Purchasing property via a Trustee sale has some benefits that outweigh some of the risks. Knowing the basic process is the first step in a successful winning bid and a home with instant equity.

You are buying liens not properties when you purchasing through a Trustee Sale. If research is not done properly you could be buying additional liens in addition to the first lien and would have the obligations of paying all liens in full.

Researching a chain of title to determine your lien position, as well as any liens that are not extinguished at the trustee sale, such as property tax and IRS liens are crucial. Once you’ve established your position and are comfortable with the existing liens that are valid, you can move forward to the next step.

We’ve all heard the term “As-Is”. You can rest assured when buying a home through a Trustee Sale, the property will be sold “As-Is”. That means there will be no inspections, home or termite, and no buyer or seller warranties. There will also be no title insurance.

Once you win the bid, your bid deposit of $10,000 in the form of a cashier’s check is handed to the trustee. If you fail to close the transaction the following day, you will lose your deposit and possibly face additional legal ramifications.

How do you obtain the entire amount of the property in such a short period of time? The answer is usually a hard money lender. They may charge exorbitant interest rates on the loan but you will only need it temporarily. After 30 days or so you’ll be able to refinance the note. When you refinance you will be required to place additional funds in escrow which will act as an earnest deposit. You will need approval from the hard money lender prior to attending the Trustee Sale.

Okay, now you’ve won the bid and you have a “fixer-upper”. If you’ve done your homework, most repairs will be minimal and you have a good idea of the costs to make the repairs. Common repairs are paint, carpet, and drywall. If the property requires more costly repairs you will have known this from the start. These costs were budgeted and considered before you bid on the home. Since you’re purchasing the home under market value there should still be equity in the property.

Most investors or buyers will not pay over 70% of market value. Keep in mind if you refinance the note using a conventional mortgage they only lend 80% of value.

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