Next in our “Leveraging Trustee Sales for Real Estate Investment” series…

If you’ve thought about investing in real estate today, you’ve probably started to consider trustee sales as a great source for purchasing foreclosure properties.  Like any great source of reward, this real estate investment approach should be approached with a solid understanding of the process and an insider’s knowledge of how best to use the trustee’s sales to build your investment portfolio.

In Arizona, real estate loans are secured with a Deed of Trust.  When the borrower defaults, the trustee sale process is initiated.  (Read the full, detailed explanation here) Although it may sound like a relatively straightforward process, there is a lot more involved in this strategy than meets the eye.

Trustee sales are frequently not held on the day and time originally recorded for the proceeding.  Often they even change locations.  The reasons for this are many: the lender may need more time to accurately complete their paperwork, the property owner may have persuaded the lender to
give them more time, or a question may have emerged about the formalities or legalities of the proceeding.  Either way, a change of time or venue may work to the investor’s advantage.

We should take a moment to talk about the opening bid price, typically published a day or so prior to the auction.  First, the presence of an opening bid estimate may be a good clue that the sale will actually take place as scheduled.  Second, this number is often fairly meaningless.  The lender will often publish a low opening bid price to generate excitement about a property.  The only people who get really excited about obviously low opening bids are novices. Experienced professionals will already have a pretty good idea what the property will sell for, no matter how low the opening bid is advertised.

In order to place a bid at the trustee sale, you must “qualify.”  In essence, you must show the trustee prior to the start of bidding that you have available cash funds.  Once bidding begins, it is important to observe other bidders to see who may be demonstrating interest.  The investor must have a top bid price in mind before the auction – and adhere to that guideline – if the investment will truly produce an acceptable return for the investor.

If you are the winning bidder, you will typically have until 5:00 PM the following business day to turn your funds over to the trustee, at which time the trustee’s did will be executed and recorded, transferring title to the buyer.  This is a very simple representation of the proceedings of a
trustee sale.  The process is often intense, confusing, and filled with complex legal implications.  It’s always a good idea to develop a close
working relationship with a trustee sale expert who can both ensure that your interests are protected and use their knowledge and experience with the system to locate the best investment properties for you.

NOTE:  We pride ourselves on bringing you the most informative, up-to-date, and accurate information possible about the often-confusing world of real estate investing.  Nothing we post however is intended to be taken as investment, real estate, or legal advice.  You should always contact a licensed investment, real estate, or legal professional for information and advice about your own unique investment scenarios.

Next in our “Leveraging Trustee Sales for Real Estate Investment” series…

Every savvy real estate investor knows that foreclosure properties must be a significant part of their real estate investment strategy in today’s market, however every state (and country) does it a little differently.  If your goal is to invest in Arizona real estate, it is critical to understand how the foreclosure and trustee sale process works.

Although most people use the general term “mortgage,” Arizona primarily uses the Deed of Trust to secure real estate loans.  In this scenario, the borrower (buyer) rather than the lender holds equitable title to the property.  The Deed of Trust is the agreement between lender and borrower, allowing for the transfer of the property to a neutral third party (a trustee) to protect the lender’s interest in the property should the borrower default on the loan.  Once the debt is paid in full, the trustee relinquishes all claim to title.  Should the borrower default on the loan before it is paid in full, the trustee has the right to sell the property and pay any proceeds to the lender.

The trustee’s right to sell the property under a Deed of Trust is known as “foreclosure by power of sale.”  This is a non-judicial process, unlike the
process for foreclosing on a mortgage, which is done via a lawsuit.  Contrary to popular belief, the power of sale process is NOT overseen by the court system. Also unlike a mortgage foreclosure, the lender may purchase the property from the trustee as he is a neutral third party, conducting the sale.  Foreclosure by power of sale IS regulated by Arizona statute.

Prior to the trustee’s sale, all parties must be given constructive notice of the sale.  A notice of sale must be recorded with the Maricopa Country Recorder, the trustee must notify all parties by certified mail, and notices must be published in a local source (usually a newspaper) for four consecutive weeks.  Sales are open to all public parties and the trustee (or his designated agent) must conduct the sale.  The property is sold auction-style to the highest bidder for cash only.  (If the lender purchases the property, he may do so via “credit bid,” where he cancels all or part of the debt.)  The successful bidder must pay in full by 5:00 PM the following business day.

Should the bidder fail to pay by that time, the trustee has several options.  He may give the bidder more time, he may postpone the sale, or he may reschedule the sale to another date, time, and/or place.  If this happens, the trustee need only post notice of the change at the original sale
location, nowhere else.  (Hmmmm….  Are we seeing a way to work the system a little here??)

As you can see, this process is complex and has many moving parts.  Investors wishing to purchase properties through the Arizona foreclosure process should contact a licensed real estate professional with both knowledge of the process and current experience, to ensure that their interests are well protected.

NOTE:  While we have outlined the “typical” process of the foreclosure and trustee’s sale in Arizona, it is important to note that, in today’s topsy-turvy real estate market, there are no hard and fast rules.  You should always consult the appropriate legal, tax, or real estate professional with questions or to learn more about how these legal considerations may affect your situation.

Every investor with money to spend today knows that “real estate is where it’s at.”  But, if you haven’t been playing in the real estate investment market lately, you may not even recognize this crazy game.  Everyone knows that foreclosure and REO properties can provide an amazing return on investment, but how can you gain the advantage over all the other investors out there?

Real Estate Signs/Ads

Many real estate agents today use sign riders indicating if a property is an REO, bank foreclosure, pre-foreclosure, etc.  If you know which pockets of which areas are strong for investment, and if you have the time to drive the streets looking for signs, this method may work for you.  Newspaper and Craigslist real estate ads are also popular venues for agents to advertise their property listings, however searching for the needle in the haystack among these ads takes almost as much time – and yields about as much useful information – as driving the streets in search of signs.

MLS Search

The Arizona Regional Multiple Listing Service (ARMLS) is the MLS for Phoenix, Maricopa Country, and the Valley of the Sun.  It is the one, comprehensive list of properties for sale in the area.  You will see many, many sites that promise you can “search the MLS just like a Realtor can,” but the truth is, only those agents who belong to the local Realtor association can actually access the MLS.  These fake MLS search sites will make you register and fill your inbox with spam, but you’ll still be no closer to finding wholesale real estate deals.  To truly search those fields that will lead you to great investment properties, you’ll need a pro.

Foreclosure Lists

Everyone and their brother wants to give you (or sell you) foreclosure lists, pre-foreclosure lists, REO property lists, bank repo lists, etc.  You and several thousand other investors will spend your valuable time driving around, looking at great properties that have already been snatched up by an investor who knew how to play the game.  There are a handful of professionals out there who spend their time every day to put together hand-picked lists of those properties that are about to go to auction that are actually great investments.  Contrary to popular belief, not every foreclosure property is a good investment.  Do you know how to tell the difference?

Successful real estate investors got to be that way by understanding the time value of money.  Spending hours in the pursuit of investment properties on your own won’t actually save you any money, because the seller pays the buyer’s agent.  So, before you spend hours of your own valuable time, consider partnering with a savvy local agent to help with your search.  Choose one that specializes in working with investors.  You’ll be money ahead in the long run.

NOTE:  We pride ourselves on bringing you the most informative, up-to-date, and accurate information possible about the often-confusing world of real estate investing.  Nothing we post however is intended to be taken as investment, real estate, or legal advice.  You should always contact a licensed investment, real estate, or legal professional for information and advice about your own unique investment scenarios.