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Purchasing a Distressed-Debt Property in Texas

Posted on Oct 10, 2018 by Curtis Roddy

Purchasing a Distressed-Debt Property in Texas

(Part 3 of the series “So You Want to Invest in Texas Foreclosures”)

Whether you purchase before, at, or after auction, there are key steps to follow so you end up feeling great about your investment. (If you haven’t already done so, please be sure to first read the previous blog post “Getting started with investing in Texas Foreclosure Properties)

At this point in the investing process, you’ve learned about the benefits of purchasing a foreclosure property, and you’ve taken some important steps to prepare to make a purchase. That includes defining your criteria, researching properties, and selecting the property or properties that are right for you. Now it’s time to make the purchase! So, where do you go from here?

The first thing you need to do is answer a critical question: Do you want to buy before, at, or after auction? As we noted in the last blog post, the decision will likely come down to your financing, since buying at auction requires paying in cash. But you should be aware of the different options, since each offers advantages and disadvantages.

OPTION #1: Purchase Before Auction

If you have your financing in place, such as through a hard-money loan or other means of creative financing, you don’t have to wait for the auction. There is often a period of time before the foreclosure is deemed complete when prospective investors have the opportunity to negotiate with the property owner and make an offer, and there are a number of benefits to doing so. For one, you’ll likely have much less competition and can often pay less. Also, you’ll have a chance to inspect the property, not just see it from the outside.

It can also be advantageous for property owners to negotiate pre-auction. This is a less stressful time for homeowners to consider selling. they have some breathing room and control over the situation. Selling at this stage will allow them to avoid foreclosure and prevent their credit score from taking a big hit, so they can more easily rent a home or buy another one without a long post-foreclosure wait. It also gives them a chance to capture some equity that they won’t be able to if the property is foreclosed on. In fact, some homeowners realize the advantages of selling pre-auction and may put their property on the market, so don’t be surprised if you find yourself negotiating with a real estate agent.

In making your offer, you can remind homeowners of these benefits and even work out a short leaseback in which you would pay them a small fee to move out and you agree to keep the home in nice order until the final sale goes through.

Still, it can be tricky to purchase pre-auction. At this stage, the property owner may not be willing to sell. He or she may be in the process of declaring bankruptcy or trying different ways to hold on to the property, such as by working with a financial institution (that also would like to avoid foreclosure). Also, your communication with the property owner may be difficult. Put yourself in the shoes of an individual or family who are fearful they may lose their home; it can be a tense situation all around.

If you’re interested in buying a property in pre-foreclosure, contact the owner and let the person know you’d like to buy it and make an offer. You can explain that you’re sorry that it’s a difficult time but that you hope your offer will help the property owner get out of a bad situation. To locate the owner, check out Roddy’s Padhawk. After you create an account, you can look up details about the property and the loan and purchase the homeowner’s contact information.The homeowner may be working with a real estate estate.

OPTION #2: Purchase at auction

Most investors purchase at auction, usually the most exciting option! You’re likely to observe many deals being made, giving you the chance to purchase a number of properties in just a 6-hour window. Here are some things to keep in mind about buying at auction:

  • You have little control over the price. The purchase price is largely determined by what’s left on the bank’s loan and associated fees. (You can find the property’s opening bid estimate on Roddy’s pre-foreclosure list.) Be aware that the price doesn’t include unpaid taxes. You’ll be responsible for those, so it’s a good idea to look up what’s owed on taxes before you head to the auction.

  • Properties are always sold “as is.” While you can drive by a property that’s been posted for foreclosure, you typically can’t inspect it until after you’ve bought it, and there’s no opportunity to negotiate repairs. If you buy at auction, you assume all risks.

  • You’ll need to pay in cash. Be sure to bring with you cash or one or more cashier’s checks in case your bid is accepted.

OPTION #3: Purchase After Auction

Not all properties that are posted for foreclosure end up being sold at auction. In fact, 40 percent don’t appear on the docket or get postponed, often because a bank has given the homeowner an extension or the homeowner has declared bankruptcy. If the property you’re interested in doesn’t sell at auction, feel free to reach out to the homeowner just as you would if it were a pre-auction situation as described above.




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