Ten Things to Consider Before Purchasing Real
Property
at an Arizona Trustee's Foreclosure Sale
By: Janessa
E. Koenig, Esq.
If you are considering purchasing a home or investment property
that is being foreclosed on in Arizona, you will need to attend the
Trustee's sale. While many bidders have attended hundreds of
foreclosure or trustee's sales, this may be your first! There
are several important aspects of purchasing a property at a
trustee's sale.
Make sure the sale is
proceeding at the scheduled date and time
Trustee's sales are frequently postponed for a variety of
reasons, such as the borrower filing bankruptcy, a pending short
sale or pending reinstatement by the borrower. A postponement
can occur at the last minute, so be sure to call the office of the
trustee conducting the sale the morning of the sale to make sure
the sale is proceeding. Many trustees also post information
about the sales on their websites including cancellations,
postponed dates and opening bids. The opening bid amounts must be
made available to bidders at least 24 hours prior to the sale.
Have $10,000.00 in
hand
All bidders must have $10,000.00 in either certified funds or in
cash in order to appear and bid at the sale. Checks are
typically payable to the trustee conducting the sale or to the
foreclosing beneficiary. Contact the trustee's office ahead
of time to find out payment instructions.
Property is sold as-is,
without prior inspection
Understand that you are buying property without having the
opportunity to see the inside of the property, or to inspect the
property, prior to the sale. Properties are sold at trustee's
sales as-is, and without any warranties as to the property's
condition or title. If the property is a residence, you will
not be able to inspect the home prior to bidding on or purchasing
the property. As many homes in Arizona are abandoned prior to
foreclosure, the property you are bidding on could be in a very
poor condition. Buyer beware!
Obtain and review the
Trustee's Sale Guaranty Report
It is critical that you obtain and carefully review a Trustee's
Sale Guaranty ("TSG") prior to bidding on the property. Liens
are foreclosed in a downward progression, so if a first position
lien is being foreclosed, it will extinguish all junior liens and
encumbrances on the property, with the exception of real property
taxes. If there are unpaid property taxes at the time of the
trustee's sale, the successful buyer will have to pay all
outstanding taxes on the property to avoid a tax lien foreclosure
and possible loss of the property. If a second position lien,
such as a second mortgage or equity line of credit is being
foreclosed (which occurs more often than people think) you will
purchase the property subject to the first position lien, as well
as and any unpaid homeowners' association liens. You risk
losing the property if those items are not paid. You can
normally purchase a copy of the TSG from the trustee for $25.00 to
$30.00 prior to the sale.
Know your bottom line
purchase price
Prior to the sale, it is a good idea to have a set purchase
price in mind that you will not exceed. A trustee's sale is a
competitive bidding process at a live auction, and it is easier
than you think to get caught up in the excitement, particularly if
there are multiple people bidding on the same property. The
last thing you want to do is pay more for a property than you
thought it was worth because you got caught up in the moment or
wanted to beat-out another bidder.
Bid increments can be pre-set
by the Trustee
Don't be surprised if the trustee sets the bid increments prior
to or during the sale. If there are multiple bidders at a
sale, it is not unusual for a trustee to require bids to be in
specific increments, such as $500.00 or even $1,000.00, to speed up
the process. This can be done at the trustee's
discretion.
Have your title vesting
information ready
If you are the successful bidder at the sale, you will be asked
for vesting information for the deed to transfer title. Be
prepared to tell the trustee how you want title to be held, such as
in a company or a trust's name. Once the trustee's deed is
prepared, most trustee's will not issue a new deed in a different
name. It will also be your responsibility to have the
trustee's deed recorded with the county recorder's office in the
county in which the property is located. The cost to record a
document less than 4 pages long is normally around $10.00.
You have to pay in full the
next business day
Be prepared to deliver certified funds for the balance of the
purchase price (less your $10,000.00 bidder's check) by 5:00 p.m.
on the next business day following the sale. If the full
purchase price is not timely paid to the trustee, you will lose the
property and will forfeit your $10,000.00 bid. If the full
purchase price is not timely paid, the trustee has the option to
either re-call the sale, or to offer the property to the next
highest bidder at the last bid amount made. The purchase
price cannot be financed and paid over time, so be sure to have all
funding arrangements - and full payment in hand - in place prior to
the sale.
Think about title
insurance
It is a good idea to purchase title insurance on property you
buy at a trustee's sale. Many title companies will give you a
discount if you give them the TSG you purchased from the
trustee. Having title insurance will protect you from an
undisclosed lien or encumbrance, such as an easement, which the
trustee's TSG may have missed.
Vacant or
occupied?
When you purchase a property at a trustee's sale, you do get
legal title to and possession of the property. However, don't
expect the trustee to hand you any keys to the front door.
Most lenders have not secured physical possession of the property
prior to the sale. You will first need to determine if the
property is vacant or occupied. If the property is vacant,
you may need to hire a locksmith to enter and secure the
property. If the property is occupied, you will not be able
to enter or secure the property, including changing the
locks. Rather, you will need to initiate legal evictions
proceedings to evict occupants from the property, which could take
at least 20 days, and likely longer if you need to have the
Sheriff remove people from the property. If there are tenants
in the property you will need to determine if they are covered by
the Protecting Tenants of Foreclosure act. If tenants are
protected by this Act, they are entitled to receive 90 days notice
prior to having to move out, and they may be entitled to remain in
the property for the remainder of their lease term, provided they
pay you the required rent. You should consult with an
attorney prior to taking any action to enter or inspect an occupied
property, and prior to removing any person or personal property
from the property.
Are you ready to
bid?
Purchasing a home or investment property at a trustee's sale may
be a great money saving tool for you. However, do your
homework, be prepared to pay the full purchase price the next
business day, know what you are buying and purchase title
insurance.
About the author: Janessa
Koenig is a partner at the Phoenix law firm of Jaburg|Wilk. Her practice is
concentrated on
creditor's rights, foreclosure
and bankruptcy.
She can be reached at 602.248.1000 or jek@jaburgwilk.com.
This article is not intended to provide legal advice and
only relates to Arizona law. It does not consider the scope
of laws in states other than Arizona. Always consult an
attorney for legal advice for your particular situation.
3200 North Central Avenue
. Phoenix . Arizona