Foreclosures FAQGeneral Foreclosure StrategiesQ. What are the main types of auctions? A. There are numerous types, but the three basic types that you will encounter for tax and mortgage foreclosures are:
The first two types involve a lawsuit, a court process, and an auction held by either the court (judicial foreclosures) or the sheriff (sheriff sales). The third type is much speedier, since the property owner never really owns the property. In this case, the lender simply files with the county recorder that the property is in default and within 120 days the property is auctioned off. There are also auctions held by HUD, the IRS, and homeowner, condo or co-op associations (when someone stops paying their dues). These are far more rare and have different processes. Q. Can I buy the property before the auction? A. Yes. Most properties never actually make it to the auction. Savvy investors use a combination of mailings, phone calls and site visits to reach owners and make lowball offers. There are excellent books and investor programs to assist you in this process. If you'd like us to recommend a few, call us at (718) 715 1758. Q. If I want to buy before or at auction, how can I get a mortgage in such short time frame? A. The short answer is: you don't. You find a way to hold off the bank and postpone the auction or the closing long enough to get the deal done. Many bidders either have a pool of capital from a group of investors or they tap into short term capital sources, such as hard-money. Eventually, once you have possession of the property, you can go through the usual process of refinancing Q. Do banks cooperate with investors buying properties before the auction? A. Banks do not like to have properties go to auction. They will
do almost anything to avoid it. They will reach for any viable alternative like
a drowning person clutching for a rope. Q. If I want to buy before the auction, how do I hold off the bank? A. There are several ways. Here are a couple: Q. Do brokers sometimes represent properties in foreclosure? A. Of course! At any given time a small percentage of the properties being marketed by
any of the major brokerages are facing foreclosure. Obviously, the brokers won't tell you this.
But armed with the right knowledge, you'll know when to make the lowball offers with
no contingencies. Q. What if a property goes to auction, but I don't have the cash to buy it outright? A. You're still in the game. Usually the people who buy at auctions are professional "flippers" or "wholesalers". They have the capital to buy the properties at auction. They clean up any obvious problems and then look to resell them quickly. If you are interested in a property but don't have the cash to buy it at the auction, go anyway. Slip the winner a letter explaining your interest in purchasing the property. You can probably work out a conventional mortgage purchase deal. Q. What if the bank buys the property at auction? A. The bank just wants to get rid of it. Corner the bank's representative and give him or her a letter saying you want to buy the property. You can offer less than the bank paid for it since obviously nobody bid more than the bank. Generally speaking, banks only buy those properties which are "underwater", meaning that these properties have liens/debt in excess of the properties value. However a lot of this debt is "interest, penalties, and fees" imposed by the bank. If you buy from the bank after the auction, not only are they likely to waive their interest in these extra amounts, they may even discount the property slightly off the outstanding principal in order to get it off their books. Be sure to get the bank's attention before they pass the property off to a broker to sell. By that time, it's generally too late to get a good deal. Foreclosure Investing as a ProcessQ. What is the overall process for foreclosure in NYC? A. First, the owner of the property stops paying his or her mortgage. The bank sends increasingly threatening letters demanding payment. Usually the banks will try to work with the deadbeat owner in various ways, such as a debt restructuring or financial counseling. But eventually the bank decides it is wasting its time, and it sues the owner. The period of time while the lawsuit is pending is called "Lis Pendens." The lawsuit basically demands that the owner hand over the collateral that backs the loan. Assuming the deadbeat owner doesn't start paying, the bank will eventually prevail in the lawsuit, and the judge will order the property (collateral) to be sold at auction. The judge appoints a referee, who is an independent third party, who will auction the property as the agent of the court. The judge will order that a notice be published for four successive weeks. Typically the judge orders that the notice be published in the New York Law Journal, but sometimes the judge selects another publication such as The Post, Newsday, The NY Times, etc. After proper public notice has been given, the property is auctioned, assuming the owner hasn't found a way to delay things. Typically it takes 12-18 months to actually get to auction.Q. How do I work the foreclosure process efficiently? A. First, you need to realize that the odds of you getting any particular property are low. Someone may get there first, someone may offer the owner more for it, or the owner may get out of financial trouble. You need to cast a wide net, filter through lots of properties, and make offers and bids on dozens of them. Also, track the properties over time. It is very common for auctions to be announced, cancelled and then rescheduled. Keep trying. Finally, be flexible about how you profit from a property. Be prepared to buy it before auction, at auction, or after auction. If you are a real estate broker, maybe the owner would like you to sell it. Maybe the owner has more than one property; make offers on all of them.What to expect at an auction in New York CityQ. What happens at the auction? A. The referee will show up at the designated place for the auction. He or she will announce out loud that the auction for such-and-such property is about to begin. He then reads the terms of the auction. The terms basically say that the winner will have to pay 10% of the purchase price in cash or cashier's check immediately after winning the auction and the balance within 30 days. The terms also say that the property is "as is, where is" both in terms of physical condition and superior liens. That is, when you buy the property you inherit any tax liens and the like. Next the referee may circulate a sign-up sheet on which potential bidders may be asked to sign in. Sometimes this happens, sometimes it doesn't. The referee may ask to inspect the down payments of the potential bidders. The referee will usually state a minimum bid increment, which is usually less than 1% of the amount of the outstanding lien. The referee will also state the "upset price". This is the amount of the outstanding lien, which is the total of the principal, interest, fees, and penalties owed. These formalities out of the way, the auction starts. Different referees have different styles. Some take charge and call out the auction, "do I hear 100? Do I hear 101?" Others allow the bidders to call out their numbers and point at the bidders to recognize that the bid has been heard. In most cases, due to the standardized way in which mortgages are sold into the secondary markets, banks will bid up to the amount of the outstanding lien. This is called the "upset price". One bank representative I spoke to told me that his instructions were standard: start with an opening bid of $1,000 and then immediately bid the full upset price if anyone bids over $1,000. Of course, the bank never bids over the upset price. You may observe obnoxious or intimidating behavior on the part of some of the bidders. Just remember that the winner of the auction is the person who bids highest, not the person who is the biggest asshole. Also remember that the best investment is sometimes to not invest. Some properties get bid over their real value. When the high price is finally found and the auctioneer has called out the traditional "going once! going twice! going three times! gone!", the auctioneer will step aside with the winner and the runner up and go through a lot of paperwork and also settle the down payment. The winner has 30 days to come up with the remainder of the purchase price.Q. Funny Auction Story from Matthew Haines, founder A. Once my investment partner, Charlie, and I didn't have our act together. We had been chasing a property for weeks. We had done all the homework. We had made all sorts of offers to the owner and to the bank. We were sure the owner was going to declare bankruptcy and delay the auction. But the night before we found out that, inexplicably, she hadn't. We were prepared to bid up to $450,000 at the auction. But we didn't have our cashier's checks ready. The auction was at 9:30 am - too early to make it to the bank beforehand. So we made a plan. My bank opened at 9:00 am in midtown. I would go there and hopefully be the first person in line. We knew the bank would take some time to write a cashier's check for $45,000. Meanwhile, Charlie would go downtown and do everything possible to delay the auction until I showed up. He would ask lots of questions during the reading of the terms of sale. He would ask to have things repeated. He would complain that he couldn't hear. And to cap it all off, Charlie had a little more than $8,000 in cash in small bills in an emergency fund in his sock drawer. He got a bag, rumpled up all the bills, threw them in, and shook it. The plan was that when the referee inspected the money, Charlie would shove the bag in his face and blurt out, "I'VE GOT $50,000 IN CASH, DO YOU WANT TO COUNT IT???" In the end, I got there in time, but the auction was canceled. But it turned out that we wouldn't have gotten the property anyway. Nobody else at the auction had done as much homework as we had. They didn't know about the organized tenant litigation that was going on, and they were prepared to bid much higher than we thought the building was worth.Location of the AuctionsQ. When and where do auctions take place in New York City? A. Unless otherwise noted, the auctions are held at the County Courthouse: Manhattan60 Centre Street, in the Rotunda, anytime, but usually Wednesdays at 1 pm Brooklyn 360 Adams Street, Room #261, usually Thursdays at 3 pm Queens 88-11 Sutphin Blvd, Courtroom #25, usually Fridays at 11 am Bronx 851 Grand Concourse, Room B-129, Ground Floor, any day at 2 pm Staten Island 18 Richmond Terrace, Room 106, Learn MoreQ. Where can I go to learn more about buying foreclosed properties in New York? A. First, go look at a couple of properties that are in foreclosure.
Drive by, check out the properties from the curb, research sale
prices in the neighborhood. Determine what you think the
properties are worth. Now go to the auctions. You'll learn
more from the auctions than you will from ten classroom
courses.
Source of the InformationQ. Where does your information come from? A. In NYC, we track foreclosure all the way from the moment default is filed with the courts through the judgment to the auction listing, the actual auction, and finally after the auction. In PropertyShark, you'll find these steps labeled "Lis Pendens", "Judgments", "Auctions", and "Sold". The information comes from a lot of sources: the courts, the clerk, the register, newspapers, and finally attending the auctions. We do it all for you, so that you can spend your time focusing on foreclosure investing. Q. Do you miss some foreclosures? A. We don't think so. If you find a foreclosure that we've missed, give us the index number and we'll give you a free month of service. Don't jump the gun: it doesn't count as "missed" until the auction goes by. |