The Property from the Sheriff… Or the Paper from the Bank??

Well, 3 days – 3 blog posts, can you tell it has been a relatively calm week? There was no radio show last week because of the Thanksgiving holiday, but I will be back on the air this evening at 5:00 PM, on WNRB-LP 93.3 FM with the Dr. Rent Radio Show.

I would like to thank all of those who made dental recommendations. As of right now, I have four potential torturers… ah.. I mean dentists for Mrs. Rent to “screen” when she comes back from a quick visit to Oklahoma City.

On tonight’s show, the main topic will be the conclusion of our series on distressed properties. Last show we talked about buying the paper and sheriff sales. Tonight we will talk about buying the property directly from the bank, how to do some preliminary research, and a general summary wrapping up this series.

We also have a couple of questions. Can a landlord require 60 day notice on a month-to-month rental agreement? Can the landlord require a 60 day notice on a year lease? And, just to make things interesting, can the landlord require a 60 day notice on a month-to-month holdover of a 1 year lease? Also, I received a question from a tenant who was wondering if they give their landlord the month’s notice they are ending their month to month agreement, can the landlord still give them an eviction notice?

On our show before the Thanksgiving break, we had a number of questions that we covered. A tenant received a 24 hour notice to vacate and was wondering if this was an illegal eviction. Technically… no. It was an improper notice but that does not cross the line to illegal eviction until the landlord takes some action to restrict the tenant’s access to the property (such as changing locks, blocking access, turning off utilities, moving their stuff out… etc.). Only the sheriff can evict a tenant, and they need a court order (a Writ of Restitution) to do so, this Writ is awarded by a judge after a court eviction hearing. If you have been limited access to your property without the sheriff using a writ, you have been illegally evicted. There are a number of eviction notices in Wisconsin, but the shortest is the 5-Day notice. There are no 24 hour notices. The only time this type of notice would be valid would be if the tenant is holding over past the end of the lease, but then no notice is needed. However, if the landlord goes to court for eviction and the notice was improper, the tenant can use improper notice as a defense to stop the eviction action.

We had a question from a landlord whose tenant died. They wanted to know two things… 1) what does the law say their rights are… and 2) what is the “right” thing to do. The new law passed this year (WI SS 704.165) says that the tenancy ends 60 days after the landlord learns of the tenant’s death (it only ends for that tenant and this does not affect anyone else on the lease). If the lease term ends before the 60 days, or if the estate gives proper notice on a month-to-month agreement, that could also terminate the agreement prior to the 60 days. The estate is responsible for the terms of the lease for those 60 days. A landlord cannot contact family to solicit payment if that person they are contacting has no legal duty to pay.

As for the “right” thing to do… in the few times that has happened with me, we try to work with the family. We understand what they are going through, but at the same time, we cannot re-rent a property that is not vacant. I will normally come to some type of agreement with the family that once they have vacated and cleaned the unit and returned the keys, we will terminate the agreement. That general understanding has worked well and has thus far been agreeable to the families involved.

Our main topic of the last show was continuing our distressed property conversation. As a recap, we started this series explaining what the current foreclosure crisis means to those wanting to explore this method of real estate investing. We then covered some common terms used. We described the basic steps of a foreclosure action and summarized the different times in the process that a buyer can get involved. We looked at a number of hidden costs that can make the deal of the century something that could bankrupt you. We also gave some basic advice on doing short sales.

We continued that last show with some basic advice if you choose to buy the paper from the bank. This is a strategy that is the most difficult one to do. You are actually buying the loan and mortgage from the bank and assuming their place in the foreclosure action. This is not done very often because it is the most difficult way to do things. Also, this way of doing it invokes by far the highest level of risk with the highest amount of unknowns. But, along with the large risk factor comes a large potential for profit.

In order for the lender to be even willing to consider this option, they have to feel the risk is sufficiently high for them that cashing out would be to their advantage. This means that they would want to cash out. Banks are not willing to trade one loan for a different loan. If you are going to buy the paper, have the money in hand. In order to sell the loan, the bank has to be in possession of the loan. So, mortgages that were sold on the secondary market are not an option for this strategy, it has to be a bank portfolio loan. Also, large banks are almost impossible to deal with, so it has to be a locally based smaller bank.

Also, it has to be something that the bank doesn’t want to deal with. From personal experience, this strategy has worked the best with commercial properties that the bank feels will be very difficult to resell. In those cases, for the right amount of money, the bank is more than willing to take the money and run and have someone else take on the risk. Needless to say, there is a great deal of risk. What the bank will be willing to accept will be based on how far into the foreclosure action they are. The unforeseen costs are literally unforeseen, the biggest risk being the legal fees and associated risks of the borrowers are able to delay the proceedings.

The way to purchase distressed properties that most people are familiar with is the sheriff sale. This is when the property is auctioned off at the court house. Although it is an auction, it is not one of those fast talking ones where if you blink you miss it, and if you nod your head, you bought it. The sheriff will read the legal notice and then the lender almost always makes the opening bid. Most of the time, the opening bid will be what is owed the bank, plus accrued interest and legal fees. If it is a large bank, that is always the case. Because of goofy lending underwriting, it is not uncommon to have an opening bid of $150,000 or more on a $100,000 house. If a bank is more hands on, their opening bid may be discounted because they don’t want to have to deal with the property. The bank doesn’t want the property, they want their money.

Once the opening bid has been done, then other bidders get involved. The sheriff will get the name and address of who wants to cast a bid… and then it goes on. If the buyer is someone other than the lender, a down-payment needs to be made right then and there. Normally 10%, paid with cash or some type of certified funds.

Ownership does not change hands at the sale. A few weeks after the sale, a confirmation hearing is set. This is where the judge goes over the foreclosure and sale paperwork, ensures all notices were done, all I’s were dotted, all T’s were crossed. The judge also decides if the price paid for the property was fair. If the price was too low, the judge can negate the sheriff sale and make them auction it off again trying to get a higher price.

You really need to have the financing lined up long before it gets to this point, because once the sale is confirmed, the balance is due. If you first applied for a loan on the property after being the winning bidder, it may take a month or two for the bank to approve things, but you will have to pay for the property long before that.. or forfeit your down payment.

The biggest things to watch for on a Sheriff Sale are property taxes and property condition. Another important thing is to make sure that it is the primary lender that is foreclosing. If a second mortgage forecloses, the property will still be subject to the first mortgage. Property taxes are easy to learn about with a simple call to the county treasurers office. A low-cost title search will indicate what position loan is being foreclosed. The property condition is the big one.

You are buying the property as is. Most of the time, you are not (legally) able to inspect the property before sale. Buyer Beware.

Keep in mind, that the better the deal is, the more likely you are to have a number of bidders on the property. If you see a $100,000 property at sheriff sale for $20,000 and you are the only one there…. There is a very very high chance that people who do this often know something that you don’t.

Well.. speaking of distressed properties, there is an auction I am heading off to in a little bit for an REO property… I will let you know on the radio show how that went. Until then…

HAPPY RENTING!

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About drrent

Wausau, Wisconsin Landlord, past president of the Wisconsin Apartment Association, Host of the Dr Rent Radio Show on WNRB-LP, 93.3 FM, Wausau, WI
This entry was posted in Death, Evictions, Foreclosure, Questions, WNRB and tagged , , , , , . Bookmark the permalink.

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