I received an email today with questions and concerns about a foreclosure sale. Great questions so I decided to post both the question and my answer below.

What has been your experience with foreclosures?

Karen,

I have a question for you, I am not new to real estate investing, but I am new to the foreclosure auction process…
there’s a property going up for auction next month in our courthouse.

I’ve pre-qualified with a standard bank lender, who won’t close until the repairs are done after an appraisal.

I’ve applied with a private lender who won’t lend until they know about the repairs…

BUT I CAN’T GET IN THE HOUSE!

I have to bid without being seen! How can I get financing? I can bid and put down a security deposit, but I can’t shell out for repairs, etc.

Also, how can I evict people when I don’t own the house, if I win the bid and can’t assess the repairs until they are done? How can I get them out if I haven’t closed on financing and I can’t get financing until I can get them out and assess the repairs? round and round…

Any advice would be helpful. You basically have to have 6 figures in cash to play in these auctions…

Reply:

Through every year, every house and every investor I know, buying at a foreclosure auction is one of the worst possible ways to buy. There are several reasons, including the ones you mention:

• You cannot enter the house to assess what to do because the bank is not the owner yet.
• You have to work with a bank (the worst) and the rules are constantly changing and never in your favor.
• Don’t buy anything that has a tenant if you can help it. When a house is foreclosed, the owners are often furious and want to take it out on the bank, so they often destroy the property. Ultimately, that doesn’t hurt the bank, just the buyer. We bought one where the repossessed owners had dumped sand down all the drains. There’s no way to know that ahead of time.
• Nuisance offer periods
• Most foreclosed properties are sold at retail at auction.
• By the time they arrive at the auction, the good ones are chosen.
• There’s a very real reason why banks don’t want to lend you to buy these…

So my advice to you is to attend as many local investor meetings as you can to find properties to buy better ways than these auctions. If a home is decently priced in a decent area, we find that end-use buyers offer it at retail anyway. And, once your offer is approved, there’s a 10-day “nuisance offer” period where anyone else can come in and make a higher offer.

There is nothing good about foreclosure auctions. How to make them? Whose. It’s much better to let them foreclose and then buy from the listing realtor once you can review it.

What can you add? What has been your experience with bank foreclosures?