Sheriff's Sale $ Margin
I'm looking for basic (beginner's) information on Sheriff's Sales. How can one without personal capital (but good credit) get into this area when you have to pay the money within days of the sale. For instance, do I need to line up a private investor to bid on a $380,000 house being auctioned for $320,000? Are there mortgage brokers/banks etc. that would work short term notes? I'm interested in buying "low", selling retail.
You have to line up your financing prior to the sale. You can get a hard money lender to loan you money on a short term basis, but at a high interest rate with points. You can also find investors who would be willing to loan you money for either a split of the profits or a % return on their money. I'm not sure they would shell out $320,000 cash, but you never know until you ask.
Tanya
This may not be an option -- but I traditionally use a home equity line of credit that is collateralized by my personal residence to finance the DEPOSIT (sometimes 10% of purchase price) required for most of these sales. Depending on your jurisdiction -- and the terms of the sale for the individual property -- you can get up to 30 days AFTER the date of the CONFIRMATION OF SALE to pay the remainder of the $$.
For example, you are the succesful bidder on the $380,000 home with a bid price of $320,000. The deposit requirement is 10% or $32,000 and the balance is due 30 days after confirmation. You draw $32,000 against your home equity line (or insert other financing here -- hard money lenders too) and pay the deposit. The mortgage company that foreclosed has a lawyer that takes their merry time in filing the confirmation of sale entry (usually 30 days). The sherriff takes their merry time actually getting you the deed after the confirmation is posted (usually 2-4 weeks). BUT, if the timing is right -- you will have your mortgage company lined up to do a close on the last day your balance is due. You will have your DEED and voila!, your mortgage financing to make up the rest of the payment.
WARNING -- you need to stay on top of everybody during this process to make sure there are no delays. You may have to forfeit some or all of your deposit if you can't close depending on the jurisdiction. But this will save having to borrow $320,000 from a hard money lender if you time it right.
The mortgage I am describing above can be any term -- if you can get a non-amortizing 1 year note, that is probably the best for a buy and flip property. You may only be holding it for a month, but you can generally pay it off early if necessary.
Another option I haven't tried yet, but thought of, would be to see if a lender will use the money deposited with the Sheriff's office as collateral for the loan. Since this money is held by the Sheriff until the time of confirmation and deed preparation, it should have some security to it. If the sale doesn't go through, the money is refunded -- could this deposit actually be assigned to a lender? Its worth asking...
Your best advice is to check what the requirements are in your particular state in terms of paying the balance on a successful bid. While dciolek makes an excellent point of what is possible in IL, not all states have such generous payment schedules. In Florida, for example, you are required to deposit 10% at the time your bid is accepted and the balance due by the end of that business day.
I appreciate the information, I've got the line of credit for the deposit already active. More research at this point is in order as I'm unclear from sources checked to date whether the financing is due in full the next day or within 30 days at a set rate of interest - which would allow for financing through more conventional means than a hard money lender.
Though probably not going to test run on a $320,000 foreclosure without either an investor already lined up or guaranteed support from a mortgage broker, we'll work towards doing a smaller one soon.
I really appreciate the advice on this site and look forward to learning more!!!