Buying a Trustee Sale Property as a Primary Residence

Buying a personal residence at trustee sale can be financially rewarding. Ideal Home Brokers will locate and research the properties as well as attend the many auctions necessary to obtain one.

Irvine Home Address … 1 RIMROCK Irvine, CA 92603

Resale Home Price …… $1,550,000


The silicon chip inside her head

Gets switched to overload

And nobody’s gonna go to school today

She’s gonna make them stay at home

And daddy doesn’t understand it

He always said she was good as gold

Tell me why

I don’t like Mondays

Boomtown Rats — I Don't Like Mondays

I enjoy writing the news article posts, but its back to class for a more cerebral look at foreclosure sales.

Back in January, I went through the basics of Trustee Sales:

Foreclosure 101: Vesting Title

Foreclosure 101: Non-Judicial Foreclosure

Foreclosure 101: Mechanics of a Trustee Sale

Over the next couple of weeks, we are going to explore the various ways you can participate in the clean up from the Great Housing Bubble:

Foreclosure 201: Buying a Trustee Sale Property as a Primary Residence

Foreclosure 201: Buying a Rental at Trustee Sale

Foreclosure 201: Flipping Trustee Sale Houses on Speculation

Foreclosure 201: Flipping Trustee Sale Houses to a Buyer in Escrow

Foreclosure 201: Buying Trustee Sale Properties Using Conventional Financing

IHB Fundamental Value reports for Owner-Occupied Trustee Sale Properties

There are many plusses and minuses of participating in the foreclosure market:

  1. save money,
  2. buy from inventory unavailable to financed buyers, or
  3. put money to work with a higher return than bank interest.

There are risks and disadvantages as well:

  1. Cash Only
  2. Limited Selection
  3. No Inspection
  4. No Title Insurance
  5. No Remorse Period
  6. Unannounced Postponements and Late Cancellations
  7. High Opening Bids
  8. Competition

For more detail on these risks, please see Foreclosure 101: Mechanics of a Trustee Sale.

For buyers it isn't always about the discount as simply having "first dibs" is a big advantage, the fact that it is discounted to resale is a bonus. For instance, many properties that are tied up as unapproved short sales end up going to auction. All the finance buyers in the short sale queue get bumped by the purchasers at Trustee Sale. Cash brings the power to cut to the front of the line.

Also, In today's zero interest-rate environment, having cash tied up in real estate can provide a return on investment though saving on rent — assuming of course the property does not decline in value while during the holding period.

Page 1

When we designed the IHB Fundamental Value Reports, we determined what information was most relevant, and we organized the reports to present this information clearly and concisely.

The cover page has pictures if they are available. The vast majority of foreclosures never hit the MLS, and often all we can get is a picture of the front elevation and perhaps a floorplan. We advise owners to budget for complete renovations. If they do not need to spend the renovation money, they should consider it a savings. Most will spend the money to enjoy their home once it is properly budgeted.

We present the basic property information: address, beds, baths, and so on. We show the scheduled date of the Trustee Sale (subject to postponement), and the published opening bid. The published bid is often meaningless as these bids are frequently dropped at the last minute.

The maximum bid amount is the most we recommend buyers pay for the property. At that price level, the all-in cost leaves enough room to get out at breakeven after commissions and closing costs if it turns out the buyer does not like the property. If people want to bid higher because they really like the property, that is their decision. If they want to bid less to obtain a bigger discount, we charge additional fees to attend the auction because most often it is a waste of time. Remember, a maximum bid doesn't mean it will cost the full amount; it represents the most that could be paid for the property.

The bold-faced items are the two data points of high importance. The first is the date by which a buyer must make a decision to bid on the property. If a buyer is interested in a property, we must do additional title research and we don't want to scramble around on the morning of the sale and risk missing it. The second key datum is the total amount of cash required on the day of the sale. Most often buyers have funds tied up in accounts that may take a few days to get liquid. The full amount is required in cash on the day of the sale. If a buyer is short of cash, nobody goes to the auction.

We provide our opinion of the likelihood of success given the foreclosure market comps, and we provide a breakdown of the total cost as well as the savings versus resale.

The final two lines show the annualized savings that accrue to an owner by eliminating rent. This savings divided by the total investment yields a capitalized ownership savings rate that owners may compare with the returns their are obtaining in other investments. This number is generally quite small, and it usually does not provide a return justifying the risk, but in today's savings environment, it is usually far better than a certificate of deposit.

Page 2

The second page provides the detail for the summary numbers on page 1. The sale day cash requirement is the sum of the maximum bid amount and the trustee sale fees. The total trustee sale cost includes renovation and improvements, property taxes (both back and current), an allowance for tenant move out and cash-for-keys if necessary, and transer taxes due. The cost of ownership includes the standard costs minus any financing costs as this is an all-cash deal. The comparable rental rate minus the cost of ownership is the monthly savings the owner enjoys by not having a house payment.

The bottom of page 2 has comparable information for trustee sales, resales, and rentals.

Page 3

Page three shows the various comparable ranges and cashflow values with a summary chart.

The owner of today's featured property bought it for well under his current, delusional asking price. Despite his delusions, he did get a great deal on a large and very desirable property in Turtle Rock. If he is fortunate, the next leg down in pricing won't drop below his purchase price. If he is very fortunate, some fool will buy this from him and make him half a million dollars.

Irvine Home Address … 1 RIMROCK Irvine, CA 92603

Resale Home Price … $1,550,000

Home Purchase Price … $903,000

Home Purchase Date …. 7/9/2009

Net Gain (Loss) ………. $554,000

Percent Change ………. 71.7%

Annual Appreciation … 66.6%

Cost of Ownership


$1,550,000 ………. Asking Price

$310,000 ………. 20% Down Conventional

5.24% …………… Mortgage Interest Rate

$1,240,000 ………. 30-Year Mortgage

$329,769 ………. Income Requirement

$6,840 ………. Monthly Mortgage Payment

$1343 ………. Property Tax

$0 ………. Special Taxes and Levies (Mello Roos)

$129 ………. Homeowners Insurance

$150 ………. Homeowners Association Fees


$8,462 ………. Monthly Cash Outlays

-$1599 ………. Tax Savings (% of Interest and Property Tax)

-$1425 ………. Equity Hidden in Payment

$644 ………. Lost Income to Down Payment (net of taxes)

$194 ………. Maintenance and Replacement Reserves


$6,276 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$15,500 ………. Furnishing and Move In @1%

$15,500 ………. Closing Costs @1%

$12,400 ………… Interest Points @1% of Loan

$310,000 ………. Down Payment


$353,400 ………. Total Cash Costs

$96,200 ………… Emergency Cash Reserves


$449,600 ………. Total Savings Needed

Property Details for 1 RIMROCK Irvine, CA 92603


Beds: 5

Baths: 2 full 1 part baths

Home size: 3,000 sq ft

($517 / sq ft)

Lot Size: 11,305 sq ft

Year Built: 1977

Days on Market: 38

MLS Number: S608756

Property Type: Single Family, Residential

Community: Turtle Rock

Tract: Hh


Excellent location! Panoramic views of hills and city lights! One of the best street in Turtle Rock! Completely remodeled. Spacious, open and convenient floor plan, 5 bedrooms and 3 full bathrooms. Main floor bedroom with full bath. Gourmet kitchen with breakfast nook. New cherry wood cabinetry, granite counter tops and state-of-the-art stainless steel appliances. Remodeled bathrooms. Remodeled fireplaces in living room & family room. Cathedral ceilings in the formal dining room. Premium hardwood flooring. Designer carpeting in bedrooms. New dual pane windows. New garage doors. Freshly painted. Spacious private gated courtyard. Endless views from cozy back yard. Fabulous association amenities pools, spas, tennis courts, club house, playgrounds & parks. Steps from award winning Bonita Canyon Elementary School & park area & minutes from desired University High School and UCI.No Mello Roos, low association fee. Excellent opportunity!

The spending former owners

  • The owners who lost this house in foreclosure owned longer than my property records go back. The earliest record I have is a $100,000 HELOC in 1997. It is safe to assume these owners paid very little a very long time ago.
  • On 12/19/2002 these owners refinanced thier first mortgage for $450,000.
  • On 8/25/2004 they refinanced again for $650,000.
  • On 9/7/2006 they refinanced one last time for $825,000.

It looks like they needed an extra $200,000 every two years to keep up with the Joneses.

I am surprised this went to auction because they appeared to have equity on auction day. Now the new owner has it.

Foreclosure Record

Recording Date: 05/26/2009

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 02/18/2009

Document Type: Notice of Default

The MLS for Foreclosures

Ideal Home Brokers is the multiple listing service for foreclosures. If there is a property coming to auction, we will facilitate bidding in that market just as others do in the resale market. Many people search for foreclosures because they want to find a bargain, but most people have no idea how to research properly, and even fewer know the mechanics of the trustee sale. We do.

Let us be your portal to the foreclosure market.

11 thoughts on “Buying a Trustee Sale Property as a Primary Residence

  1. what are typical unknown liens?

    I believe taxes of any type do not get wiped out. what other liens that do not get wiped in a trustee sale? what are typical unknown liens that could possibly be, and can they be recorded after a trustee sale?

    1. newbie2008

      Federal, State, and local governments taxes, Utilities (water, sewer, electricity, gas), M-R and maybe mechanics liens even after the sale.
      Need to check with local lawyers or some good with RE law.

    2. BC

      There are two types of liens that survive the Trustee Sale: those with priority because they were recorded against the property prior to the original recording of the foreclosing lien, and those with “super priory.” Normally, a first loan will not fund, and it’s accompanying trust deed will not be recorded, until the title company confirms that all existing liens are paid off and removed from the title to the property. If this was the case, the only liens that survive the Trustee Sale (when it is a first trust deed that is being foreclosed) are liens with super priority. Super priority means that no matter what is recorded against a property (or when), the lien will always have affect and be payable. Currently, property tax liens are the only liens that have super priority. At one time, IRS liens for non payment of income taxes had super priority, but this status was eliminated way back in 1963. Instead, when an IRS lien is present, the IRS has a 120 day “right of redemption”, which means that for 120 days following the Trustee Sale, the IRS can take title to the property by reimbursing the winning bidder with the amount they paid at auction, plus interest. IRS redemption is fairly rare, and it is not difficult to determine, prior to the sale, whether a property has an IRS lien.

      Utilities and state and local taxes do not survive the Trustee Sale.

  2. IrvineRenter

    Property taxes survive the trustee sale which is why we account for them in the cost of acquisition.

    A hidden lien is usually a mechanics lien for some work that was done on the property. There are very specific conditions under which these claims can be made, but since they are unrecorded, there is no way to find them in advance.

  3. mark g

    Is the business model financing the bidder (buyer) if successful or does the buyer need to provide 100% of the cash to participate?


    1. IrvineRenter

      This particular one is based on a buyer providing 100% cash. I am going to profile the deal for a buyer using financing next week.

      The basic difference between the two is what happens to the acquisition discount of 6%-10% under comps. If an owner is their own hard-money lender, which is the case in this deal, then the owner saves this discount. If the the buyer uses a hard-money lender through us, we are giving this return to the lender to compensate them for use of their money.

  4. .

    What is the story with this property? I went to the open house several weeks ago and the Realtor said the investment group bought it at a foreclosure auction. She would not reveal the price they paid but she said to not feel sorry for the previous (original) owners because they had extracted a huge amount of money from the property and stopped making payments three years ago. What kind of Realtor divulges that kind of information to a stranger whether or not it is true?

    I did not get the asking price because the house looked pretty much like it would have looked in 1978 minus a ridiculous master bathroom remodel and the hideous view of the Turtle Ridge homes. If I had been an original owner of this home I would taken the money and run once I saw my hillside view disappear.

  5. Chris

    1. Cash Only
    That shouldn’t be too hard.

    2. Limited Selection
    The current Redfin selections are probably even worse.

    3. No Inspection
    That’s the hard part. Who knows what’s lurking behind the fancy facade?

    4. No Title Insurance
    So if title to the property is screwy or if there is any lien issue, we’re f***ed?

    5. No Remorse Period
    It’s like marriage :-)…….without the annulment.

    6. Unannounced Postponements and Late Cancellations
    Another phrase of this is called “extend and pretend”.

    7. High Opening Bids
    I heard this before….hopefully your service will prevent buyers from paying too much (will you?).

    8. Competition
    The supplies are cheap…whaddya expect?

  6. greenpot168

    I purchased property from 1st bank in trustee sale back in Nov, 2009

    I use it as my primary residence.

    I paid $473K in auction
    The first lien amount is $426K, the 2nd lien is $240K.
    12 days later, I recorded trustee deed from 1st bank with Orange County Recorder office.

    I guess 2nd bank also receive $47K ($473K-$426K) from trustee sale.

    But 2nd bank never send me release of lien.
    Do I need to contact 2nd bank to ask them release the junior lien ?

    If the 2nd loan refuse to recording “release of lien”,
    Would the 2nd lien (junior) stay outstanding?

    If I want to sell the house 10 years later, is this outstanding junior lien causing a problem in the future?

Comments are closed.