I have had mixed results at sheriff sales. I think it is pretty much a numbers game like everything else in CREI. Most of the time the lender pays way more than you would pay. But occasionally you can get one. So my approach is to not spend a lot of time on it. I track them through the paper, get some basic info from the county’s website and look at the property from the outside. If it is vacant, I go up and look in the windows. I have pretty much given up on properties that are occupied. Keeping track of the sheriff sales also helps you when the property comes back on the market as a repo. I have bought HUD repos as much as 30% below what people were willing to pay at the sheriff sale. Of course, a lot of this depends on your market. Things may be different where you are. I do think you are about right using a 30% discount number.
I’m a novice at re investing. I’m trying to get confirmation on a rule of thumb I’ve come up with. Wondering if the experts agree with me. My rule of thumb is… if (a) the property is being sold at action by the sherriff to satisfy a loan to a bank and (b) the bank is also secured by HUD insurance than (c) the bank will most definately show up and bid it’s lien amount because once it’s forclosed it simply sells to HUD and the home becomes a HUD held home. If this is true, then, one should (a) try to determine if the loan being satified is a HUD insured loan and if so, don’t expect the bank to be willing to sell below the lien amount to be satified. In other words, this becomes a tough deal to make money on cause HUD lends 95% of value manytimes.
Does that make sense? Is it a good rule of thumb to implement? Will the sherriff know if the bank’s loan is FHA insured?
Seperately, how often do banks not show up to bid to their lien amount at these auctions? Thanks for your help.
Posted by David Krulac on April 11, 2002 at 14:16:18:
you are correct any bank with either a HUD or VA loan is insured against any loss. Hud typically lends 97% plus they finance the mortgage insurance and in some cases can go over 100% financing. In addition there are costs of foreclosure such as attorney fees, filing fees, late fees, and back interest. not to mention real estate taxes, IRS taxes, some state taxes and municipal leins for water, sewer, trash, and other improvements such as curb sidewalk and street, where applicable.
For non-HUD/VA loans there is also private insurance that covers the top 20% of the bank loan.
Sam,
I think you are right about FHA insured properties, but I do not know of any way to find out if the loan is FHA. There may be a way, but I doubt it would be worth the effort. Most of the time the lender bids above FMV whether it is FHA or not. I have seen sales where the lender did not show, but it is extremely rare. HTH.
Randy
Thanks. But one question - FMV… means what? Fair Market Value? Are you saying that the banks normally bid higher than their amount due? I was under the impression that the lender bids up to their claim amount (lien, interest and costs).
Sam
Yes) FMV= fair market value,
Yes) you can find out if the loan is FHA- VA backed loan
all you have to do is check the forclosure file at the courthouse, In the back of the file you will see a copy of the Mortgage and the Note , check the riders,
or look for a FHA- VA case number.
Yes) the Bank or the Banks attorney always show up at the auction, they have to protect their interest.
NO ) Banks do not always bid top dollar at the sale,
some times they have to let a property go cheap,
Banks by law can only own so much Real estate.
Now ALL of this depends on the state you are in, but I know for a fact this is how it works in Kentucky.
I specialize in Forclosures and sheriffs sales.
Yes, FMV = fair market value. You are probably right about how the lenders bid. I usually do not have any info on the loan balance, etc. Sometimes the amount due is published in the paper, but I am not clear on whether that amount includes the foreclosure costs. I am not aware of any easy (or hard for that matter) way to get that info. I suppose you could call the lawyer handling the foreclosure, but I doubt he/she would give you the info. You would be doing good just to get a return phone call. My thinking is if you have to do a lot of research on a property, it is not worth it, because your chances of actually buying it are so low.
Thanks Lucky and Randy. Interesting insight that you have. I’m kind of just getting started and I think forclosures and sheriff sales are the way to go… but obviously it’s not without it’s pitfalls and roadbocks.
I’m trying to come up with a few rule of thumbs to qualify and disqualify sheriff sale candidtates. I think cutting out properties with FHA insured loans is one since the banks get to collect close to 100% of their lien amount from HUD - i.e., the bank is always gong to bid the lien amount and since FHA lends 95% of value, it’s going to be hard to justify that type of price.
It’s sounding to me like the banks are virtually always the winning bid at Sheriff Sales, unless the seller/default party is walking away from equity, for whatever reason. Are sheriff sales a waste of time then?
I’m in NJ and I’m trying to find an angle to make the foreclosure/sheriff sale approach work. Maybe I’m looking for too much fat in each deal, I was hoping for 30% profit margins.