A reader inquired by email today about how the trustee sale program is coming along, and specifically how do I handle the title and occupancy issues. Here was my response:
I check with my favorite title officer, and he does the same investigation that they do when issuing title insurance. Here’s an example of what he sent today:
House in Encinitas 92024 = no back taxes, 1st ½ taxes pd, foreclosing on the 1st TD $1,248,000, current owner clear, see attached doc. don’t know if sale still on because of the litigation.
House in Carlsbad 92011 = back taxes due $39, 618.82 due by Feb., 1st ½ delinq. $7,169.64, foreclosing on the 1st TD $1,372,000, Owner clear.Surprisingly, so far on the 25 or so properties that I’ve checked on, there were only a couple that didn’t have clear title, and a few owners who had their property taxes paid current, like the first guy above!
The TO doesn’t want to issue title insurance because the title officer doesn’t have control of the documents – after the sale, the trustee mails the trustee’s deed direct to the buyer. But he is ready to issue title insurance shortly after the trustee sale, should you want to refinance the property.
I’ve had to evict 30-40 people over the last two years, and it has been relatively quiet and unremarkable – but the banks offer cash for keys so that tends to make the occupants happy at the end. I’ve had a couple turn down the cash-for-keys, but eventually they go (2-3 extra months). Tenants get their lease terms honored, or have 90 days to vacate, whichever is longer, and any former owners still occupying can be given a 3-day notice to vacate. I haven’t seen one happen yet (the banks have been forgiving) but a 3-day would probably set off some panic in former owners who have been milking the free-rent program for months. Figure that cash-for-keys will fix just about anything, it’s just a matter of how much.
I am being very conservative, and hoping to only sell vacant properties at the trustee sales – I have enough to worry about, if anything goes wrong, I’m the only guy on the firing line. But if we see good ones that are occupied, we are talking to them – and hope to reach a level of comfort before even thinking about buying a trustee sale.
People have been critical of me suggesting this program as a viable option for buyers, mostly because I haven’t done one – either myself or with others. But the process is predictable, it’s the actual finding and buying of a property that provides the biggest challenge.
But the frustration of buying on the open market is so high that I have clients willing to risk buying at the court house steps – if the deal seems right. Let’s check them out and see!
It doesn’t cost you anything unless we’re successful, and then it’s 2% to me. I’m willing to provide plenty of investigation and evidence up front, and if you can be on red alert the morning of the next scheduled trustee-sale date with a handful of cashier’s checks, we might get one.
I think it’s a good deal, Jim. Count me as one of the “frustrated buyers” who’s tired of looking at the picked-over, overpriced inventory on the MLS. Looking forward to seeing some good stuff at the trustee sales, and think the risk is well worth it.
Jim, I heard on the news that the “seasoning” rules were being relaxed for refinancing FHA loans. Do you know if that pertains to conventional refinancing of a Trustee sale purchase too?
You mentioned that you have lined up money for 60 day bridge-financing of trustee sale purchases, but unless we can refinance into a conventional loan most of us that want to buy at Trustee are kind of handcuffed.
The seasoning is a big concern, and if you wanted to use the bridge financing and refi promptly (less than 60 days), I’m going to insist that people use my mortgage originator who has 2 lenders with no seasoning required.
The bridge financier doesn’t want to get hung up, and neither do the buyers at high interest rates.
“I’ve had to evict 30-40 people over the last two years, and it has been relatively quiet and unremarkable – but the banks offer cash for keys so that tends to make the occupants happy at the end. I’ve had a couple turn down the cash-for-keys, but eventually they go (2-3 extra months). Tenants get their lease terms honored, or have 90 days to vacate, whichever is longer, and any former owners still occupying can be given a 3-day notice to vacate. I haven’t seen one happen yet (the banks have been forgiving) but a 3-day would probably set off some panic in former owners who have been milking the free-rent program for months. Figure that cash-for-keys will fix just about anything, it’s just a matter of how much.”
I was pretty nervous over the prospects of an occupied Trustee purchase myself……….especially one that is occupied by renters who apparently get even MORE government protection than an owner-occupant.
But now I’m starting to think that having renters in there vs owner-occupants would be BETTER. You gotta think that a renter would look at a cash-for-keys offer as an unexpected freebie.
I’d bet that the renter would be the more likely candidate to grab the cash and vacate quickly/damage-free. Of course buying an empty house is obviously the preferred route.
I was pretty nervous over the prospects of an occupied Trustee purchase myself……….especially one that is occupied by renters who apparently get even MORE government protection than an owner-occupant.
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They should get more protection. In most cases, the renters were paying their rent; whereas with the “owner-occupied” homes, the “owner” failed to pay their mortgage in every single case.
And yes, it appears as though it’s those highly vaunted “owners” who most often thrash the place, not the much maligned renters.
I had to evict an owner-occupant. At first she was only talking through her lawyer (one of the loan-mod outfits that charged her $7000 in fees and she still wound up losing the place), but then after she found out it was an individual who bought it and not a bank she was very cooperative and left within a month.
Re: Tenants, does anyone know who is liable for a tenants security deposit and last months rent (if they paid both of those).
or does the bank stipulate that the ‘cash for keys’ is in lieu of any claims the tenant may have for cash, etc?
You know that security deposit (typically equal to a months rent) was spent on landlord toys within hours of receiving that check…