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Foreclosure Types Overview  | Nobody wants to take someone's home. Buying foreclosures cannot be done nicely. |  |  | The auctions are a little less crazy. A little... |
Not all foreclosures are equal.
A tax foreclosure is different than a mortgage foreclosure is different from an association foreclosure.The overviews of each are below. But the central question, how does the bidding work?The auctioneer gives a minimum bid. Then, investors say a higher number. This continues at the auctioneers direction until the highest number with no other higher bidders has been reached. The high bidder wins the auction at the highest bid. Payment due in full.
TAX FORECLOSURE
Time: 10-4 pm
Place: County Designated (1115 Congress in Harris County)
Time to Pay: Immediate. They won't start the next auction until you pay. If you don't pay, they will re-auction.
Minimum Bid: Lower of All taxes, fees, penalties and costs to foreclose vs. adjudged value of the property. In a Resale, the minimum bid is drastically lowered to the administrative cost of the sale.
Who conducts the sale: Constable for the Precinct
Note to Bidders in Harris County: Broken up by precincts. Each precinct its own bidding place at the Family Law Center. They rotate between odd- and even-numbered precincts inside the building's lobby vs. outside the building on the South and West sides of the building. One month the even-numbered precincts will be inside, and the next month they will be outside. There are two types of tax sales - Sale and Resale. If nobody buys a property at the Sale auction, it comes back up for Resale in 3 months or so. The minimum bid is then dropped to a super-low number to attract bidders. It is not ucommon for a property to be sold in ReSale for MORE THAN it could have been purchased at a Sale auction. (There are a few sales by the Constables that are done for non-taxing entities. We ignore those for the purposes of this lesson.)
Introduction: Easily obtainable, free and updated data on Tax Foreclosures can be found on Linebarger's website (Linebarger is the first name in a really long lawfirm name that handles a lot of legal work for Texas counties, including tax foreclosures). Tax foreclosures have positives and negatives relative to other foreclosure types.
Pros
-They are in front of almost every other lien type.
-The tax suits are public information and therefore viewable.
-Minimum bid amounts tend to be smaller than on Trustee sales.
-More properties go to auction than in Trustee sales.
Cons
-Title policies are very difficult to obtain.
-Properties are subject to redemption periods.
-Every investor has free access to basic information about them, so the market should technically be more liquid than other types of foreclosures.
MORTGAGE/TRUSTEE FORECLOSURE
Time: 10-4 pm
Place: County Designated (1115 Congress in Harris County)
Time to Pay: Usually within an hour, but varies by Trustee. If you do not pay, they re-auction the property. HoustonRealNews' parent has lost a property it would have bought in a re-auction, been a beneficiary of a property that was re-auctioned, and been the cause of a re-auction by not paying on time.
Minimum Bid: Typically the full loan amount, unpaid interest, fees, late charges and foreclosing costs. Some lenders like to do a minimum and a maximum bid, hoping they get the property at the minimum bid. HoustonRealNews believes this is done for tax purposes. Annoyingly, HoustonRealNews' parent bought a property that it thought was getting inexpensively, when the lender started bidding up, as it had a maximum bid $12,000 higher than a minimum bid.
Who conducts the sale: Substitute Trustee appointed by the Lender
Note to Bidders in Harris County: The trustee sales can be overwhelming the first time. For starters, you don't know what the trustees look like. They can pop up anywhere and just start auctioning as long as one person listens. A trustee may have one listing or several hundred. They may read them in order of loan origination, they may read them in order of an internal customer number. They may not read them at all if the foreclosure was pulled.
Introduction: When a lender foreclosues, they have a "Trustee Sale." The information on which properties, at which time, is available publicly, as notices must be posted 21 days before the foreclosure. However, this data is nearly useless to an individual investor. Harris County has 1,500 - 2,000 foreclosures posted per month - Mortgage/Trustee Foreclosures alone. Second most in the United States we believe. There are several information gatherers who compete to show you the listings. They are competing on price, reliability of data, functionality of data, and speed to press (although it is all online as well). These services will be reviewed at a later date.
Because of the sheer volume of foreclosures of this type, it is worth understanding the pros and cons.
Pros
-Multiple good deals available every month
-Most of the big trustees do their homework and title companies can work around typical foreclosure title issues
-Little legal remedy for previous homeowner to cloud your interest in property.
-Time between winning bid and paying is usually enough time to minimize some of the risks.
Cons
-Other liens may exist superior to the foreclosing lien and the title info is not free and easily obtainable.
-Owed Taxes are not wiped out by foreclosure.
-Information is publicly available on sales, so some investors ONLY buy properties here, causing prices to go up.
-Sales may be rescinded if a bankruptcy was filed prior to sale. Can take days to weeks to get your money back. -Much lower percentage of properties go to market than in Tax Sales. The sales are either postponed or the properties have been cured of foreclosure (see Pre-Foreclosure info).
-Minimum Bid amounts can be very large and is difficult to predict ahead of the auction.
ASSOCIATION FORECLOSURES
Time: 10-4 pm
Place: County Designated (1115 Congress in Harris County)
Time to Pay: Usually immediate as the amounts are tend to be smaller, but the trustees have discretion.
Minimum Bid: Past dues, fees, charges and administrative Costs.
Note to Bidders in Harris County: Similar Process as the Trustee sales, as the Associations all may have different trustees.
Introduction: These properties are research intensive and can be had for small amounts, but come subject to liens. If you get too good of a deal, you could find yourself on the news. That's not good (unless its HoustonRealNews).
Pros
-A micromarket, small amounts and a lot of smaller properties. A lot of the big players stay away, taking Trump's advice. Fewer experienced players means more inefficient market and more opportunities.
Cons
-Nearly always subject to a first or a first and second lien.
-Subject to redemption period similar to Tax auctions
-Ineffeciency can be bad with inexperienced players paying too much, taking deals away from smart investors.
A NOTE ON HOMESTEAD
Homestead law does not exempt property from foreclosure for properly attached debts. However, it does greatly affect the redemption period for Tax Foreclosures. A non-homestead sale can be redeemed by the previous owner for only 180 days. A homestead previous owner has 2 years to redeem.
If you have questions and would like more dedicated and one-on-one/small group education, we can set up live in-person or on-the-job learning sessions - upon request or at a regularly scheduled time.
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