David Halsey
Team Leader
(951) 966-4534
(800) 728-7118
www.CoronaRiversideHomes.com
-----Original Message-----
From: brad shaw [mailto:trusteesaleguy@hotmail.com]
Sent: Thursday, August 16, 2007 8:27 AM
To: david@coronariversidehomes.com
Subject: RE:
WHAT IS A “TRUSTEE SALE”?
A trustee sale is both an event and a process. California Civil Code section 2924 defines the laws allowing a lender to foreclose upon a Deed of Trust. This process of foreclosing is the trustee sale process.
The actual public auction of a property, as defined by the above civil code, is the event called a trustee sale.
These auctions may be held in any public place during regular business hours. They are commonly held in front of County Courthouses. Some people refer to these auctions as the Courthouse auctions, however the auctions are held by private companies, and have no connection with the Courts.
The entire area of real estate foreclosures is ambiguous and rife with misunderstandings.
The following examples are frequently grouped under the category of “foreclosures”, even though the legal status of each category is quite different.
1. A homeowner behind in payments.
2. A homeowner whose property has a recorded Notice of Default.
3. A homeowner whose property has a recorded Notice of Trustee Sale.
4. A property about to be auctioned at the Trustee Sale.
5. A property purchased by a private investor at the auction.
6. A property, which reverted to the lender at the auction.
7. A property, which reverted to the lender, and then to HUD, VA, Fannie
Mae, or Freddie Mac.
Winforms has a new contract, which must be used when you represent a seller in Default, item 2 above.
As a listing agent, and perhaps also as a selling agent, it would be prudent to check, before presenting any offer, whether the subject property has a recorded Notice of Default. A title company can verify this over the phone.
I wish to discuss item #3 above, the Trustee Sale.
Trustee Sale auctions are the stuff of myth and legend. Stories of the “Forty Thieves” operating in Los Angeles County during the 1950s and 1960s still circulate.
The public thinks there are huge profits to be found at the trustee sale auctions, but they have no conception of the risks associated with buying property in this manner.
Stories of lost gold mines have lured desperate prospectors into desolate areas of both mountains and deserts for centuries. Their search for sudden wealth often leads them to privation, if they were lucky, or death.
In similar fashion, those who lust for easy riches at the trustee sales may wind up financially crushed and destroyed.
Trying to explain the risks to someone who has already decided to attend the auction is like talking to a stuffed owl. Greed has already infected them.
A few will listen, and realize they shouldn’t be there. Most reach the very clever conclusion, that if you are trying to discourage them with stories of the risks involved, then that means the big money is there, and you want to keep it all for yourself.
I hope to share with you a basic overview of the procedures and risks of the trustee sale auction.
Hopefully you will organize and refine this information so that you may intelligently discuss and share the great risks of trustee sale auctions versus the multiple safeguards provided a purchaser who has Realtor representation.
Do this well and you may save your buyer from a financial setback, as well as close a few extra sales.
Good Luck.
TODAYS MARKET
The sellers market has ended. The buyers market has arrived!
The negotiating position of the buyer has been enhanced by the rising inventory of homes for sale, and by the price reductions of increasingly anxious sellers.
If you control the buyers, you will do well.
Motivated, value seeking buyers, will inevitably hear about trustee sales, and use the Internet to obtain a cursory knowledge of the process, and the potential profits.
Those selling books, tapes, and classes offer most of the information. They will appeal to greed. They tout homes for 50 cents on the dollar, and never mention risk.
An uninformed Realtor can easily lose their buyer, and the commission that they might have earned.
How many closing checks can you afford to lose this year?
This report will give you the information to inform the buyer of the risks and pitfalls of the trustee sale auctions.
7 FORECLOSURE FACTS THEY DIDN’T TEACH YOU
CASH IS KING!
California trustee sales are for cash. The buyer must pay the auctioneer
100% of the purchase price on the spot.
Loan commitment letters do not work. Pre-qualification letters do not work.
Personal checks do not work, and a deposit with the balance to be financed
does not work. What works is all cash paid immediately to the trustee sale
auctioneer.
Almost no one actually brings cash. What is used are Cashiers Checks which
are made payable to the bidder, and are then endorsed over to the lender for
payment.
Bidders will bring an assortment of checks in different amounts so they can
get close to the actual purchase amount as possible. If the successful bid
is $251,000 the buyer may wind up having to give checks totaling $255,000.
A refund of the excess will be sent to the buyer.
The auctioneer will give the buyer an itemized receipt.
The Trustees Deed will be mailed to the buyer within a few days.
MARKET VALUE
Prior to bidding your value seeking buyer must determine the market value of
the property after it is fixed up and ready to sell.
A mistake at this point can cause serious monetary losses.
Let’s take a quick look at 3 market scenarios.
A rising market such as we has experienced the last few years, can make it
difficult to project the future retail value. If the competitors think it
will be worth more in 6 months that you do, then they will outbid you and
get the property. If you become too optimistic and over estimate the future
value, you may over pay and wind up with little or no profit when you sell.
A stable market with prices hardly moving at all is really the best of all
worlds. A little study of neighborhood comps will remain accurate for quite
some time. There are areas in the mid-west where this condition exists
today.
A declining market can be very dangerous. The media has ballyhooed the
“bursting of the real estate bubble” for the last 18 months. The buying
public and the speculators, have, through repetition, finally had their
confidence depressed. Activity is down. Offers at the listed price have
declined. No one wants to be the last one to pay full price.
A bidder at the trustee sale auction must now ask him or her self how much
lower the retail price will be 6 months into the future. The best minds in
the foreclosure industry are focused on this question every day. Everyone
has become much more cautious than just 6 months ago. Properties which would
have had spirited bidding 8 months back are now ignored and go back to the
foreclosing bank.
Let’s go back to your value seeking buyer.
They will quite likely hope you will help them to determine what the
property is worth.
Why? The reason is not because they consider you an acknowledged expert on
the area. Rather that most offices advertise a free market analysis of a
properties value. To a buyer looking for a killer deal, the word “free”
sounds like just the right price.
This puts the Realtor between a rock and a hard place. Do you see the trap?
If you offer an opinion and they lose money, whose neck is on the line?
If you back away too aggressively you can lose the buyer. There are a lot
of hungry Realtors today.
The safest tact may be to stay strictly with the facts, and avoid opinions.
A printout of comps from a title company gives facts. Let them use
Zillow.com to get more facts and estimates of value. Allow them to rely on
Zillow, and not your written or verbal estimate of value.
One of the Winforms disclosures covers market conditions. However, it may
be prudent to write a specific disclosure regarding future retail values
when dealing with todays buyers.
INSPECTIONS
Actually the title of this section should be “NO INSPECTIONS”.
Prepare a list of the normal inspections a buyer would receive with a listed
house. A regular home inspection and a termite report come to mind. Then
list all the other inspections the buyer might feel are needed in some
cases. Detail out what these inspections could reveal, and the potential
costs of any problems that may turn up.
What is available at the trustee sale auction? None of the above!
That’s right. None. Nada. Zero!
It’s called risk. No inspections. The total risk falls on the bidder/buyer.
You can get a little creative here. List all the problems that might be
found inside an uninspected house. For example: water damage from upstairs
plumbing, mold, roof leaks, defective electrical components, missing
appliances, vandalism, or animal waste ground into the carpets. This list
can go on and on.
If you can’t scare them away from the trustee sale auctions with this list,
they are either very sophisticated investors, or brain dead.
Those in the first category just need a little more information to convince
them they will be better off buying from a Realtor.
THE WARRANTY
Congratulations! I can’t fool you any more, you have already learned too
much, haven’t you?
After the section on inspections you already know all about the warranties.
There are none. Once again, none, nada, zero!
They do not even warrant that the published address of the property is
correct. I have saved a notice of trustee sale published in the Victorville
paper covering a parcel of land somewhere out in the desert. The address
listed on the notice is in Irvine. Buyer Beware!
Items covered under the no warranty provisions include: whether or not there
is still a house on the property, was there a fire inside, has it been
condemned, and exactly how many people were murdered inside the house?
A few years back I watched a fairly new investor buy a property far out in
the desert near a military base. I had seen the property. It was clean
inside and out: new paint, new carpet, good roof, not at all like the
typical foreclosure. It looked like a good deal. I passed on it since it
was just too far away from where I was living.
A few weeks later this buyer told me the trustee has published the wrong
address in the legal notice of trustee sale, and that what the sale covered
was a real junk pile a few blocks away.
He sued the trustee. He lost.
No warranty.
Disclose this carefully to your investor buyer. Show him the warranties he
gets when he buys thru a Realtor.
TITLE INSURANCE
The trustee, just like the seller in a normal sale, pays for the title
insurance. Right?
HaHaHa!
Well, you’ve got to throw in a little humor once in awhile, O.K.?
Just like the inspections and warranties, there is no Title Insurance
provided at the auction.
The investor must either have the ability to do a competent title search
herself using the public records available at the County Recorders office,
or find someone to do this technical search for her.
Maybe she’ll get you to help her? You know, for free, like ordering a
property profile with a custom cover page identifying your company, and you
as her Realtor.
O.K., so what can go wrong just because she didn’t get title insurance? If
I had any real writing skill I could write a short story here: perhaps
entitled, “How I lost $50,000 and Never Had to Write a Check”, or some such
variation.
Here, now, is the number one way people lose large amounts of money at the
trustee sale auctions. They think the loan being auctioned is the first
loan, but it turns out to be the second, or third loan.
You ask how they could do that? You think it is so obvious and simple that
no one could ever, ever make that mistake. Well, it happens all the time.
Here is how things work. If you buy the first position loan at auction,
then the junior (second and-or third) loans are wiped out and no longer have
any claim against the property or the new buyer.
If, however, you buy a junior (second and-or third) loan, you remain
responsible for the debt of the remaining earlier loans (the first).
For example, a trustee sale is published in the newspaper with an estimated
opening bid of $95,000. John Newman drives by the property. He estimates the
retail value to be $320,000. Just like he thought, there are big profits
here: no wonder the Realtors never told him anything about these trustee
sales.
He asks a few questions and learns he needs to bring Cashiers Checks in
order to bid. No problem - he accesses his home equity line of credit, and
shows up at the auction right on time.
A small group is hanging around, they look like they are waiting to pay a
traffic ticket, or meet their probation officer. Mr. Newman is clever. He
keeps his mouth shut and doesn’t tell anyone what he is interested in.
The auctioneer reads the auction. New Man qualifies to bid by showing the
auctioneer his checks. At this point someone in the hanging around group
also steps up and shows checks.
New Man figures he will discourage this other guy real quick. While the
opening bid is $95,455.23, he makes his first bid $99,000!
Sure enough, the other guy shrugs his shoulders and remains silent.
Everyone else just watched and didn’t say anything at all.
The trustee deed arrived, along with his refund, in about a week. The house
was vacant so New Man starts the clean up and rehab work right away.
A couple of weeks later a letter from some bank arrives addressed to the
former owner. Being curious, he opens it and reads that unless the last 7
payments are remitted to the bank prior to the end of the month the bank
will start foreclosing on the property. The letter reveals the balance on
the subject loan is $249,516.24, and the back payments amount to $6,389.45.
New Man is in shock! What is going on! He bought at the foreclosure sale,
and that means he owns the house, doesn’t it?
New Man asks some more questions, and even has a local Realtor check into
the situation. He learns that this bank’s loan is indeed the first loan, and
that he, “The New Man”, purchased a loan that was in second position. The
bottom line being he is responsible for the first loan that is threatening
to foreclose.
Let’s rough out the math. He can sell the house for $320,000 (pray values
don’t decline), less the selling costs of approximately 10%, and net
$288,000. The payoff of the first loan is about $249,000, and the back
payments around $6,500. The repairs ran $10,000. Bottom line, he gets back
$22,500 of his $99,000 purchase price.
Does this really happen?
YES! YES! YES!
Keeping your buyers loyalty and away from the trustee sales auctions may be
the best thing anyone ever does for this buyer.
THE PROFESSIONALS
A reasonable Realtor might ask why the group standing around watching the
New Man (or New Woman) lose most of his investment did not step forward and
lend a helping hand, kind of like a Realtor would?
The basic answer, which would take many pages to illustrate, is that they
are not like you - not one bit.
Realtors like the slogan “Win-Win”, foreclosure buyers say “Me first- screw
you”. They mean it.
Actually I would have liked to have used the f word above, but so many of
today’s Realtors are women, well, I just didn’t want to turn everyone off.
Look at that “ me first” statement and pretend it has the f word; now
pretend it is in red ink and all capitals. Close your eyes and visualize
it, now remember, this is the nature of the professional foreclosure buyers.
The unwritten, yet fully understood rule among the professionals is to never
help a rookie. Leave them alone and their first big mistake will destroy
them. Just let them self-destruct. If someone breaks this rule they may
find their competitors bidding higher than normal to punish the rule
breaker.
If you actually meet some of the principals involved you will usually find
they are intelligent, well spoken, friendly, courteous, and all around nice
people. They are also clever, cunning, dedicated (sometimes obsessively),
ruthless, and totally insensitive to anyone’s interests except their own. A
wolf in sheep’s clothing is a good description.
POSSESSION
I have heard new attendees at the trustee sale auction ask the auctioneer if
he gave the house keys to the successful bidder!
Such questions elicit open laughter from the regulars.
Here are the facts.
If the house is still occupied, the new owner will in all likelihood have to
start an unlawful detainer action in the local Superior Court. This is
commonly called an eviction. This procedure can be accomplished in as
little time as a few weeks, or if the occupant chooses to fight the action,
may take several months.
You should know that there are lawyers and paralegals that routinely contact
homeowners who have just lost their homes with promises that the legal
advisor could keep them in the property rent free for up to a year.
I personally know one buyer who had a foreclosed homeowner fight the
eviction for over 2 years.
One solution is to only buy vacant properties. Check with the neighbors to
verify that the former occupants have actually moved out. Look at the
electric and gas meters to see if they show a shutoff. Some buyers will
post a legal notice on the front door for 3 days stating the name and phone
number of the new owner, and the intent to enter and secure the property.
What must be avoided is entering, by any means, a property, which is still
occupied. Any resident has legal rights. Unlawful entry may result in a
civil lawsuit, or criminal charges of breaking and entering.
Even squatters who break in and occupy may have legal rights and force the
new owner to do an eviction.
As a Realtor you can inform your investor-buyer of the inherent risks
involved. Naturally you do not want to stray into an area that could be
construed as giving legal advice. Don’t make statements like “Here is how
to handle the situation…”.
If they have to do an eviction, send them to an attorney.
SUMMARY
You may be wondering if I have exaggerated the risks of the Trustee Sale
auctions.
The answer is NO. If anything I have only touched the surface. In order to
do justice to all the risks and ways you can lose money at the auctions I
would have to spend 25 to 30 pages per topic.
The researching of public records, called “Doing your Homework”, in the
business, would easily take 100 pages, probably
You now know more about trustee sales than any new attendee at the auctions.
They all ask the same basic questions. I have shared the answers to those
questions in this report, so that you may appear knowledgeable and aware.
Let me briefly list key facts:
1. Trustee sales are payable in full at the time of purchase. No financing.
2. The bidder must use Cashiers Checks.
3. The checks are made out to the bidders name.
4. There are no warranties.
5. There are no inspection reports.
6. There is no guarantee of title.
7. The address or existence of a house is not guarantied.
8. Possession of the property may require legal action.
9. Physical problems and repair costs can be substantial.
Additional musings and observations on trustee sales may be found
At http://caltrusteedeals.blogspot.com The most effective way to use this
blog is to go to the archives and start with the oldest entries and work
your way forward.
P.S. March 5-2007. See the latest post on this blog for a real life
example.
>From: "David Halsey" <david@coronariversidehomes.com>
>To: <Trusteesaleguy@hotmail.com>
>Date: Tue, 14 Aug 2007 13:21:48 -0700
>
>Hello there,
>I received your email address from the auctioneer at the Riverside county
>courthouse steps and had a couple questions.
>Is it illegal to call or go door to door to the notice of defaults??
>
>I have read that it is only illegal if I am getting paid in advance for
>services I provide, or attach any liens to the property.
>If I am not charging anything up front is it still illegal to contact them?
>Thanks for your help.
>
>David Halsey
>Team Leader
>(951) 966-4534
>(800) 728-7118
>www.CoronaRiversideHomes.com <http://www.coronariversidehomes.com/>
>
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