want to think a little harder about the circumstances surrounding the sale.  

If you do have questions on specifics of what is taking place reach out to me via email, phone, facebook, or any other social media.  


Ryan Harthan


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