Have you ever searched the classified section fo your local newspaper? If so, then you've probably seen ads for "Sheriff's Sales or "Trustee Sales". These terms are used interchangeably. There are a lot of great deals to be had in purchasing homes auctioned on the courthouse steps, but be careful. The uninformed buyer may not know exactly what he/she is purchasing; therefore, it is vital to define the real estate terms and understand the process.
What exactly is a Trustee? First, it is important to understand that Virginia is a non-judicial foreclosure state. Simply put, this means that the lending institution named on a deed of trust (mortgage) does not need to go to court to get a formal court order that allows them to move forward with a foreclosure. That is required in many states, but not Virginia.
When you get a mortgage in Virginia, you sign a promissory note pledging to pay back the amount borrowed. The property is pledged as collateral. As mentioned, the borrower signs a Deed of Trust in Virginia. The Deed of Trust's sole purpose is to set forth what powers the lending institution has and what covenants the borrower can't break. Pay your mortgage, taxes and insurance--don't default! Another important thing the Deed of Trust does is nominate a Trustee.
A Trustee is a neutral third party between the borrower and the lender. The trustee sells the property to cure the default so the bank is made whole. the trustee can be the county sheriff or a law firm, such as Samual I. White or Shapiro & Busron. The trustee coordinates the advertisements and subsequent auction at the courthouse steps. Lenders benefit from the trustee because if the borrower defaults, they don't have to take the borrower to court (which is expensive). Instead, they activate the trustee for a predetermined fee.
The auction at the courthouse steps is so simple that it doesn't even seem real. For example, meet at the Fairfax County courthouse on November 2 at a certain time. Legally, the trustee must advertise in a local newspaper for at least 3 days in any one week or once a week for two weeks concurrently. The date, time and location of the sale must be in the ad.
The foreclosure trustee sends an authorized attorney to the courthouse and they will literally auction the property on the courthouse steps. It is very simple --a 1 or 2 page contract-- the way real estate used to be back in the day. There are no financing contingencies, no home inspections and no study periods. Important tip: have your financing in place prior to bidding. You will need to bring certified funds payable to the trustee. In order to be super prepared and if you can afford to do so, bring multiple certified fund checks to the auction. For example, bring one check for $10,000 and another for $15,000. After the auction, you can deposit the unused certified fund check back into your account. Also, you will be charged a per diem if you can't close on time (typically over $100/day). You will be charged for any and all extensions.
Title issues? You should get the property's title exampined prior to bidding at the courthouse. If not, you could be stuck with someone else's title issues (or forfeit your deposit). For as little as $100, you can get a 60-year title exam. You NEED to do this. The title exam will let you know if there are any back taxes, multiple liens and how manymortgages there are. Be sure you are not buying the second mortgage at the courthouse. Most title exams come back relatively clean with only one mortgage, but verify this with a title exam.
What does the lender want? The lender wants to recoup their costs or gain possession of the property. To be clear, the lender has not had ownership of the property to this point. If the foreclosing lender is the successful bidder at the auction, it will take control of the property for the very first time. Typically, the lender will hire a Realtor to list and market the foreclosed property; now it can be labeled a "foreclosure" or REO (real estate owned) property.
Basic Tips Prior to Bidding:
1.) Get a market analysis done to determine market value
2.) Have financing in place
3.) Get a full title exam to determine liens
4.) Bring your money to the auction in certified funds
5.) Call the trustee to verify the auction will still take place as advertised--auctions are sometimes postponed or canceled
6.) Arrive early to make sure you are at the corrent location
In order to find the best deals, make sure you know the current market value of the property. You may want to speak to a real estate consultant like myself. If you have any questions about the process or need a market analysis report, I am happy to assist. Call me directly (703) 592-9059 or email me at ATHOMEINVA@KW.com. Also, check out my website www.ATHOMEINVA.com
Betty Westerlund, Real Estate Consultant