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I win ?

10th January 2007

Dave

While I was well into my research, I began looking for ways to finance my first investment. I only had about $10,000 in liquid cash so more financing was required. My primary residence had been paid for several years, so it was the obvious choice to raise additional funds. I used Lending Tree services to set up a line of credit using my home as collateral. My plan was to draw the funds as needed to save on interest. Any principle and profits from the future sale could then be used to pay off the loan or finance the next purchase. The plan changed over the course of the next few months, but overall it was a good plan.

With funding in hand and some vague notion of how the foreclosure process works I was ready to jump in with both feet. I went to my first auction ready to bid on a single house I had researched. I’ll jump ahead here and say that the property was recalled and was removed from that days auction. It took another few weeks before I could find another property but I found a promising one close to where I lived. The 3 bedroom 1 bath house had been abandoned and vandalized unmercifully. That didn’t deter me since I had planned to do a complete renovation anyway. Comparable (un-vandalized) homes in the area went for between 50 – 65,000. The opening bid was a mere 14,000 so there was a lot of room to make some profit. I had already determined that it would take about 7 -10,000 in materials and I would supply all of the labor so it seemed like the perfect candidate.

The property I wanted to bid on was one of the last ones of the day. I sat and watched a couple of spirited bidding wars among public bidders but most where either recalled on kept by the banks and mortgage companies. Once the bidding started, the attorney opened with the expected 14,400 minimum bid. I countered with 15,000..he with 17,000..I with 18,000…he with 19,000…I with 19,400… and that was all of the bidding. I won! I went immediately to the bank for a cashiers check for $1,940.00 and returned to the Sheriffs office. That seemed easy enough.

As I was walking into my home office, the phone rang. It was the attorney representing the bank in the foreclosure. He told me he had the abstract if I wanted to view it and that the sale should go smoothly from here. I had already talked to an attorney about getting a title opinion. He informed me the abstract must be up-to-date before he could render an opinion, so I told the attorney that I would have the title company pick it up the next day.

Fast forward a week and I call the abstract company to check on the progress. They ask for the legal description of the property which I give them as written on the copy of the court papers…”Lot X in subdivision Sun Valley Addition”. For some reason they cannot find the papers and tell me they will call back. They call back an hour later and tell me they have an update ready for “Lot X in subdivision Sun Valley Second Addition”, and that it will be $450.00. I run down and pick it up and take immediately to my attorney office. I point out to the receptionist that the legal description on the court papers do not match the legal description on the abstract. She calls the attorney to the lobby and has me show him what I was talking about. He immediately tells me that I do not want to buy this property and not to bother having him read any further (saving me his $250.00 fee). He tells me that the foreclosure proceedings are not valid and they will have to start over from the beginning. In short I had bid a property that didn’t exist. It depends on how I look at it. I had either paid $450.00 for absolutely nothing or I had paid $450.00 to save myself thousands in future losses. If the sale had gone through, technically I would have been renovating a home that never went through foreclosure. The only consolation I got was the attorney told me he would send me copies of all the new proceedings and let me know when it would be up for auction again.

It’s a true fixer upper. For an initial investment of $20,000, $10,000 maximum in materials, and do-it-yourself labor, a $30,000 net seemed like just the deal I was looking for. I had iuntended to bid on it again when it came back to auction but I found a much better deal while waiting. I’ll tell you all about it next.

The place wasn’t as bad as it looked. As long as I could remove the graffiti from the vinyl siding it was actually quite new and in good shape. The roof had been shingled within the last 5 years. The floors had solid oak under old carpet. There was a lot of sheetrock work and the kitchen and bath would require a complete overhaul but it was a project that should give a good return.

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