Question Details

Alex, Home Buyer in sf bay area

buying from court house foreclosure auction, financing question?

Asked by Alex, sf bay area Fri Feb 1, 2008

i know deals can be had through a court house foreclosure auction but from my understanding the ones bidding for these foreclosures have the bid amount paid in full. for a person not looking to do this for business but looking to purchase a home for personally use, how does one go about getting the financing done? what options do we have? the site i had looked into is which lists these courthouse foreclosures.

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Scott's experience in New Hampshire may differ. It seems that in (Placer County) California that 100% of the bid amount had to turned over to the auctioneer instantly upon winning the bid.

Putting up a $5,000 good faith deposit has never been in the cards on any of the ones I have seen or heard about in my county, or in Northern California for that matter.

Your bank would treat your newly purchased home as a cash out refinance, Therefore, your loan to value available will be much lower than the maximum purchase loan to value, and your interest rate is probably slightly higher.

If you are not owner occupant at the time of refinance, then the LTV will be lower still, and the rate a little worse.

if this is a fixer, lower the LTV lower some more and raise the rate up even higher.

Having two sets of financing and closing costs ( 1st , taking out the HELOC , 2nd Refinancing the auction house) Raising your interest rate and lowering your away your LTV, is likely to scrape away much of the 20% savings that you anticipate.

In addition you will likely encounter condition issues that you do not have much of or any chance to inspect for before committing all of your money. Uninspected repossessed houses are notorious money pits.

With huge risks, often come significant rewards. Sometimes an investor gets lucky. -
Me - I think I have a horseshoe....
1 vote Thank Flag Link Tue Oct 21, 2008
Jim Walker, Real Estate Pro in Carmichael, CA
All the courthouse foreclosure, all buyers I have worked with bought with a cashiers check
( a cash equivalent )

You can not use the house that you are bidding on for security for a loan, until after you own it. You can not own it until after you have paid cash for it.. This is a chicken and egg situation, a catch-22.
It is a paradox that you cannot overcome.

After you have used cash to buy you can take a loan out after you have insurable title.

If you want to pay a title company to run a title search and issue a preliminary title report, and pay for an appraisal and loan processing on the off chance that you might win the courthouse bid, you could do so, but you would risk losing all of that investment if you did not win the bid.

I have never heard of anyone trying to do it that way and succeeding. Use Cash to buy at the courthouse steps. Refinance later.
1 vote Thank Flag Link Fri Feb 1, 2008
Jim Walker, Real Estate Pro in Carmichael, CA
so regarding the loan on the auctioned property, how does that work? since the house would be paid off and you would be borrowing against it, would i be able to gain access to normal home loans such a 30year fixed, arms, etc?
basically, i would use the HELOC on property 2 as a interim loan to buy at the auction but later pay off the HELOC on property 2 and get a regular mortgage on home 1. im just thinking theoretically in case i think its worth while to go this route where i could potentially save 20% or more.
0 votes Thank Flag Link Tue Oct 21, 2008
Most buyers are cash buyers, you can get financing but can not make the deal contingent upon you getting a loan, so you better get pre approved prior to bidding, you will need usually a minimum of $5000 in the form of a cashiers check in order to bid. normally they give you 30 days to close the deal. if you dont, you will lose your deposit. Before bidding you need to do some homework, do all inspections prior to bidding as it is sold as is. make sure you have someoen do a title search to see if there is any liens that will follow the property if you buy it, check the back property taxes as well. good luck with bidding
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0 votes Thank Flag Link Tue Oct 21, 2008
Sure, you can do that. You just have to be prepared that you may not get a HELOC on the property you are buying that will be high enough to pay off the HELOC you used to purchase. I'd check with a mortgage broker about this before you buy just to make sure that you know what to expect. Good luck.
0 votes Thank Flag Link Tue Oct 21, 2008
Ute Ferdig -…, Real Estate Pro in New Castle, DE
im taking this one back to the top. lets say if a buyer had access to an equity line of credit and paid cash on the auction property how easy would it be to get the property refinanced such that the money fronted from the HELOC can be paid off with the refi loan? assume the HELOC is under a different name. for the auctioned property, which was funded by the HELOC will the loan applicant have access to the same refi options as one buying a house?
so basically, the steps would be?
HELOC on property 2
use money from HELOC to buy at the court house steps for property 1.
refi property 1.
use the funds from property 1 refi to pay of the HELOC on property 2?
anyone have insight on this? is this process possible? see any pit falls w/ my thinking?
0 votes Thank Flag Link Tue Oct 21, 2008
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