ESCROW CONTORTIONS AFTER WINNING A REAL ESTATE AUCTION
An Unusual Auction Company?
If you win a bid on a house, then your next step is to comply with the requirements of the auction company. The first thing you must do is meet the initial requirements of the auction house by paying out a fixed amount of money for the mandatory deposit. This gives them notice that you are committed to moving forward with the purchase of the house.
This is Part 5 in the BUDGETHOUSE RENOVATOR series that involves the search for, location of, and unique auction-style purchase of my home in the country. The series includes dealing with a foreign based auction house and escrow to help facilitate this transaction. Also, I show how I worked with a mortgage company programmed to process the “specialized” FHA 203k Program rehabilitation loans. My loan included funds to buy “and” repair my house. Part 4 is about the bidding scenario at a real estate auction.
Hubzu was the name of the auction house I was dealing with. It is a company based in India. When I first observed the house I was interested in on Zillow, I discovered something I had not seen before. Their auction process allowed the winning bidder the extra option of financing the deal with a lender. This meant that I did not have to complete the purchase upfront with cold hard cash. Someone like me could participate in the auction process in lock step with investors who had money to burn.
My required earnest money deposit to start the escrow process rolling was only $1,290! I did not have to lay out $43,000 in cash upfront or any auction fees to lock myself in and get the initial paperwork started. This was an amount of less than 3% to tie up a house I had just won at auction, and it was all done online! Wow!
I was thrilled because I had attended auctions in person on courthouse steps before. In California, I watched the price of a house get bid so high that there was no profit left in the deal when all was said and done. I did not think this method of buying a house would work for me because of that type of intense competition.
So, I found myself being initiated into a process that seemed totally unreal. Once the deposit monies were received, the auction company immediately forwarded necessary paperwork by email which included contract completion details. This was followed up by an initial PSA (Purchase and Sale Agreement), again via email through DocuSign, an online secured document signing platform.
A Qualified Mortgage Broker?
I wasn’t planning to publish the name of the loan processing company. But their personnel managed to help me wade through all the problems that came up. Since this is a chronology of my home purchase, I will. The company name is Prospect Mortgage. They advertised themselves as a company that specialized in “rehab loans”.
Update: Prospect Mortgage was hit with $13 million in fines by the State of California and the Department of Housing and Urban Development (HUD) for their involvement with realtor kickbacks and improper lending procedures. They were purchased by a company called Homebridge in November of 2016. According to data from HUD, a statement in their website states that Homebridge is the top FHA 203k Program lender in the nation. However, I have not verified this rating information.
The first major requirement in this whole process was to get “Pre-Approval” for a loan. Before I even had a house in mind, I asked for a rating of up to $75,000. Once I completed their application, they checked my credit through a commercial company in California. That company somehow managed to come up with credit scores for me that were higher than I expected. Income info was requested from both myself and my wife. Within a week, we were Pre-Approved for the target amount requested.
As I continued looking for a home to buy, I kept the communication lines open with my appointed loan officer. When I mentioned a particular house I was interested in, I would tell him. He would then view it online and ask pertinent questions like the amount that was being asked for the house, its overall condition, where it was located, and so forth.
When I won the bid on my house, I forwarded email correspondence from the auction company to him for updates. I also connected the mortgage broker with the chosen escrow agent mentioned below.
My Minimally Inclusive Realtor!
This type of transaction requires a realtor to be part of the deal, even if his contribution is zero. Since I set myself up do all the searching online myself, I did not need one. But, I still had to pick one out as a requirement. The auction company would only give info to that person for entry into the house. I found one who represented other lenders that made loans in the area who also faced the daunting task of selling off their foreclosures.
That individual was located 35 miles away, but he had some listings that were local. I picked him out of the hat, but that was okay because I knew I would be doing the majority of the transactional work in any house I settled on. In any event, he was acceptable, but did very little in the way of helping me through the deal.
The In-House Escrow and Title Insurance Bonus!
I chose to use the in-house escrow company for the auction house. The name of said processor is called Altisource. All the personnel there were from India. Their US office was located in Atlanta, GA. Since this was a foreign owned company, I was taking a chance on things getting fouled up. The online reviews were not very good. I planned to abort and switch escrows if problems started cropping up right away. Fortunately, all issues were minor and easily resolved!
All transactional procedures were handled by email or phone calls. As stated earlier, they used a documents signing outfit called DocuSign. It worked well when login info was accurate. If not, I had to request downloadable emailed documents in Printed Document Format (PDF). I did not want any delays caused by regular snail mail. I would then print them out so we could pen our signatures, then scan the signed documents into the computer and email them back.
The selling bank was represented by an agent that was from India as well. With this in mind, I gambled on the premise that I could get more efficient cooperation between parties that were linked together in order to save time. I realized it could have gone horribly wrong, but I knew their stateside main office was located in Atlanta, Georgia, so their operation is subject to US laws and regulations. Anyways, my decision to use them worked in my favor quite well. In the end, they helped save my deal that went almost 2 months over deadline.
Local Insurance Agents Are Not Always Your Best Choice!
When I considered the possibility of relocating to a new area, I was under the assumption that it is a good idea to get local insurance agents because homeowners insurance can get very expensive and needs experienced input. In Florida, the potential insurer wants to know some critical details like a home’s distance from the coastline, access to the property, where the nearest fire hydrant is located, surrounding terrain, and such.
The best quote I got from a local agent before the purchase was $2,400. per year. Almost no company wanted to insure a home in the area (or so I thought). That figure rounds out to $200. a month added to the mortgage payment.
The quote did not include flood insurance, but it wasn’t needed. The house is in a hilly area and the lot slopes away from the back porch. The hurricane deductible was $4,400, which is State mandated prerequisite. The overall coverage was way more than I needed, but the insurance company chosen would no allow adjustments downward.
I will admit that this “local” insurance agent did find me a better premium the following year. It was through a company called Florida Specialty Insurance. This lowered my premium to $1,600. per year. They were not available for issuing policies until a year after I purchased the house. As I will point out later, I actually did have more options online which could have saved me money, but I only found out when escalating rates pushed me against the wall.
The Very Affordable Upfront Fees!
When you win a house at auction you have extra charges. Those costs in this case were as follows:
- Buyer’s Premium – $1,935.00
- Technology Fee – $ 299.00
These fees go to the auction house at the close of escrow. So I was paying $2,234.00 above and beyond all the other charges that normally occur in a regular real estate transaction. This cost was a 5% add-on to my price which now stood at $45,234.00.
- Credit Check Fee – $75.00
The mortgage company charged a fee for a credit check because they had to pay someone to do it. This was a non-refundable charge.
I Was Happy To Be Moving Forward!
The startup process in a rehab loan such as this requires that you make important decisions right from the beginning. Those decisions affect the rest of your journey by making it a workable endeavor and keep the ongoing process moving forward. If you make bad choices, it will bog down your efforts to complete your purchase. Your efforts will be in vain if things take too long. The seller may cancel the whole deal if escrow extends past the deadline.
Don’t waste time waiting for others to get things done. Step in and take control. Push for documents to be signed, quotes to be made, necessary inspections done, and so forth.
In the next blog, Part 6 entitled “Escrow Trials And Tribulations“, I will show the first steps I took as I moved forward in this adventure and how I dealt with problems that arose. Those issues will always be out there, but mine were above and beyond anything I had seen before. So, until then, I will bid you adieu!
I am requesting that my readers click on the links provided and download a sample read of each book and give a review on Amazon. You will have free access to the first four chapters of each book. My hope is that you will like the story lines enough to obtain either an eBook version or a paperback copy that you can put on your bookshelf as a masterpiece when you are done. FATE STALKS A HERO I: RESURGENCE, FATE STALKS A HERO II:THE FIJI FULCRUM, and THE SAGA OF HERACLES PENOIT. I will be giving excerpts on these works in upcoming blogs to familiarize you the reader with exciting details about the contents of each one. Thank you!