By Noah Brocious – President/RI/Mortgage Loan Originator – Purchasing land is an excellent investment, but it requires a great deal of capital. If you’re interested in a property, you’ll probably appreciate getting a place as cost-effective as possible. As it turns out, buying land at a trustee sale is an excellent option. However, the process is quite different from a traditional real estate purchase, so you must do your research before pursuing this avenue.
What Is a Trustee Sale?
The first thing to understand about trustee sales is the regulations that govern them. Since these can vary by state, it’s best to pay great attention to location when researching. For example, if you live in Arizona, you shouldn’t rely on Colorado laws, as they won’t apply to your area.
Why are the laws so strict?
This has to do with the process by which the property went up for sale. Land being sold at a trustee sale has been foreclosed on; a lender is now the legal owner of the real estate through the process of repossession.
Who Can Bid?
Anyone who is registered for the sale can make a bid. That includes the original owner. If the land doesn’t sell, it remains in the lender’s possession as a real estate owned(RE0) property. It can then be put on the market and sold traditionally.
What Is the Bidding Process Like?
Because this is an auction, the bidding process is much different from the traditional method of buying a house. For example, interested parties must attend the auction rather than communicating directly with the seller or seller’s representative. Additionally, the property isn’t listed in the MLS, nor are interested buyers allowed to tour the property before the bidding process begins. Instead, a notice is sent out; interested parties get ready, then the auction is held.
Before the actual auction occurs, the lender must send a notice to both the county clerk’s office and the borrower. This notifies both of the lender’s intent to hold a trustee sale. Once the notice has been received, information about the auction can be advertised.
All of this occurs only after lenders have sought recourse with borrowers. Exactly how long they must wait for contact varies by state, but it ranges from 60 to 120 days. Borrowers may also be able to settle their debts with lenders between the notice and the actual sale, at which point the auction will not commence.
To register for participation in the auction, individuals must meet specific qualifications. One such qualification is proof you have the funds necessary to pay for what you bid on.
During the registration process, you may choose to hire a representative to bid on your behalf rather than going to the auction yourself. For example, in Arizona, you can pay a bidding service company for this purpose.
Once the sale is underway, bidding proceeds much like any other auction. The initial bid is relatively low and gradually grows as interested parties make offers. The property is eventually sold to the highest bidder. Once the bidding ends, buyers must present the funds immediately.
After purchasing the property, the buyer may tour it and arrange for an inspection. Since foreclosed real estate is sold as-is, the new owners are responsible for its upkeep and bringing any code issues into compliance. Of course, they are also welcome to do whatever they like with the property, including using it as rental income or their primary residence.
Why Buy From a Trustee Sale?
You may wonder why buying from a trustee sale is preferable to going the traditional route, especially with the complicated laws in place. Honestly, the process isn’t for everyone — however, if you’re a property investor looking for a new house to flip or land on which to build, this may be one of the best avenues.
Take Possession Immediately
First off, you get to take possession of the land immediately. You’re legally obligated to. This quick timeline means fewer days wasted on paperwork or waiting for residents to clear out; you can get started right away on any renovations or construction you have in mind.
Pay Less Than Market Value
Perhaps the most significant benefit is all the money you can save. While you’ll likely still spend a decent chunk of change, it won’t be anywhere near what the real estate is worth. This leaves you more capital to use on renovations, advertising, and other expenditures. The lower price may also mean you get the property you wouldn’t be able to afford otherwise.
Compete With Fewer Bidders
Finally, due to the restricted nature of the bidding process, you’ll have much less competition. Since the land isn’t on the market in the traditional sense, only those interested in trustee sales will be aware of its availability — that’s usually limited to other property investors, making the bidding pool reasonably small. The limited number of bidders is another factor that contributes to the low price, as you don’t have to worry about an outside party swooping in with a ridiculous offer.
How Should You Prepare for a Trustee Sale?
To ensure you’re able to purchase property that suits your needs, you need to do a little preparation. After all, participating in a trustee sale requires several steps, and it would be a shame to waste resources on an enterprise that doesn’t bear fruit. With that in mind, the first thing you should do is research.
Do Your Research
What are the laws in your state? You should thoroughly investigate the registration process and any other regulations governing the sale of a foreclosed property.
You should also do your best to research the property itself. Though you may not get to tour the grounds, you can still look into the neighborhood’s value by checking out listed real estate in similar areas.
Get a Loan
We can’t stress enough how vital is it to be prequalified or approved for a loan before the auction. In fact, during the registration process, you’ll have to provide paperwork showing you have funding lined up. A good option for property investors is a land and lot loan, which is fast to process and offers flexibility.
How Can Capital Fund 1 Help Investors?
Capital Fund 1 is a private money lender offering loans in Arizona, Colorado, Oregon, and Texas. Our professionals are happy to help you find the right financing and guide you through the loan procedures. For more information or to apply, contact us online, or call us at (480) 889-6100.
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