After the disappointment of losing the auction we thought we’d won, we set out to find our next property. With no online auctions available, we chose to search the auctions currently in “outbid period.” This means that these homes were auctioned at the courthouse already, but, due to North Carolina law, they sit with the county clerk for 10 days to allow for others to place an upset bid. (Only a couple of states have this process.) If another buyer places an upset bid, the 10-day period begins again. This process continues until the 10-day period passes with no more bids. Painful.
In reviewing these properties, we found a great home in a great location in Cary. Cute right?
Over 10 different companies placed upset bids (some more than once), and over 21 upset bids were recorded. (To place an upset bid, you must bid at least 5% more than the last bid, and you must deposit 5% at time of bid.) We believed that we could win this auction if we bid the maximum price for this house and still remain profitable. That number was $129,000.
Take Note: In coming up with our maximum bid, we look at the ARV (After Renovation Value) of the property. What price will the renovated house sell in the current market? If we take that market price and subtract the bid price and renovation costs, will we have a profit?
After 10 days, we WON!! Our strategy worked. (Worthy of a picture of Jenn in front of the courthouse.)
When we researched the property before bidding, we knew that the property owner’s second mortgage was foreclosing the house. NOT the first mortgage. We determined that our auction bid was enough to cover the second mortgage (about $10,000) and the first mortgage (less than $100,000) along with legal fees.
Take Note Again: All county property records can be found on your county’s web site. It’s a great resource to do a title search and understand more about the property owner’s history. It’s best to also hire a real estate attorney to do a thorough title search.
Unfortunately, the Trustee for the second mortgage would not agree to pay off the first mortgage with the auction proceeds, even with the agreement from the first mortgage company and the home owner. This means that if we continued with the auction, we could be responsible for the first mortgage, even though we paid $129,000 for the home. In fact, any surplus from the auction (i.e. $100,000) could end up going to the delinquent homeowner! Seriously?
We could not take that risk, and we backed out of the auction. We’ll be charged the re-listing fees for this home to go back on auction along with our legal fees for the title search. An expensive but important lesson.
We’ll get the next one for sure!