The Phoenix Area Foreclosure Experts

Eviction after a foreclosure

by Georgi

I attended a foreclosure, short sale class taught by The Arizona State Bar on Friday and wanted to share the legal course of action for eviction after a foreclosure.   
 
Here are the steps: The bank files papers and 3 days after the foreclosure -- legally -- the sheriff can come to serve the homeowner with a "notice to vacate".  The sheriffs are behind and this can take days or weeks.  When the sheriff gives notice, it is a 5 day notice. After the 5th day the bank is allowed to show up with a moving van to move the contents of the home into storage.  The lender must pay for the moving van and first months storage and the homeowner must pay for future months storage.  The homeowners can get their belongings anytime in the first 30 days for no charge.  The homeowner can even tell the moving truck to go to their new location -- if it is in close proximity. However, the attorneys did not know of anyone that has tested this option.  
 
While the above paragraph states what can happen legally, here is what usually happens: a real estate agent shows up on the door step within 2 or 3 weeks after foreclosure and offers the former owners $500 to hand over the keys and leave in 2 days.  If the former owners initially say "no," they can sometimes get the agent to "up the ante" to $2,000 cash. In this case the former owner must vacate in a day or two.  Above is how it can legally can happen, however that is expensive and the banks are hiring real estate agents to deliver the news for a fee and giving them the REO listing.  If the home is vacant, they will just change the locks. 

What is the bid process? What happens if I win a bid? Trustee's Sales PART 6 B

This is my final post on the "how to" concerning Trustee's Sales.

THE SUCCESSFUL HIGH BID

If you are the successful bidder you will need to give your $10,000 bank check to the Trustee. Make sure you get the necessary documents from the auctioneer to verify that you are the winning bidder. Clarify with the auctioneer, a title company, or a real estate attorney what further steps are necessary before you take ownership and possession of the property. REMEMBER: you have until 5:00 pm the next business day to remit the remainder of the money for the completion of the sale. Your deposits can be forfeited if you do not follow through in the specified time period. After your purchase is complete, the auctioneer will write you a receipt, ask how title is to be held, and you'll be done. The Trustee can record the Trustee's Deed and a copy will be sent to you. NOTE: Sales are sometimes invalidated by legal reasons. All your money will be refunded if this happens to you.

BE AWARE OF THESE FACTS

Both “court” and “out-of-court” foreclosures occur in Arizona. The sheriff conducts the sale for court foreclosures. An attorney or auctioneer conducts the sale for an out-of-court foreclosure. Be aware of which auction you are attending because their can be complications with a court foreclosure at the sheriff’s sale. Specifically, if the property is not abandoned at the time of the auction there is a redemption period six months from the sale date. To redeem the property, the previous owner or any secondary lenders may pay the total amount owed plus fees and costs. This means you would no longer own the property, and money you paid would be paid back to you by the person redeeming it. If no one redeems the property, the sheriff transfers ownership to you as the winning bidder.

Fortunately, most Trustee's Sale are out-of-court foreclosures. There is no right of redemption for the borrower after an out-of-court foreclosure sale. Your ownership is immediate and you can start to congratulate yourself for a job well done.

Here is your last INSIDER TIP: the previous owner may still be living in your house! But you are thinking …“they have to leave.” Well, you are right … but you will have to EVICT THEM if they do not leave on their own. This process could cost you another $300 - $400 and could take another 2-weeks. That is a whole different process and topic that we will not cover here, except to say it involves a legal notice, a process server, an eviction attorney, and the county constable.

CONGRATULATIONS

You now are an “inexperienced expert.” You know the fundamentals and can talk about the process with anyone and sound reasonably intelligent on the subject. The question is: what are you going to do now? I have mentioned throughout this entire series to “call or email me with any questions.” One more thing: I would suggest you read my 9-part foreclosure series if you have not already done so. There is high quality information and INSIDER TIPS that will give you the edge with pre-foreclosures.

What is the bid process? What happens if I win a bid? Trustee's Sales PART 6 A

What is the bid process? What happens if I win a bid?

OK. You found a home, did your research, and tracked it all the way to Trustee's Sale. It should be available for you to place your bid, right? Not necessarily. Until 5:00 p.m. the day before the sale, the borrower or any junior lien holders may stop the auction by paying the default amount, fees, and costs. It's also not uncommon for auctions to be postponed without a new date being published. Although cancellations and postponements are announced at the time and location of the originally scheduled auction, you can call the trustee to find out beforehand.

But let’s proceed assuming your property is available at the Trustee's Sale. Arrive at the auction location early and locate the auctioneer(s) as quickly as possible. The auctioneer(s) will ask if anyone wants to qualify before individual properties are announced. To qualify, you will need to show the auctioneer cashier’s checks sufficient to cover any required deposits. Deposits at the Maricopa County courthouse are $10,000. That's $10,000 for each property you wish to acquire. In other words, if you had two $10,000 checks you could buy two properties that day. They do not accept personal checks, credit cards, or wire transfers. You can use this time to identify the real bidders and thereby establish the extent of the competition.

Keep in mind that anyone around you is a prospective  bidder, and if you allow them to see your maximum bid you have weakened your position. The same holds true for notes you have written containing numbers -- keep your information private!

BIDDING

Bidding at the Trustee's Sale can be intimidating, especially if you've never done it before. Take as many cues from the other participants as you can, but don't let them dictate how much you bid. You may encounter investors who attend many auctions every month and who don't necessarily appreciate new competition.

The bidding process can occur very quickly -- often in as little as one to three minutes -- so you have to be very vigilant in tracking the bids and watching your competition. You should always decide on your bidding strategy before you start bidding. The first bid will usually be $1 over the opening bid. Be aware that the property will not sell until after the third CALL (similar to “going once, going twice, GONE”) and some people like to wait and see if anyone else is showing an interest. This is a time to “relax” and wait to see if other bidders are going to jump in. If no one enters a bid, put your "one dollar over" bid in just before the third call. If other bidders are interested in the same property, bids will go up usually in hundred dollar increments. It's very easy to get involved in the excitement of who's going to win the bid. Remember your maximum bid. You invested a lot of research and thought into it – so do not exceed that number.

My next post will finish out this topic and will cover what to do when you win a bid.

How to pick the homes you really want to bid on? Trustee's Sales PART 5 B

Let’s discuss the reason that many professionals use the “guesstimate” method. Let’s say that a “drive by” reveals a concrete tile roof and yard that is in decent condition. You can also see the AC unit looks fairly new. Therefore, you could eliminate the need for any roof repairs, costly landscaping, and downgrade your estimate for AC repairs to a simple $59 “check-up.” You could even remove “repair holes in the walls” from your list (exterior care of a house can relate to interior care). INSIDER TIP: Check for the existence of a pool if you can. That’s because not all tax records are correct. In some cases there are homes with pools that are not recorded in the county tax records. There are also new homes that were scheduled to be built with a pool after close of escrow. However, after the homes closed and the sales recorded, the home owners changed their minds about installing the pool. Additionally, I know of at least one case where the owner filled the pool with dirt and planted grass without asking the county to reevaluate the value and update the tax record.

HERE IS ANOTHER TIP: unless you are handy and can perform all facets of repair, meet with some painting and flooring contractors and establish some pricing guidelines. That way if you know a house is 1,500 sq ft you can make some assumptions about the amount of carpet and tile you will need. This will allow you to do some math and get a reasonably accurate estimate of flooring and painting costs.

YOUR MINIMUM PROFIT – This one is pretty simple … how much money must you make for it to be worth your time? Some seasoned investors won’t touch a property unless they think they can make $15,000 or more. But do you need that much? Probably not. If you are just starting as an investor you probably have another “full-time job” that pays the bills. You might be happy if you made $10,000 or even $5,000. And you should be, but that will be up to you.

YOUR MAXIMUM BID – This one is a formula. You will know your maximum bid by starting with your estimated SALES PRICE, then subtracting your TOTAL EXPENSES, and your MINIMUM PROFIT. For example, if you think you can sell the house for $200,000 and your estimated expenses are $25,000 and your minimum profit is $8,000:

$200,000
-$25,000|
-$8,000
------------
$167,000 maximum bid

NOW you can see why it is important to be aggressive with your repair expenses and minimum acceptable profit. If all things were equal between you and the other people bidding on this property, the person with the lowest expenses and desired profit will win every time. You can also see the other point, can’t you? What if your competitors think they can sell for a higher amount? In this case you may never win a bid because their maximum bid will always be higher than yours.

What do you think so far? Drop me a line or call if you have any questions. There us one more topic for this series.

PS … send me an email if you would like a sample of a bid sheet I have used for auction bids.

How to pick the homes you really want to bid on? Trustee's Sales PART 5 A

How do you pick the homes you really want to bid on?

As we discussed in an earlier post, you learn about auction homes through newspapers, subscription websites, foreclosure businesses, Realtors, and county records. Once you have a list of potential properties, evaluate them based on:

1. Resale value
2. Estimated repairs
3. Your minimum acceptable profit
4. Your maximum bid

RESALE VALUE - This can best be determined with professional help (unless you have access to the MLS). Your sources (mentioned above) can generally help you determine the market value of a home. Be aware that Realtors have the BEST information and will spend a little more time helping you get an accurate value. The other sources we discussed “mass produce” statements of value through the assistance of computer programs. INSIDER TIP: double check the comps from foreclosure companies that buy homes at the Trustee's Sale and resell them to investors. WHY? While they provide a valuable service, some of their estimates of market value can be a little high (or not accurately aligned with current market conditions). A stated market value that is too high will reduce your profit margin when you are forced to sell at a lower price.

Estimated repairs – Here is one main difference between buying a pre-foreclosure and a house at the auction: it is unlikely that you will see the inside of a Trustee's Sale property before you bid on it. In a pre-foreclosure you must talk to the owner to negotiate the deal. Therefore, you will see the inside of the house. In an auction home it is doubtful you will talk to the owner. As a rule, when a delinquent owner allows the home to get to the auction they have cut off all communication with the world. They usually stay in the house until the last possible minute and leave it in poor condition (they may even strip the house). If you do catch them at home they will not be in a mood to give you a guided tour -- especially when you tell them the reason for your visit. Sometimes you can get lucky when a property has been abandoned. You might get a peak at the interior through a window.

This means you are generally left to “estimate” your total repairs. There are two main philosophies to estimating repairs. One philosophy is to “plan on spending a fixed amount” on every property. This approach is generally not as effective because there is no room to be aggressive on a bid. The other is to drive by the house and “guesstimate” your repairs. Driving by the house will give you some idea of the neighborhood. You can also get a pretty good idea if the house is “trashed” or in “reasonable” shape. Deteriorated shingles, wood rot around the eaves and patio supports, chipping paint, and neglected landscaping are all indications of trouble inside the house.

There are many possible expenses to consider. Here are a few:

• Carpet and tile
• Lighting and plumbing fixtures
• Broken cabinetry, holes in the walls, doors, and ceiling
• Exterior and interior paint
• AC unit and pool expenses
• Locksmith
• Hard money or loan costs, Realtor fees (MLS listing and resale commissions), closing costs
• Back taxes
• Roof repair / replacement
• Pet odors or water damage

I finish up this post tomorrow.

A day at the Phoenix Area Trustee's Sale

I've just now found the time to write this post after visiting the Trustee's Sale last Wednesday. I had not been there in a very long time and wanted to share the experience with anyone who might be interested. For those have have not attended an auction, allow me to act as your private guide to the inside workings of the auction.

I arranged to meet John Ray at the Trustee's Sale to catch up with the state of the business. John and his partner, Lou Amoroso, form one of the 3 or 4 really big foreclosure businesses I have mentioned throughout my posts. They conduct a majority of the information processing and financing segments of their business through the following three web sites ( one, two, three ) to provide the latest and most updated information to their customers. I am grateful to John, who helped me secure my auction properties throughout the last few years.

Here are some of the things John told me that day:

• 60-100 properties are currently going back to the banks as REO's each day
• He recently placed a $3.5 million bid with a large bank for 29 of it's REO properties (he said the bank is convinced the portfolio is worth 5 million); he's hoping the bank will soon be in the right frame of mind to accept his bid
• He has made some excellent buys with "specified bids" (see below for definition)
• He expanded his borrowing power by working with Active Financial Group, who he says has a $50,000,000 line of credit.

So here is the tour:

This Trustee's Sale starts at 2:00 pm. The three people sitting down represent three different Trustee Companies. You must sign in with each of these three people before the start of the  auction. You must also show them your $10,000 bank check to qualify. If you intend to win 3 bids you will need three checks. The three companies are Trustee Services of Arizona, Priority Posting, and Trustee's Assistance Corp. Each company handles the auction details for their own set of trustees. Each session starts with all three auctioneers reading their lists of postponed or canceled auctions. That's what they are doing in this picture. Where it gets a little tricky is that they do this simultaneously. It's easier if you are there for one property, but these expert buyers are sometimes following a dozen or more properties. John and Lou work together to insure each opportunity is tracked.

It's now 2:30 pm and the actual bidding is taking place. For more information on bid pricing read this. Mike (seated) is conducting the auction for his trustees. John and Lou are checking and taking detailed notes. They "drive" all the properties in advance so they are well prepared. This day is no different than most because over 65 properties went back to the lender. Too many of the properties are over-mortgaged for these savvy investors. They bid to get a property for within 65-75% of it's current market value (subjective).  Generally speaking, if you win a bid from these investors it's probably because you think it has a higher resale value than they do. You might definitely assign a higher value to a property if you plan to live in it.

The gentleman holding the book was there because of a vested interest. He wanted to see what the house next door to his home sold for at the Trustee's Sale. He took enough interest in his neighborhood and property values to find out for himself. He was dismayed to learn it sold for $189,000 when others in his subdivision were listed in the mid-high $200,000 range.

The most interesting deal of the day went in a "specified" bid. A specified bid can change on the day of the auction. A bid normally starts as a "total" bid and is the accumulation of the mortgage note, accrued interest, penalties, and fees. A specified bid reflects the dollar amount the lender is willing to accept to dump the property. John said there are usually 2-3 specified bids per-week.

This particular property in Paradise Valley had a total bid price of $700,000 at the start of the day. Right before the start of the auction the lender put the specified price at $460,000. Lou and John wanted the property at that price but had one problem: they had not "driven" it. Lou stayed in the bidding against another professional competitor until $498,000 (at $100 and $500 increments). They were not going to "chance" the condition of the property. John had some wonderful success with another specified bid a short time ago. The total bid was $1.2 million and he bought it for the specified price of $500,000.

The day ended about 3:15 and John and Lou bought some more property. The auction can be pretty exciting, though accurate information is everything. Professionals know property values, scout and assess individual properties (very time consuming), are experienced at estimating remodel costs, have professional crews do the work, and know how to market properties.

How are homes priced at the Trustee's Sale? Trustee's Sales PART 4 B

Finishing from yesterday:

YOU MUST KNOW THE CURRENT, PHOENIX AREA MARKET VALUE

Obviously, you will want to drive by a property to get a feel for it’s condition and neighborhood. As you can imagine, one of the most significant things to know is what a property is worth before you bid on it. If you work with one of the Foreclosure Companies you learned about in the last segment, they will make property valuations available to you. The limitation of these valuations is they rarely include information from the MLS. Most of their valuations come from the county tax records. You may be wondering "Isn't that good enough?" Not really because the county is not always up-to-date with all current sales. It’s not uncommon for sales to be recorded 4+ weeks after they are completed. What if a neighborhood just took a sharp increase or decrease in value? You could lose a bid by bidding too low – or worse yet – you could OVER PAY for a property and lose money.

There are some Internet companies that claim to provide accurate valuations for you. Be very careful of these companies. They base all their values on computer generated information without consideration for UPGRADES, FEATURES, and NEIGHBORHOODS. They simply skim information from the Phoenix Area public records and let their computers do the figuring. For example, they may say 2 houses that are both 2,000 sq ft are worth the same $250,000. But what if one house is in poor condition with lots of deferred maintenance and the other was ½ mile away in a more upscale neighborhood with $40,000 in recent upgrades? You could make a poor decision based on bad information.

REALTORS HAVE THE MOST COMPLETE INFORMATION

Face it … professional Realtors have access to the best information. MLS listings have detailed descriptions of features, upgrades, and neighborhood characteristics. Realtors share this information with each other and will share it with you.The best information is always the most complete information. It’s always good to have a professional to help with your decisions.

This concludes segment 4 of 6 on the Phoenix Area Trustee's Sale. Send me an email if you would like to see a sample of a foreclosure report from an Internet-based subscription company.

How are homes priced at the Trustee's Sale? Trustee's Sales PART 4 A

This is the 4th topic of a 6 topic series. This post will cover:

How are they priced? How do you learn the value of the homes?

Let's talk about how properties are priced at the Trustee's Sale. The opening bid is based on the total amount owed to the foreclosing lender and may include fees incurred because of the foreclosure proceedings. It's important to know this amount so you can determine if the auction price represents a potential bargain when compared to the property's market value. If no one bids above that amount, the foreclosing lender will take possession of the property. That’s what is known as a REO (Real Estate Owned) property. This would happen if the property was over-mortgaged or “upside down” making it unattractive to an investor.

It's critical to find out as much as you can about the estimated market value of the property, how much is owed, and if the owner has any other liens against the property. If there are outstanding liens on the property, the winning bidder may be responsible to satisfy these liens in some cases. So it's important to check for any liens and the priority of the liens before you bid at the auction. A real estate attorney, title company, Realtor, or even YOU can check for liens directly with county records.

The priority of a lien is usually determined by the date it was placed on the property. A first mortgage will have the first priority, and all other liens will be considered junior liens. The Trustee's Sale clears out any junior liens, but there are exceptions such as tax liens, which typically will continue to be in effect after the auction. Since it’s usually the first lender that is selling the property, you can usually be assured that all other mortgage liens will be wiped out.

HERE IS SOMETHING TO CONSIDER

2^nd mortgage lenders can foreclose too. If you do not know the priority of the lien you are bidding on it can cost you thousands of dollars. Let’s say you see a foreclosure opening bid of $75,000 on a home with a current market value of $300,000. Looks pretty good, right? What if you are bidding on the rights to a SECOND mortgage? You are still responsible for paying off the FIRST mortgage holder because they are in first position. It could still be a good deal if the 1^st mortgage was $150,000. That way your cost for the house would be $75,000 + $150,000 = $225,000 on a $300,000 house. But it could BE A DISASTER if the first mortgage was $230,000.

Here is another interesting piece of information. If there is enough equity in a house (like in the example above where the 1^st mortgage is $150,000), a 2^nd mortgage company may foreclose to obtain title and pay off the 1^st mortgage. That way they own a house for $75,000 + $150,000 = $225,000 that is worth $300,000.

More at the next post...

How do you find out what homes are available to buy? Trustee's Sales PART 3 B

This completes my post from yesterday.

You can also contact a Realtor for help. Most Realtors who are experienced in this area already have some form of access to this information and will know how to find the deals going to auction. Another benefit of using an experienced Realtor is he/she knows how to look for problem areas concerning certain tax liens and possible title issues. This can save you time and money and insure you get the deal.

Patience is the key with Trustee's Sales. As mentioned in a previous post: “…you must track a home to see if it goes to the Trustee's Sale.” What does this mean? Several things can happen that stop the home from going to the Trustee's Sale. The most common are: a.) owner pays all missed payments, B.) owner strikes a deal with the lender to modify the loan, ac.) owner sells the home or, 4.) owner files for bankruptcy. You can track a home to the VERY DAY of the auction … and it may be “pulled from the auction block.” Additionally, this could happen to every home you patiently tracked.

CONSIDER THIS TYPE OF HELP

Do you remember in a previous post of this series when I mentioned the “5-10 really BIG PLAYERS that have foreclosure businesses” who “DO NOT WANT YOU THERE” at the Trustee's Sale? These companies will actually HELP YOU get a home at the Trustee's Sale. Here is how it works:

• Subscribe to their tracking service
• Provide them with a deposit to be used against your bid (usually $1,000 - $2,500)
• Tell them the kind of property you are looking for and they will track it for you
• Tell them your maximum bid on a property and authorize them to buy it on your behalf

They will charge a fee for each property they buy for you, but the time you save in "tracking homes" and "learning the nuances of the auction" will offset that expense. There are many little fine points about working with these companies. Call me for more details and for a possible recommendation.

How do you find out what homes are available to buy? Trustee's Sales PART 3 A

The next topic is: How do you find out what homes are available to buy?

Here is a quick summary of how homes get to the Trustee's Sale:

1. The owner stops making their mortgage payment
2. The lender tries to collect back payments for the first 90-days
3. The trustee of the lender will initiate the Notice of Default (NOD) on behalf of the lender 90-days into the process. The NOD is recorded with the county office in which the property resides AND the notice is advertised in a local newspaper
4. On the 150^th day the trustee files a NOTICE OF TRUSTEE’S SALE UNDER DEED OF TRUST setting the auction date
5. The property is sold at the auction on the 180^th day (6-months)

You will probably realize a similarity between finding homes going to the Trustee's Sale and finding homes in the pre-foreclosure process. Here is the biggest difference: someone looking for pre-foreclosures is willing to invest time before the Trustee's Sale to buy from the delinquent owner. On the other hand, someone looking for a home at the auction does not want to contact the delinquent owner at all. They simply want to put down the least amount of cash after the foreclosure and walk away with a deal at the Trustee's Sale. There are advantages and disadvantages to both methods. To learn more about Foreclosures you can read my posts on the topic.

YOU FIND AUCTION HOMES THE SAME WAY YOU FIND FORECLOSURES

Once the process hits step # 3 everyone who monitors pre-foreclosures has the same opportunity to obtain the knowledge. Documents filed with the county recorder are considered “public knowledge” and can be accessed if you know where and how to look. There are legal notices that establish the actual sale date. Finding these notices is a tedious process at best. The newspaper provides the easiest resource for pre-foreclosures that are headed to the public auction. WHY? The trustee is required to advertise the impending sale for 4 consecutive weeks. Locally, the Arizona Business Gazette --which hits newsstands every Thursday -- is a popular source for the ads. However, there are several other papers that list legal notices. The ads are run in the CLASS 9 LEGAL SECTION (used for NOD’s). There you can find between 50-100 notices (or more)depending on current foreclosure trends. Keep in mind that these NOD’s are filed 90-days into the foreclosure process BUT the actual auction date is still 90-days away. Therefore you must “track” a home to see if it goes to the Trustee's Sale.

There is another way to learn of foreclosures that are headed to the public auction: subscription websites. If you “Google” the word “foreclosures” and you will find many sites that collect the information and sell it to you for a monthly fee. These sites also provide tips on locating properties, help you track the homes throughout the process (which ends at the public auction), and give you the latest information on the actual auction date.