Foreclosure Group – Helps you buy foreclosed homes at auction.

I love buying houses that are going into foreclosure.  In the past I’ve bought homes from "motivated sellers" who I would find by sending them postcards, calling them or visiting their home, etc. in the days and months leading up to the AUCTION DATE set by the county in which their home was being foreclosed.

In the real estate education world, we call these homes "preforeclosures" because they have not actually been foreclosed on yet.  The Foreclosure itself is a public real estate auction in which the court forces a sale.  Investors bid on the home – the highest bidder wins the home OR the bank takes it back into its inventory as an REO.

It can be challenging to buy property this way and its generally touted as "not for the beginner" and "not for the faint of heart."

Problems with buying real estate at the foreclosure auction include –

1. Doing research on the property ahead of time to know what it is worth – including the interior condition of the property which may be unknown, title problems, comps, etc. and
2. Getting the funds together.  Generally auction properties are supposed to be bought with cash within 10 days (or less) of the auction date, with a significant portion of the funds being made as a non-refundable deposit on the day of the auction.
3. Redemption periods.  In some areas, the original owner of the property has the right to reclaim the property for up to 6 months after the auction date for whatever the original price was.  That means if you buy the property at auction, rehab it and then have it rented out, the foreclosed upon owner could come up and scoop it out from under you during the redemption period if they came up with some cash.

I have recently heard about (from 2 different sources) a company here in town called The Foreclosure Group LLC which specializes in helping investors bid on and buy properties at the foreclosure auction.  My understanding is they charge a 3% fee (which goes to the real estate agent) and in exchange, they provide you with due diligence information, comps, title reports, etc. and actually bid on the properties for you at the foreclosure auction itself. (So you don’t have to go stand out in the cold at the courthouse each week.)  They also have some funding tie-ins that will help finance your purchase (although you still have to come up with 25% down in most cases, before bidding at the auction.

This company has free weekly meetings in which they "spell it all out" and hopefully explain how the program works.  I have spoken with a realtor who runs these meetings in my county and she assures me that at the moment investors are buying homes at 65-70 cents on the dollar, which is quite good – it fits my buying criteria! – although I’m not sure if that figure takes into account repair costs and the like.

The realtor also cautioned me that it was currently more of a buyers market (Winter in Seattle… everyone has SAD and no one buys property) but that may change in the Spring (other realtors are praying the market comes back – it is stable but SOFT right now).

Anyway, I was sufficiently intrigued that I thought I would check it out.  I’ve also talked to a friend of mine and my Dad, who have also expressed interest in buying discounted property from time to time, to see if they were interested… so I may take a contingent of troops with me, when I go.

Anyway, it will be interesting to see how the meeting goes and if it’s "real" or "too good to be true."

I see this as a way to participate in the Seattle market (which has been very strong for the past 20 years or so) as an investor at an affordable price.  Appreciation has been so strong here that prices generally far outstrip rental rates and it can be hard to get property to cashflow.  I also see it as a good place to look – casually – for a future home for my family in the event that my husband and I decide to "move up" in the next few years to get closer to his work, my family, or to make more space for our new baby.

Anyway, these considerations all seem to make it worth while to at least check things out, so I will, and I shall report back!

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Related posts:

1. Buying a Foreclosed Home (REO) From the Bank
2. Buying an REO to Rent in Charlotte, NC