Investor Question: “What do I need to be aware of when buying on the courthouse steps?”
When buy a property on the courthouse steps the investor is faced with several challenges: Getting inside of the home before the sale, having the sale cancel, having all the cash now and dealing with any occupants living in the home. We would like to take a look these issues and explain them for the real estate investor buying on the courthouse steps in the Kansas City Market.
First, getting inside of the home. In most cases you can drive by the house and if you are really lucky the house will be vacant and you might be able to find a way inside of the home. If the home is occupied, the occupant would have to let you into the property. Or if it is unoccupied you may have to find another way into the property.
One word to the wise is that many former real estate investors are starting to buy defaulted notes to become the bank. They may be doing the foreclosure and understand this problem. To counter act the problem they may be marketing the foreclosure sale themselves and have a lock box on the vacant property and or full interior photos for the investor to view. So you might try an online search for the address to see if you can find it on the internet from the person foreclosing or from a recent listing by the current owner. There is a small chance you can find interior photos so you are not making offers blind on the house.
Second, having the sale cancel. You can track houses in the foreclosure process in Kansas and Missouri through several legal publications and many of the foreclosure attorney’s own websites – for example South and Associates a local Kansas City Foreclosure Attorney has a website that has sale dates listed a month out. You will usually find opening bid prices a few weeks out in some cases or just the day before in others.
Where you run into problems here is doing all the research on all the houses in advance and then over 1/2 the time having the sale cancel and all your work is for nothing. So most investors who do purchase on the courthouse steps wait until the day before and in some cases the day of to do their property research and drive by.
Third, having all cash now. For the most part, when you bid on a property on the courthouse steps, you need to have all the cash right now in a cashier check made out to the foreclosing attorney. Some will accept 10% at time of bid with the remainder wired by five pm. We always recommend contacting the foreclosing attorney to get specific bidding instructions to make sure you have the funds. There is no way around it, cash within 24 hours with almost no exceptions.
But what if you take out the cashiers check? Well first obtain the cashiers check for your maximum amount you are willing to bid. If you win the bid and get it for less, the attorney will refund the overage in about a week, give or take a few days. If you don’t win the bid, take the check back to the bank and have it canceled.
What about People in the House? This is where having a good eviction attorney on your team can be very beneficial. They can tell you the time lines and how to go about getting people out if you want them out. The people in the house could be the former borrower or they could be a current tenant that knew nothing of the foreclosure.
In our experience, we make contact with the occupant and ask them their status as tenant or borrower. Negotiate with them to stay as tenants with your current screening process and leases or pay them to move out. As a last case scenario you may have to evict them and we always ere on the side of caution and at least file the eviction as soon as possible. You can always cancel it if you work something out. But if you delay and you have to evict, that delay could cost you lost profits in time and interest and lost income.
What Happens if I Win the Bid? Well not much. You hand them your cashiers check, tell them the name of the buying entity for the deed to be made out to and you might sign a piece of paper. Then in a few days to a few weeks the attorney will mail you the deed. Then it is your house, at least in Missouri for the most part. In Kansas, you have a who additional issue with Redemption Period which is an article for another day.