Adventure On The Courthouse Steps

-All it takes is winning one property to make it worthwhile.

By Jack Williamson
Real Estate Entrepreneur

I buy foreclosures! Sometimes I buy from the people being foreclosed on, but sually these people are so unrealistic that they let their home be foreclosed and receive nothing rather than recover some of their cash. One person told me “God is going to save me”. I was tempted to ask “who do you think sent me?” Recently another homeowner was willing to sell his $165,000 home to me. I didn’t buy when I discovered he was $30,000 behind in payments and owed what the house was worth. It is also difficult to buy from mortgage companies since the real estate market is very good.

SO… I buy at the Courthouse door. The action is exciting and the challenge of bidding with the pros is fun. It takes cash on the spot, but Texas uses the Deed of Trust with power of sale for the real estate collateral instrument. This foreclosure is quick, uncomplicated, non redeemable, and seldom challenged. It takes a team of 2 or 3 make sure you are involved when several trustees auction property at the same time. The most disappointing thing is that this year half of my successful bids were negated by homeowners filing bankruptcy the day of foreclosure. I found out the next day and my money was returned, but having paid cash for the property prevented me from buying another property.

I start preparation 19 days before foreclosure date by receiving a list of 400 to 500 properties posted for Foreclosure. I select 60-80 properties evaluate. I get sold comparables and calculate values for each house. Next I calculate equity using an estimated balance on the loan being foreclosed. I want the property to have at least 30% equity. Repair costs can be quite high in these properties.

I check property titles at the courthouse to make sure the lien being foreclosed on is a first lien only. I also want to know if there is an IRS lien or real estate tax lien against the property. If the trustee has properly notified the IRS there is no problem. Unpaid property tax liens are superior to all liens including mortgages. I bought one property with $8,000 property taxes due. I check taxes after I win the bid. If taxes due reduce the equity too much, I don’t pay and the trustee reconvenes the sale. Of course I drive by to see the property, talk to the owner if available, and get a good look at the property if it is vacant.

On sale day I try to be prepared on 60 properties. About 18 of those are actually sold at the courthouse. About 12 properties go to the lenders and I get to bid on about six. All it takes is winning one property to make it worthwhile.

After getting a house I go see the ex-homeowner and tell them that their mortgage company sold their property to my company. I them that we know they are having a tough situation now and that's why I am authorized to pay them cash ($500 to $1000) to be out by Monday and leave the house in its present condition. I insist on looking through it while I am there. Cash is less than paying extra repairs and/or carrying cost during time of eviction. Regarding destruction by mortgagors: You can't make them pay if they don't have enough money, and the Texas homestead law protects most of their personal property.