Making money on foreclosure, tax sales, and sheriff's sales?

November 10, 2004 6:13 PM

How does one go about researching and purchasing properties being auctioned or tendered because of tax sales or sheriff's sales? What are the kinds of things I should look for and is this a viable means of buying property? I'm based in Canada, but I'm sure there's enough commonality between regions that general advice will apply.
posted by Big Fat Tycoon to work & money (4 comments total)

I can't give you any real specific places to go for more information (other than announcements in your local paper, or just asking the local banks or appropriate authorities), but I do not think it's a viable means of buying property, depending on what you mean by that. If you believe that discounts exist in any real way, forget it. First, no bank or government lets property go at significantly less than fair market value. Second, there is a huge interest in distressed sales ensuring a great deal of demand for these properties.

There are many websites and resources that will claim all sorts of things, most of them predicated on buying property at 25-50% below market value. You may find a deal like this every once in a while, but it likely wouldn't be worth the effort you put into it.

If on the other hand you're looking for property for yourself, you're much better off going the traditional route, or looking for "For Sale by Owner" properties that may have motivated sellers that haven't reached foreclosure yet. Homeowners associations also sometimes foreclose on property owners and list privately, resulting in a desperate seller without scads of get-rich-quick investors all over them.

Sorry, I'm all over the place, but answering your question might be easier if you are a little more specific about what you are hoping to accomplish.
posted by loquax at 7:25 PM on November 10, 2004

No, that's good, I think you answered most of my questions. I would probably be buying for myself, but I did think about this as a way of getting a discount on a property. That led me into reading more about these kinds of real estate investments, but what you're saying is pretty deterring.

I guess what was confusing to me was the terminology -- I've seen tax sales and sheriff sales (done by auction or tender in Ontario, where I live) listed, but then got that mixed up with foreclosure investing, done here by power of sale. There don't seem to be any free/non-huckster sites with detailed articles about this area of investing (stuff like short sales, pre-foreclosure buying, all these "discount real estate" kind of things). You wouldn't happen to know of any off-hand?
posted by Big Fat Tycoon at 9:39 PM on November 10, 2004

Ok, just to make sure the terminology is right:

-Tax sales occur when property taxes are not paid. Municipalities request tenders starting at the amount that the property is in arrears. The problem with these is that they happen relatively infrequently, can be gamed by insiders, and also can end up in auctions where people routinely overpay by a large margin. The only reliable way that I know of to find out if these are occurring is to check with the tax assessment office in your municipality or in notices in the local papers. Something else to keep in mind with these is that the properties are sold "as is". All due diligence must be done before the auction, and bids cannot be subject to inspections or anything else. You can very easily end up with lemons by going this route, and overpaying for them in the first place.

-Sheriff's sales of land are essentially the same thing (as far as I recall), except that they occur where land has been seized as a result of a court judgement (often small claims, or unpaid liens or writs). Same problems, especially bum properties that are difficult to inspect beforehand.

-Foreclosures are, of course, when mortgage goes unpaid. Power of sale refers to the privilege of the chargor (lender) to seize and sell the property without having to go through the courts. Lenders can do this is any of several ways, including tenders, auctions, private sales, really any way they want. In the past, the big banks paid a lot less attention, and ended up getting ripped off, leading to people writing books about how to get rich from foreclosures, and then inevitably leading to a tightening of the selling of property. Now banks will often list the properties that they foreclose with brokers and sell them that way.

So, basically, buying properties in these ways come with extra baggage (trouble with due diligence, uncooperative tenants), little if any discount, and a lot more effort on your part. Don't underestimate the costs of due diligence either, especially in a sketchy deal. I'd budget at least 200-300 in Ontario to have a lawyer do a complete title search on any property before you submit any firm tenders, bids or offers.

On the other hand, if you're willing to put in the effort, assume some extra risk and know good real estate agents that can help you sift through the muck and get you in earlier on deals (especially pre-foreclosure deals), distressed properties can be very profitable, either as a one-off or as an investment strategy. especially if (to be a little cliched) you can see value where others do not, either sentimental value or hidden value.

Banks generally won't talk to you if you walk in off the street looking for property, but dealing through an agent that specializes in these types of properties will get you in the door. Agents can connect mortgage holders about to default to you through the bank, or through their own contacts. That's where you can profit, perhaps by qualifying for a more attractive rate from the bank (in exchange for you taking a problem off their hands) or a discount from the seller. For this, you simply must have the contacts. One way or another you have to know that a mortgage is past due, or soon will be. Hence the insider gaming that often takes place.

For sale by owner properties can also provide these kinds of opportunities. Especially in terms of creative financing. Look for them in the paper, either in the form of ads from the seller or ads from agents that specialize in "FSBO".

I have flipped through a few books that haven't been too shilly, but they are few and far between. Try looking up someone named Eldred, if I recall he dealt with a fair number of creative ways to buy property and renovate it. Unfortunately I have never come across a decent book targeted at Canadians, let alone Ontario (I'm in Toronto myself).

Sorry, all over the place again, but let me know if you have any other questions, either here or by email (in profile).

(BTW, I am not a real estate agent or a real estate lawyer, but I do have a fair bit of experience with land and land registration in Ontario)
posted by loquax at 10:39 PM on November 10, 2004

Thanks for the great rundown. I think that gives me a much better overview of the "industry" than anything else I've been able to scare up on my own.
posted by Big Fat Tycoon at 7:34 AM on November 11, 2004