Over the last 3 days, the Foreclosure 101 series covered the key points of the foreclosure process leading to a Trustee Sale:
The Trustee Sale market offers unique challenges and opportunities; successful buyers can (1) save significant money and (2) have exclusive market access — two huge advantages. Buyers at Trustee Sales routinely save 10% or more after fees and taxes. There are risks with these purchases, but with good information, these risks can be minimized.
Ideal Home Brokers researches properties and provides exclusive access to this data to our customers. We report (1) basic property information, (2) Trustee Sale comparables, (3) resale market comparables, (4) rental comparables and cashflow value, (5) detailed acquisitions costs including fees, taxes and other expenses, and (6) recommendations of maximum bid price.
Ideal Home Brokers is your window on the Trustee Sale market and your doorway to access this unique opportunity.
HOW THE PROCESS WORKS
This section contains a conceptual overview of the process, the language contained here is to inform, and it has no legal standing. Any conflict or contradiction real or implied by this section is superseded by language of Buyer Representation Agreement and remainder of the Trustee Sale Agreement (not included in this posting).
Broker herein agrees to provide Buyer with professional assistance in the acquisition of foreclosure property at the Trustee Sale (Sale), and Buyer herein agrees to pay Broker a Trustee Sale Service Fee (Fee) for the successful acquisition of a property at a Sale.
Buyer understands the risks involved, including the possibility of total loss, and has the sufficient cash resources to produce the cashier’s checks required to bid at Sales. Broker is a consultant providing available information to assist Buyer in making a buying decision and acting Agent to obtain property at Sale.
Establish Search Parameters
The first step of the process the development of a Buyer property profile that includes the following information:
- Age range
- Square footage range
- Numbers of bedrooms and bathrooms
- Other physical attributes important to buyer
- Price range of properties that Buyer is seeking
Broker shall provide Buyer with ongoing and updated information on all foreclosure Properties scheduled for Sale matching the Buyer’s profile as well as information on all matching properties listed in the Multiple Listing Service (MLS). Buyer awareness of market values of the matching properties assists in determining property bids at Sale.
Select Properties for Initial Research
Buyer shall review matching Properties, and inform Broker as to which Property or Properties, if any, the Buyer is interested in purchasing at Sale. Broker shall conduct research and compile a preliminary property report. This report, the IHB Preliminary Auction Value Report, shall include the following:
- Detailed description of Property
- Property tax information (tax rate, Mello Roos status, etc.)
- Basic Home Owners Association information, if any
- Recent market comparable sales
- Recent comparable foreclosure sales, if any
- IHB Fundamental Value Report information tailored to Trustee Sales
- Updated Trustee Sale Status (confirmation of current Sale date, published bid, etc.)
Buyer shall review the IHB Preliminary Auction Value Report and discuss with Broker. If the Buyer has continued interest in the Property, the Buyer shall conduct a visual drive-by of the Property and neighborhood, viewing the Property only from the public right of way. If Buyer has continued interest and the Property is also listed for sale on the MLS, Broker and Buyer shall view the interior and exterior of the Property, and Buyer shall make a determination as to whether or not to bid on the Property at the Sale.
Filter Properties with Final Research
Upon determination by Buyer that they want to bid on a specific Property at the Sale, Broker shall conduct further detailed research on the Property and compile a final report, the Title and Lien Report, which shall include:
- Title -all persons currently vested on title, or previously vested at any time as of or since the acquisition of the Property.
- Liens – all Trust Deeds and all other liens currently encumbering Property, and an analysis of their effect or standing, if any, at or following the Sale
- Property Tax Status – total property taxes owed against the property, if any, including current taxes, delinquent taxes, and penalties
- Other information – anything that Broker may deem pertinent to the Sale, Title, or to the Property itself
- Final Analysis – an estimate of the total amount that will still be owed on the Property, if any, following purchase at the Sale, a description of Broker’s opinion of the overall viability of a successful Sale purchase.
Prior to the Sale, Broker and Buyer will (1) meet to discuss the Title and Lien Report, and the Property, (2) make a final determination as to whether or not to bid at the Sale, and, if so, (3) determine the maximum bid. The discussion is far ranging, and Broker will advise Buyer on (1) accounting for true acquisition costs including fees and taxes, (2) adjusting bids to allow for unknowns and assess Buyer’s goals and motivations for the Sale to ensure the property is a correct fit. An accurate calculation of the Buyer‘s maximum amount the is critical, as neither Buyer nor Broker shall exercise judgment on the day of Sale as to how much to bid. Broker, merely attends the auction to observe and participate in the bidding as pre-designated by Buyer. All Trustee Sales are final as of the declaration of the winning bid; Buyer no longer has discretion to go a “little higher” to obtain property, as Buyer can only bid up to the amount of cash they bring to the Sale. Buyer may be outbid by $1 by winning bidder.
Preparing for Sale
Upon making final determination to bid on a Property at the Sale, Buyer must determine vesting (how they wish to hold title). It is normally recommended that investor-buyers take title in the name of a legal entity, rather than their own name, whereas families purchasing to keep long-term may be better served with a living trust; however this determination is the strictly the responsibility of the Buyer – Broker offers no legal advice on vesting.
Buyer shall execute a Limited Power of Attorney, authorizing Broker to endorse checks at the Sale on behalf of the Buyer upon successful acquisition of Property, as well as redeposit any unused checks back into Buyer’s bank account.
Upon a successful bid, Broker shall present Trustee with vesting instructions signed by Buyer as well as instructions for where to mail the Trust Deed.
Twenty-four hours prior to the scheduled Sale, Buyer shall provide Broker with two sets of cashier’s checks: one set totaling the maximum bid Buyer has decided to bid at the Sale, and the other checks amounting to the total Fees due to Broker for attending the auction and the successful acquisition of a Property at a Sale. This amount is based on the Estimated Cost Basis of the Property, as defined in the contract.
The best method for obtaining checks is for buyer to decide on a minimum increment and obtain checks starting with the initial increment and doubling in value with each successive check. For instance, a buyer would get Cashier’s checks for $1,000, $2,000, $4,000, $8,000, and so on until the negotiating range is covered, and then one remainder check brings the balance up to the total. The bidder on a $600,000 property who wanted to start bidding at $500,000 would obtain checks for $1,000, $2,000, $4,000, $8,000, $16,000, $32,000, $64,000, and $473,000. Some combination of those checks will cover every $1,000 increment between $473,000 and $600,000 allowing the bidder to leave the Trustee with only the amount of the winning bid. Cashier’s Checks for the IHB Trustee Sale Service Fee shall be written in two equal amounts adding up to the total fee due for the Buyer’s maximum bid, plus in certain circumstances, a small check for research and auction Fees. These checks shall be distributed as described below. Prior to Buyer’s visiting their bank to withdraw funds, Broker confirms that the Sale has not been postponed, and shall provide Buyer with a list of Cashier’s Checks needed.
Broker Bids at Sale
On the day of the scheduled Sale Broker shall again contact Trustee to determine whether Sale has been postponed or is still scheduled. If postponed or cancelled, Broker will return Cashier’s Checks to Buyer or re-deposit them into Buyer’s bank account, according to Buyer’s instructions. If the Sale is still scheduled, Broker will attend the Sale and bid on Property on Buyer’s behalf. Buyer may choose to attend or not attend the Sale. If there is no bidding competition and opening bid is less than the Buyer’s determined maximum bid, Broker shall bid $.01 more than the opening bid, and Buyer will be the winning bidder. If there is active bidding competition, Broker shall continue bidding by increasing each higher bid by a predetermined increment, until Buyer has the winning bid or until Buyer’s maximum bid amount is reached.
If the Buyer is the winning bidder, Broker shall give necessary Cashier’s Checks to the Trustee, and Trustee will provide Broker and Buyer with a receipt of transaction. Any remaining Cashier’s checks for bidding shall be returned to Buyer or re-deposited into Buyer’s bank account.
The Trustee will mail the Trustee’s Deed Upon Sale, which transfers title to Buyer, to the address specified by the Buyer. This deed must be recorded within 15 calendar days of the Sale for Buyer’s ownership to be of record on the morning of the date of the sale. This is important to prevent a post – Sale bankruptcy filing by the former owner from having any effect on the Buyer’s new property. At the time of recordation, Buyer will be required to pay the State Transfer Tax, $1.10 per thousand dollars of purchase price. If the Buyer does not receive the Trustee’s Deed in time to record it within 15 days, Broker will assist Buyer in obtaining it from the Trustee, but is not responsible for recordation after 15 days, or for any resulting claims or title issues resulting from any delayed recording of the Deed.
The two cashier’s checks received from Buyer for the Broker’s Fee shall be distributed as follows:
- If the acquired Property is vacant, the Buyer has immediate right of possession. Broker shall cash each of the two cashier’s checks received from Buyer for the Fee, as full payment of Broker’s Fee.
- If the Property is still occupied, by former owner or a tenant, Broker shall cash one Cashier’s Check, an amount equal to 50% of the Fee, and hold the other 50% check in Broker’s office. The balance of the Fee due the Broker is released when Buyer takes possession of the Property, or, if occupant is to be evicted, upon the filing of an unlawful detainer action as part of the legal eviction process subject to Buyer responsibility for diligence detailed below.
For properties that are occupied, as part of the Trustee Sale Service provided by Broker, Broker will assist Buyer in gaining possession.
Possession after the Sale
First, Broker shall attempt to negotiate a voluntary vacancy, whereby the Occupant leaves according to a time frame approved by the Buyer.
If unsuccessful, Broker will attempt to negotiate a Cash-For-Keys agreement, approved by Buyer and at Buyer’s expense.
If also unsuccessful, Broker shall refer Buyer to a qualified eviction attorney to begin the eviction process. If there is no voluntary vacancy and Buyer does not commence eviction proceedings within seven days of Broker’s determination that Occupant will not vacate voluntarily, the balance of the Broker’s Fee shall be due and released to Broker. An example of such a situation is when Buyer opts to allow an existing tenant to remain and pay monthly rent for a period of time.
At this point, Buyer is the proud owner of a new property, and Broker has completed his obligations to the Buyer and property.
Trustee Sale inquiries please contact firstname.lastname@example.org