Arizona Trustee Sale (Foreclosure Auction) Basics for Buyers

In Arizona, the trustee sale is the last step in the foreclosure process. Either the home sells at the trustee sale or it goes to the lender and becomes a bank owned home. Often held at the court house steps or in the office of the trustee, the auction style selling process is most often frequented by seasoned real estate investors.

Not for the Traditional Home Buyer

Trustee sales are not a common venue for traditional owner occupied home purchases for these main reasons.

• Only cash buyers are allowed to bid. So traditional mortgage financing is not an option.
• No inspections are allowed.
  • You are buying the property as is, almost sight unseen. You can drive by and visually inspect the exterior of the home from the street but access to the interior or the backyard is almost never aloud. Doing so without the permission of the owner would be breaking and entering or at a minimum trespassing.
• No appraisal contingency.
• No seller disclosures or insurance claims history will be provided.

If, however, you are inclined to purchase a property at a trustee sale here are some of the things at a minimum you, and your REALTOR ®/advisor, should investigate.

Pre-auction preparation

Due diligence is the key to success.

• Determine the location, date and time of the trustee sale.
• Find out what the opening bid is (unusually released one business day before the auction).
• Determine the retail value of the subject property.
  • Ask your REALTOR ® or appraiser to provide you with a comparative market analysis of the value of the property.
• Perform a title search on the subject property to investigate if there any liens or encumbrances (think expenses) that will survive the foreclosure and be passed on the new owner/winning bidder of the trustee sale.
• Do a drive by inspection of the property.
  • Legally you cannot enter the property without the owner ‘s permission, to do so would be breaking and entering, or at a minimum trespassing. So you have to do your best to determine the condition of the property with the limited access available to you. This is where a winning bidder can get burned. If the condition of the interior of the home or the structure/mechanical/plumbing/electrical systems, etc. is in really bad shape the cost of repairs can eat into any equity in the property and your wallet.
• Determine if the subject property occupied?
  • If the home is occupied and you win the bid you ‘ll have to negotiate with the occupant to move out or have them evicted (again, think expenses). If the occupant is renting the home and has a signed lease agreement with the previous owner, and the new owner does not intend to occupy the property, the new owner will legally have to honor the terms of the lease. (If you are planning on flipping the property you could be stuck holding on to it for awhile before you can sell it.)

What to Expect on the Day of the Trustee Sale

So you’ve done your homework, have the cash all lined up, and it is time to bid. What happens next?

• If it’s a good deal you won’t be the only one bidding
• Possible postponement or cancellation of the trustee sale.
  • If the owner filed for bankruptcy, managed to catch up on his payments, began the short sale process, or otherwise made arrangements with his lender the trustee sale may be postponed or cancelled out right. This can happen right up to the last minute before bidding begins.
• Bring a $10,000 cashier ‘s check.
  • You won ‘t be allowed to bid without showing the trustee the check. If you win the auction you will give the trustee the check as your non-refundable deposit.
• Bidding.
  • The trustee will open the bidding and call out each bid as the auction proceeds. Usually the first bid placed is for $1 above the opening bid amount. After that it can go up in any increment the bidders like.
• Winning the bid.
  • If you are successful and win the bid for the property you will need to pay the trustee the full winning bid amount less your $10,000 deposit within 24 hours, or the next business day in the case of holidays and weekends. Failure to do so can result in the trustee canceling the sale and keeping your $10,000 deposit.

So there you have it.

That ‘s trustee sales in a nut shell. Having gone through the process to purchase investment homes several times I could go into significantly more detail (and will in future posts) but this at least gives you a very general idea of what is involved.

If you are considering purchasing property at a trustee sale I recommend you get educated as much as possible about the process and seek expert advice before doing so. Feel free to give me a call at 480-820-0043 or email me with any questions.