In this down real estate market, the auction format is becoming more prevalent. Most foreclosures and bankruptcies occur in an auction format.   By far, the most important factor in being successful at auction is having the information.  The more information you possess, the better chance you have of being successful at an auction.       

            Paying too high a price at auction will obviously kill you.  Being fearful, however, and not bidding enough will cause you to lose out on great profitable opportunities.  Our greatest successes occur when we possess more information and, therefore, are willing to pay more for the property than most of the other bidders.       

      Below is a checklist of guidelines for buying property at auction:

1.  Gather all information you possibly can on a property, such as lot size, number of bedrooms, square footage of house, and condition of the house.  Remember that you may never see the inside of many properties purchased at foreclosure or bankruptcy, but you should still learn all of the information that you can.

2.   Attend several auctions before participating in one.  You must become familiar with how they work.

3.     Raise the bid in an increment more than the standard increment.  This is called a JUMP.  For example, if bids are being made in minimum $1,000 increments as per the auction format, jump it by $2,500 or $3,000.  This, of course, is assuming there is plenty of equity in the property at the level you are bidding.

4.    Don’t ever bid out of excitement or emotion.  You must go in there totally objective and keep that objectivity.

5.    Bring a calculator, pen and pad.

6.    Be prepared to always walk away.

7.      Know the time requirements for obtaining financing and whether this is even an option.  Many foreclosure sales and bankruptcy sales in different states require cash and you may not be able to get financing on the property you are buying.  Know the rules cold.

8.      Consider all added costs.  With some auction formats, the auctioneer gets a bidder’s premium, and this gets added to the bid.

9.      Have a title search done before hand so you know whether there are any additional liens for which you may be responsible as the buyer.

10.   Many homes bought at auction are in AS IS condition with no guarantees, warranties or representations.  Always remember, buyer beware.

11.   Always know your top line number before going in.  Do not go over that number to avoid getting caught up in the auction frenzy.

12.   Inspect all properties you plan to bid on.  In the very least, drive by the home and at least do a visual inspection.

13.    Bring several cashier’s checks in different denominations.  Never bring cash.

14.    Contact a bank representative so that you know their bidding parameters and whether the bank will take less than the outstanding mortgage judgment or balance.

15.    Obtain a catalog or list of properties from the sheriff, trustee or auctioneer conducting the auction long beforehand.

16.    Know the bidding rules of the sheriff, auctioneer or trustee conducting the auction.  Memorize these rules and know them inside and out as you do not want to make a technical mistake. 

For comments or questions, contact John J. Scura III, Esq., at jscura@scuramealey.com.  You can also visit John’s law firm at www.scuramealey.com.  

          The current housing recession is expected to run through early 2009.  Home sales should hit bottom in early 2008, declining by over 40% from their peak, housing starts will reach their nadir in mid-2008, falling by 55%, and house prices are expected to decline by 12% through early 2009. 

Inventory         

Inventory is the housing market’s most fundamental problem.  You have a combination of factors leading to too much inventory.   First, you have a huge supply of unsold homes sitting.  We are experiencing the highest level of real estate inventory in the post-World War II period.  Plain and simple, where you have that much supply and not enough demand, prices go down.

Foreclosure and Subprime Crisis

          The Subprime financial shock will cause inventories of unsold homes to rise substantially further in coming quarters as the ongoing subprime financial shock results in a collapse in home sales and surging mortgage loan defaults and foreclosures.  

          Foreclosure rates and bankruptcies are rising substantially.  When the banks take back homes, they are putting them into the market, thus leading to further increased inventory.  In all of my years of distressed real estate investing, I have never seen so many properties go back to the bank.

GREAT OPPORTUNITIES FOR DISCOUNTED REAL ESTATE NOW !!!

          You have to see the silver lining in the clouds.  Because of the factors above, now is the best time to be investing in distressed real estate.  We have been actively buying at sheriff sales and bankruptcies and have recently made a hard push toward buying properties directly from the bank after they have taken them back. 

          For example, we just recently signed a contract to purchase a five unit property for $63,000.  A deal like this would have never occurred during a hot real estate market.  We will either hold the property and rent it or wait until the market turns around and hopefully sell it for a substantial profit. We have gotten some of our best deals in the last six months, and I believe in the upcoming year these deals could become better.  For information on our products, send an email to jscura@scuramealey.com. 

There are some critical clauses that you want to include in any real estate contract as escapes in the event you need to back out of a deal.  They also serve as protection in order to enable you to conduct your due diligence.  You should always consult an attorney when entering into a real estate contract, but here are some clauses you should discuss with your attorney and to consider adding to a contract: 

Absolute Due Diligence Clause.  As a buyer, you want some time period to conduct all different types of due diligence.  Give yourself at a minimum 20 days to get out of the contract for any reason. Words are helpful such as “Buyer shall have 20 days from receipt of a completely signed contract to conduct investigation and due diligence on the property and may elect not to proceed with the purchase for any reason.”  And/or assigns.   You want to retain the right to be able to assign the contract.  Next to the words buyer in the contract, place the words, “and/or assigns,” and you will retain the right to assign the contract to someone else or another entity.   Also, make sure that there is no clause in the contract that stops or prevents you from assigning it.

           

            REO (Real Estate Owned) is simply the term used to describe those properties taken back by banks take back after a foreclosure action.   Where an REO is worth less than the outstanding mortgage amounts, the bank typically takes them back at auction.   This is so especially today with so many homeowners taking out so much money on properties and overpaying for properties in the past couple of years.  

            A bank can also take back a property that has equity if there are not third party bidders at the sheriff sale with a foreclosure.  Typically, however, the mortgage amounts are at about the same amount or exceed the market value when the banks take them back at sheriff sale.

            Prior to Real Estate starting to go into its recent downturn, investing in REOs was not the best strategy.  When the real estate market was hot, the banks and mortgage companies could easily sell their properties for top dollar.  Now, however, the banks are having trouble unloading the properties and are becoming desperate sellers just like the rest of us holding and trying to sell real estate.  In tracking the REOs of banks, their lists are growing significantly larger by the day.

            Furthermore, you have banks that are in trouble themselves.  More and more mortgage companies are shutting down and filing for bankruptcy.  To be sure, they are not in the best bargaining position and have to unload these assets.

            The timing and state of the market determines which strategies work best.  In my distressed real estate investing over the last fifteen years, different strategies worked better in different times.  Presently, as this is written, going to the banks for their REOs is going to be a good strategy.

            This is probably the least complicated strategy because you can just make low offers to the banks.  The banks or realtors for the banks will take a faxed offer on the properties.   Send an offer sheet with terms or use a form contract from the State where the property is located.  Of course, I have to give you the standard disclaimer that you should have an attorney review the offer or contract that you fax or submit to the bank. 

            With the contract or offer sheet, just make sure to always leave “subject to” contingencies in there, such as “subject to a satisfactory inspection,” “subject to obtaining a favorable mortgage at prevailing rates,” or “subject to final review and approval of your attorney.”   The point is to leave an out clause so you can get out if the deal does not look so favorable later or after you conduct more due diligence on the property.   In order to avoid taking the contract to an attorney every time, you can always put a standard clause as follows: “the contract will not become effective until review and approval in writing by the attorney for the buyer and this entire contract and offer is wholly contingent upon that review.” 

The first thing you should do after you read this is to check out each of the Real Estate Owned properties in your state or area.  You can quickly see whether they are offering good deals.  Now is the time to start attacking these listings because the banks are choking.  Start putting together reasonably low offers in the range of 55-65% below market value.  The benefit of the REO properties is that you will be able to inspect and view them.   Unfortunately, one of the huge risks in buying at a sheriff sale or trustee sale is you may not have the opportunity to ever see the inside of the property.  With REO, you will have that benefit.  Furthermore, typically with these properties, the bank has already taken it to sheriff sale and evicted the owners.               

       In my RADAR materials, I have the most comprehensive list of both private and government real estate owned information with an analysis of the quality of each list.   You will have access to current lists and contact information, banks holding the real estate and pictures and condition of the property.   Contact us at jscura@scuramealey.com for more information or visit our law firm at www.scuramealey.com.

In light of the recent problems with subprime mortgages, resetting of Adjustable Rate Mortgages (ARMS) and sharp increase in foreclosures, unprecedented opportunities are available in the distressed real estate market.  Lets look at the most recent statistics.  

The Organization for Economic and Development (OECD) said in a report November 22, 2007, in Paris that losses from

The recent decision of the Third Circuit Court of appeals in In re Connors, 497 F. 3d 314 (3d Cir. 2007), is a huge benefit for investors because once a sheriff’s gavel fall’s at a sheriff sale, the chance for a homeowner to save the home is very limited.   Because of this decision, it is critical that a person contact a lawyer when they receive notice that their house is in foreclosure so that they can get a chance to cure the mortgage through a chapter 13 bankruptcy plan or sell their property before they lose it.   If a homeowner waits until after the sheriff sale to save the real estate, they will in all likelihood lose their property. By way of background, a foreclosure action has to be taken all the way to a sheriff sale in order for a property owner’s rights to be cut off.  This sale is held in an auction format with the sheriff slamming down the gavel or hammer at the end of the sale.  A homeowner has 10 days after this point in