If you were a lender or mortgage servicer, you’d be thinking about adjusting your “liquidation strategies” right about now.
The foreclosure moratoriums provided some delay of the inevitable, but ultimately were good for nothing. Thankfully, you don’t hear anybody talking about new moratoriums today.
Uncle Sam’s attempts to push loan modifications are fully engaged, but they’re providing no significant help in stopping, or even slowing defaults. You could also surmise that they could make it worse. Loan-mod candidates who don’t get the terms they want will have one more reason to mail in the keys, justifying it with the old standard, “the bank wouldn’t do enough for me”.
The mortgage servicers have to be eyeing the trustee sales as a great way to liquidate their defaulted properties, for three reasons:
1. Sold “as-is”, with no liability whatsoever.
2. No costs/worries about the evicting, repairing, cleaning, evaluating, and selling.
3. Quick and easy, as long as they get the price right (give them away).
Servicers have to notice how well things are selling on the court house steps. In SD County over the last 30 days there have been 1,243 trustee sales, and 309 of the properties, or 25%, have been purchased by third-parties.
Buyers want a deal, and those with cash are considering trustee sales as an alternative.
Snagging a trustee sale will always carry the burdens/risks of occupancy, no title insurance, and physical damages + costs of repairs.
The first step is to be willing to accept the costs and hassles of dealing with the above.
Here’s an outline of possible costs:
Occupancy – $10,000 cash-for-keys should be enough to inspire any occupant to move. Your housing costs incurred while waiting for occupancy should be considered too.
No title insurance – The primary threat is from undetected liens on former owners, and a reasonable range of risk would be $10,000 to $50,000. The disputes that could arise from boundaries/easement issues with neighbors can be identified in advance, especially in tract neighborhoods.
Repair costs – You’d have to have a level of comfort with the occupants if we were willing to take a chance on buying an occupied trustee-sale property. “Comfort” would mean that there was assurance of the occupants vacating the property, but there can always be unexpected problems. Let’s budget of $5,000 for additional repairs caused by occupants. Yes, if they pour concrete down the toilets it could cost $25,000 to replumb the house, and that possibility should at least be on the radar screen, but if you didn’t feel comfortable with the occupants, don’t buy the house.
Miscellaneous – $5,000.
Let’s figure that if it took less than $30,000 in additonal costs to buy a trustee-sale property, then we did alright. Let’s make sure it’s reflected in the purchase price. And yes, if things really went crazy you could eat hundreds of thosands of dollars, but with proper investigation you can minimize the risks.
I have been developing my plan to offer assistance with the investigative service. My trustee-sale service plan includes:
A. With 10,172 properties in the county on the foreclosure auction list, we have to narrow it down. I am working on maintaining the list of “50 best buys” in North SD County Coastal, and have hired another person to assist with the compilation.
B. Determining, and sizing up the occupant, plus I want to arrange for a physical inspection of the property every chance possible.
C. Have title experts evaluate for liens and encumbrances.
D. Have money sources lined up.
Since posting this idea a few weeks back I have had many inquiries, which I appreciate. I have been reluctant to commit full-speed, but as of today I am willing to pursue these in earnest because of these two reasons:
a. The increased likelihood of more properties be sold at trustee sales.
b. Getting an assistant to help with the research.
Cash buyers who save the cost of 5-10 points on borrowing the money have a viable opportunity with trustee sales. For those with big down payments, there is still possibility, but it would take more people being more comfortable, and the cost of that would push the sales price (and need for a ‘deal’) down further – which could limit the properties available.
Trustee -sale buyers are going to save the 1% that they usually pay for title and escrow services, so I think my 2% commission for the investigation looks reasonable.
But you have to be comfortable with the risks, because trustee-sale properties aren’t for everyone.