Posted by: Mike | January 24, 2008

Better know what you are doing

Or use someone who does!

I just got off the phone with a very nice person who was a little confused. As the story goes, she and her husband decided had saved up a bit of money and wanted to capitalize on the current market conditions. It’s a great time if you are looking for bargains.

They attended a Trustee Sale (foreclosure auction). Cashiers checks in hand, you can imagine their surprise when their bid actually won the 3 bedroom, 2 bath house!

It was close to their home, they knew the area, but hadn’t actually viewed the property. The best part? The home was reported to be worth in the high $400,000 range. Their bid? ONLY $40,000! They had struck gold on their first auction! It was just like the ads on TV!

The sale was recorded. The papers signed. A $480,000 home, bought sight unseen, for only $40,000. How bad could it be?

As you might expect the house was a little run down. A couple of months of hard work later they had the trash hauled away, the rooms painted, the landscaping done. It was just about time to find a renter.

That’s when they found that little yellow card tacked on their front door. It was a Notice of Default, the first step in a California foreclosure procedure.

But they paid cash. They didn’t have a loan. How could anyone foreclose on them?

As it turns out, what they bid on in the auction was the Second Trust Deed. The house was abandoned, heading to foreclosure. It had a first and a second mortgage. They paid $40,000 for the second – but the first was still in place and tied to the property.

Now the owner of the first mortgage was foreclosing on the property to recover the unpaid balance of the note. Guess what? They have every right to do it! If the property does foreclose it’ll be sold once again on the county courthouse steps. These people will probably lose their $40,000 as well as every dime they put into the rehab.

The State of California has a well defined hierarchy as to which lien takes priority over other liens. Here is a quick run down: California Lien – ing

As you can guess, had they used the services of a professional, the outcome would have been very different. I am reminded of a long favorite quote by Brian Brady, “If you thought dealing with a professional was expensive, wait until you find out how much dealing with an amateur costs.”

I think they just did.

Always use a Professional.


  1. Wow Mike! That is scary! What a horrible story. Certainly brings to mind the ol’ “if it sounds too good to be true….”

    Catherine Myers

  2. […] or buying a home yourself at auction. Check out a post about this very topic on my other blog: Better Know What You’re Doing  Don’t get wrapped up in the public auctions held at hotels, etc.  KNOW the areas you are […]

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