The process of buying distressed homes at Arizona trustee sale
We often get asked
What really happens at a Maricopa County Trustee Sale? It is such a common question that we decided to put everything about this process into one nice little article for easy quick reference. We’ll probably forget something so if we don’t answer your question directly, just leave your question in the comment section and we’ll get an answer for you.
First, let’s start with what a trustee sale is and why it even takes place. On real estate where someone has a mortgage, there is a deed of trust. Additionally, there is a note that guarantees someone will pay off the money loaned against this deed of trust. In most cases the holder of the note is a bank, but it can be a private individual. This is commonly called seller carryback financing. Either way, private individual or a bank, they are the holders (owners) of the note. The people who are on the deed of trust own the house. Technically, they don’t completely own the house until they pay off all the money owed on the loan to the note holder. When the people who own the home stop paying the note holder, the bank or private individual has to perform a legal process to get this deed of trust back in their possession. This process of removing the current owners and returning the property to the people who loaned the money for purchase is called a trustee sale.
Once the Maricopa county trustee sale is conducted, the person who purchases the property at auction will get a trustee deed that takes place of the old deed of trust and become the new owner.
These are the basics.
On a daily basis, there are several trustee sale auctions; some taking place at the same time in different parts of the Phoenix metro area. There are Arizona trustee sales each day at multiple law offices. These include Folks & O’Conner, Perry and Shapiro, Tiffany and Bosco. These sales take place in the morning and occur at their offices. There are many other law offices that hold sales, but these are the biggest. State law says that a trustee auction must take place locally at the trustee’s office or the county courthouse. Local trustees, like these law offices, hold the auctions at their office. Out of state trustees use a posting and auctioneer service and conduct their auctions on the courthouse steps.
In the afternoon, sales occur at the Maricopa county courthouse located at 201 W. Jefferson St. There are 3 trustee sales at Noon, 1 sale at 12:30 and 3 sales at 2:00. These are the posted times, however, auctioneers typically sell homes ALL DAY LONG. If you are going to a Maricopa county trustee sale auction and it says Noon, don’t expect them to call the sale at Noon. You will want to plan on being at the sale all day long. They are slow. The first 30 minutes is usually just the auctioneer calling postponements. Forget trying to get help either. This is an insider business and auctioneers are reluctant to help new people.
If you plan on bidding for yourself, you will need a $10,000 bid check made out to yourself. Once you are the successful bidder, you will endorse the check over to the trustee. Some auctions and law offices may require the check be made out to the trustee so you will want to call before you go, just to make sure. You will also want to develop a relationship with a title company so they can run title for you and verify that you are bidding on a deed of trust that is in 1st position on the chain of title. If it’s not, we would recommend not bidding as chances are you would lose your investment. There are horror stories of people losing $100,000 or more because they bought a 2nd deed of trust without knowing what they were doing.
If the process makes you nervous, you can a trustee sale bidding service, like ours, to do all of this for you for a fee. We provide a foreclosure list, run title, bid for you and help you through the process.
After you are the winning bidder, you will want to have the title company perform a commitment for title and re-verify title one more time before you pay off the property in full. It’s an easier pill to swallow if you have to walk away from $10,000 instead of $50,000 or more. Once it is paid off in full, you are ready to fix and flip, rent or occupy your new property. There are some really good deals at these sales. On average you can get a property quickly for 10% to 30% under market.
Some questions and answers about the trustee sale process:
1. How is the starting bid determined?
This is a good question and a simple answer is no one really knows. When a note holder sets the opening bid at the amount owed this is called a full debt bid. In today’s market, these homes would be bad purchases. You would be buying the home at more than current market value. Typically, these go back to the bank and become a Bank Owned or REO (Real Estate Owned). Specified bids are opening bids that are lower than the amount owed and may be a good property to bid on depending on current value of the property. A drop bid is a bid that gets lowered sometime before the auction.
2. How many homes go to sale each day?
The number of sales varies, but is usually between 200 and 400 per day. Many of these get postponed or cancelled before the actual sales. Some statistics show that the average property gets postponed 6 times before going to the auction block.
3. Can I view the homes going to trustee sale?
You should always go to a home that you want to place a bid on and get as much information about the property as possible. If you can walk around the house and look into the windows we recommend it. Many houses have been stripped of the A/C units, cabinets, doors and anything else that may have worth. All this should be factored into the maximum price you are willing to pay at auction. Some are occupied. We recommend talking to the owner or renter and getting any information you can from them as well.
4. What if someone is living in the foreclosed home?
If you are buying the home as a rental, it may mean a built in renter. If you are a flipper, you will need to evict them. You can find a good eviction attorney at Williams, Zinman and Parham. Their phone number is 480-994-4732. They can advise you as to the laws regarding tenants and owners right and start the evictions for less than $300.
5. Do I have pay these off with cash or can I get financing?
State statute requires that the property be paid in full by 5:00 PM the following day. Conventional financing means will not work. However, hard money lenders are always willing to lend money overnight for these type of transactions. We have access to these lenders and would be more than happy to refer you to them. Contact us at the number on the blog and we can give you several contacts that can help you with this type of financing.
6. How many bidders show up at these trustee auctions?
Unfortunately, what was once the best kept secret in town has now become mainstream. Maricopa County Trustee Sales are very competitive. On any giving day you can expect 50-100 bidders going against eachother. A good property will have 20 or more people bidding on it.
7. Can I buy foreclosed homes in my IRA?
Absolutely! In fact, this is a great way to protect your hard earned retirement income. Buying homes in an IRA and holding them as rentals is a fabulous idea. The team at Artisan Real Estate Group can certainly help with this. We work with Entrust and Keyt Law to set up your new IRA LLC and custodial account and walk you through this entire process. Many of our buy and hold investors take advantage of this structure daily by purchasing at the Arizona trustee sales. For more on this, please see our article A New Bill Concerning REOs And Retirement Penalties
8. Who buys all of these homes that go to Arizona Trustee Sales?
There are many types of purchases taking place at the sale. You have people trying to buy an owner occupied residence at discount. There is a large contingent of Canadians buying 2nd homes and buy and hold rental properties. Many northerners from the states buy trustee sales for winter homes. Many hedge funds, REITS and private investors are also buying trustee sales for fix and flip and buy and hold rental investment pools.
Hopefully this article answers some of your questions regarding Arizona trustee sales. Trustee sales are a fabulous avenue for securing distressed Arizona real estate quickly. It is a regular occurrence to see homes sell for $100,000, $50,000 or as little as $20,000 US daily.
Feel free to comment or leave questions.