Buying or selling at the auction?

Notes

Last year, before I decided to invest in notes fulltime, I researched how to buy properties at auction. In Hillsborough County, the auctions are done online on the county’s website. They have a schedule with all the auction what will happen in the short future. The closer you are to the auction date, the more information you will see on the website.

To find something that I would like I would filter the properties, using the cumbersome website, and I would start performing due diligence. If I found something I liked, then I had to order a title report and have an attorney review it.

A big percentage of the auctions got postponed the same day of the auction, this concerned me because, at this point, I would have invested funds on the property.

Looking for the challenges in buying at auction, I found that the most valuable properties were won by the plaintiff. The plaintiff has the option to make a bid up to the unpaid principal balance amount plus all the legal fees. For instance, a house I had some interest in, had a value of 300k, and the unpaid principal balance of that house was 500k+. The bank could bid up to 500k without having to deposit a single penny at the auction.

I had no chance to get that property for 50-60% of fair market value. After more research, I found that many properties were selling for 65% to 105% of what I estimated the fair market value to be. That is some tough competition.

I opted to not invest in auctions, and I now I sit on the other side of the auction bench.

Instead of competing to get the property from other investors, I am the bank, therefore I am the one that decides if I want to place my bid at 200k or 500k without having to make a deposit to the county.

How did I get to be the bank?

I buy non-performing notes from banks, and if I can’t work out a deal with the borrower to get them to pay, I decide to foreclose and set the price.

I case I am invested in the asset for 150k and I haven’t been in the deal for a long time, I can decide, with my joint venture partner, to set my bid for 186k and make a quick 24% profit and leave enough meat on the bone for the buyer at auction. If someone bids more than 186k I simply collect more, and if they don’t, I get to keep the house and even have to option to file for a deficiency judgment and pursue the borrower for the rest of the unpaid principal balance.

My preferred exit strategy is helping the borrower keep his home by getting him to start making payments again and we have many options to help them accomplish it. But sometimes that is not possible and we have to foreclose.

In which side of the bench would you rather be?

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