How Do Real Estate Foreclosure Auctions Work?

REAL ESTATE FORECLOSURE AUCTIONS

Real estate foreclosure auctions are excellent places to buy properties at a discount! How does a real estate foreclosure auction work, and how can you find these properties? Ted Thomas will explain the entire foreclosure auction process. I’m going to share with you information that will allow you to purchase and resell dozens of homes pre-foreclosure.  When we finish, you’ll have important information to help you do the same.   I’m Ted Thomas, and I’ve been involved in real estate since 1970. My first investment was in single-family homes in California. From there, I grew to purchase 50-unit apartment properties and even larger projects, like high-rise office buildings. Want to learn how you can make big profits from deep discount real estate? Would you like to buy nice homes for cents on the dollar? Or earn double-digit interest rates? Then you don’t want to miss this FREE mini class.

Table of Contents

• REAL ESTATE FORECLOSURE AUCTIONS
• WHAT IS A FORCLOSURE?
• WHAT IS EQUITY?
• THE FORECLOSURE PROCESS
• WHAT’S THE DIFFERENCE BETWEEN DEED OF TRUST VS MORTGAGE?
• CONCLUSION

How Do Foreclosure Auctions Work?

  In this guide, you’ll learn:

• What is a real estate foreclosure auction
• How do foreclosure auctions work
• The difference between a deed of trust vs. mortgage

THE MARKET

The real estate foreclosure business is well known because of the promotions on nationwide television.  That’s because everyone believes, as I do, that one man’s garbage could be another man’s gold. The real estate business relentlessly goes from boom to bust and boom to bust, usually created by changing economies. The financial influence of the government and banks has a lot to do with the health of the real estate cycle. It will boom with low-interest rates, or it will bust with high interest rates.  I plan to share with you some insights to help you make money in both markets.

THE BANKS

Today I’ll answer your question about real estate foreclosure auctions and how they work. I think you’ll find this interesting, and it will open up new doors for you to make money.  I’ll give you the fundamentals and the differences, and I’ll emphasize foreclosure and pre-foreclosure. The banking system across the United States has evolved over the past few hundred years. In the 1900’s, at the start of the century, banks loaned money for only one year.  At the close of the year, the borrower had to pay back 100% of the loan. That was okay because most of the lenders and all of the buyers understood that farmers would be borrowing the money. When the wheat was harvested and sold, the farmer paid off his loan. Sometimes Mother Nature raises her ugly head and there’s a drought or a flood, sometimes a cyclone, sometimes a hurricane.  All of these natural phenomena’s ruin crops, kill cattle, and farmers suffer through this every year. If the thunderstorm wipes out the crops, the farmer can’t pay.  The result is the bank gets the property.

 THE FHA

The crisis was partially cured.  The FHA (Federal Housing Administration) created a simple solution.  This solution was an amortized loan of 30 years.  That meant the farmer had 30 years to pay.  The payments were small, and they were monthly. Today, the banks lend to just about anyone who has a decent credit rating, and the banks simply want collateral.  The home, the farm, something they can sell if you don’t pay them.

WHAT IS A FORECLOSURE?

The majority of borrowers pay their loans.  However, crises happen, such as divorce, injury, and disease.  Suddenly, a choice has to be made.  Should you pay the doctor to treat your sick child, or should you pay the house payment?  Easy decision.  Your child is forever.  The bank can have the house. This is foreclosure.  The process of foreclosure is known to all homeowners. As security for a mortgage loan, the home serves as collateral. The mortgage lender may repossess the property if monthly payments are not made on time. After that, the bank will attempt to sell the house as soon as they have taken possession of it. The lender will often hold a foreclosure auction to sell the house instead.  The bank wants their collateral.  It would be nice if it didn’t happen if the bank would wait.  They tried that.  It doesn’t do any good.  So, foreclosure is nothing more than the bank requesting the return of their capital via collateral. 

THE DEED IN LIEU OF FORECLOSURE

If you are in foreclosure, you could stop it instantly by simply signing the deed over to the bank.  There is a term for that, deed in lieu of foreclosure.  Homeowners don’t do that.  They fight to hold the property. Real estate foreclosure auctions occur because the bank wants the property so they can resell. Then, they reuse the money from the foreclosed property. 

A FORECLOSURE IS A LAWSUIT

A mortgage foreclosure is a lawsuit.  The bank is the plaintiff, and the homeowner is the defendant.   A lawsuit is ugly.  The bank hires an attorney, and the attorney claims the homeowner is a deadbeat.  This process gets uglier and uglier.  Attorneys are involved, a judge is involved, and appraisers are involved.  Each works very slowly.   The bank wants the property.  It could take six months or nine months. I’ve seen it take two years.  Meanwhile, the bank is not getting paid.  Meanwhile, the taxes are not being paid.  It’s getting worse by the minute.  Once the lawsuit is filed, it will only be settled when the property is brought to a sheriff’s sale and the judge has mandated that it be sold. 

WHAT IS EQUITY?

Thousands of people nationwide would like to buy the property at the sale if there is equity.  Equity is the difference between the market price and what’s owed. If the market price is $200,000 and the mortgage is $100,000, now there is $100,000 in equity. Suddenly, a maverick entrepreneur realizes the foreclosure has been filed and that the attorneys work very slowly, and the judge works at close to glacier speed.

PRE-FORECLOSURE BUYER OPPORTUNITY

The maverick entrepreneur could go directly to the homeowner pre-foreclosure auction, before the auction on the courthouse steps. This is pre-foreclosure. The seller still owns the property.  If the seller loses the property at auction, they will get no money. If the property is worth $200,000, and the mortgage is $100,000, the seller could take $10,000 to move, and then $90,000 in equity just went to the pre-foreclosure buyer. One man’s garbage is another man’s gold! If you’re interested in making big profits from distressed property investing, I have a free gift for you, a 1-hour, streaming video mini-course that will teach you the secrets of tax lien certificates and how to create massive cash flow from tax deeds.

THE FORECLOSURE PROCESS

Foreclosure is a process. It’s a legal process with a mortgage.  Attorneys, judges, and appraisers are involved. Everyone is getting paid and working at a snail’s pace.  Pre-foreclosure buyers are a force in the marketplace. Does the bank care? Yes, but what they want more than anything is payments on the loan. I’m not giving you a course in pre-foreclosure, just explaining the process.

DEED OF TRUST

In Texas and much of the west, the lenders do not use a mortgage because the mortgage requires attorneys and judges and may take years, as I’ve explained, to regain the collateral/capital. So, in Texas and most of the west, they use a Deed of Trust or Trust Deed, whichever you prefer. A Trust Deed does not involve attorneys. It involves 3 parties:

1. Trustee
2. Trustor
3. Beneficiary

I’ll explain.  The trustee is an independent 3rd party. The trustor is the homeowner, and the beneficiary is the bank.

THE TRUSTEE

If a property owner is late on a payment, no bank, no attorney, and no judge are involved. The trustee simply sends a notice giving the property owner “x” days to pay, or the trustee will sell the property on the courthouse steps to the highest bidder. The trustee has the power of sale under the law in those states.

THE NOTICE OF DEFAULT

For example, in Texas, if a trustee issues a notice, 21 days later, the property may be sold at auction on the courthouse steps.  Compare that with 6 months, 9 months, or 2 years on a mortgage. In California, the trustee will allow you, the defaulting homeowner, 111 days.  If the trustee issues a notice, it is a public record.  You can go to the courthouse and see the record of everyone who’s issued a notice of default every day. Once you have the notice for who’s in default, you can go to those people and purchase the property in a pre-foreclosure sale, pre-Sheriff’s sale, or pre-trustee sale.

DEED OF TRUST VS MORTGAGE

What’s the difference?  Trustees can sell properties in days when the lending documents are deeds of trust. When the lending document is a mortgage, attorneys, and judges can take years. In either case, once the notice of default is recorded, anyone can purchase the property pre-foreclosure auction. Now you understand the opportunity of a place like Los Angeles County.  In a bad economy, I’ve seen many weeks, I want to emphasize “weeks,” where there were 1,000 trustee/auction sales announced. That’s a lot of default notices.

CONCLUSION

We hope you learned a lot from Ted’s lesson on Real Estate Foreclosure Auctions. When a homeowner can no longer make home loan payments, the bank may choose to recover their capital by taking the collateral, which would be the house. This process is called foreclosure. Foreclosure is a legal process that can take months or years if the lending document is a mortgage.  In this case, it’s a lawsuit with attorneys, judges, and appraisers involved, and the gears turn very slowly. However, if the lending document is a Deed of Trust, the process moves much more quickly and can take as little as a few weeks.  States like California and Texas use a Deed of Trust. Upon the initiation of a foreclosure, the homeowner is notified. These notifications are public record, and real estate investors can capitalize on the situation. If the home has enough equity in it, an investor may approach the homeowner pre-foreclosure auction and offer a deal.  Since the foreclosure process has not yet completed, the homeowner still owns the house and can sell it. A savvy investor could work out a deal with the homeowner that benefits both parties and avoids the foreclosure auction entirely. If you’d like to know more about investing in distressed properties, particularly the lucrative niche of tax-delinquent property investing, there’s no one more qualified to teach you than Ted Thomas, America’s leading authority on tax lien certificates and tax defaulted property. Ted Thomas is the only one who provides full support and complete training with home study courses, Q&A webinars, live tutorials, workshops & web classes, and personal coaching.