Escrow 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 step is to come up with a fixed amount of money as a deposit. This shows 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 on Zillow, I discovered something new. Their auction process allowed for the extra option of being able to finance my winning bid with a lender. This meant that I was not required to complete the purchase upfront with cash. I had not heard of this before!
My required earnest money deposit to start the escrow was only $1,290! I did not have to come up with the winning bid amount of $43,000., plus auction fees, to start the paperwork rolling. This was an amount of less than 3% to tie up a house I just won at auction. And it was done online!
I was thrilled because I had attended physical auctions on courthouse steps before. In California I watched the price of a house get bid so high there was no profit left. I did not think this method of buying a house would work because of that type of competition.
The auction company began the necessary paperwork immediately by requesting contract completion details by email. 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 as being specialists for “rehab loans”.
Update: Prospect Mortgage was fined some $13 million in fines by California and HUD for realtor kickbacks and improper lending procedures. They were purchased by Homebridge in November of 2016. According to data from the Department of Housing and Urban Development (HUD), the statement is made that Homebridge is the top FHA 203k Program lender in the nation. I have not verified this rating information.
The first step with them 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. They proceeded to start a credit check through a commercial company in California. That company managed to show necessary credit scores for me higher than I expected. Income info was requested from both myself and my wife. Within a week, we were pre-approved for the amount requested.
As I continued looking for a home to buy, I kept in regular communication 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 questions like asking price, condition, etc.
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 company with the now-in-place escrow agent mentioned below.
My Minimally Inclusive Realtor!
This type of transaction requires a realtor to be part of the deal. Since I was to do 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 who were trying to sell their foreclosures.
That individual was located 35 miles away. He had some listings that were local. I chose him out of the hat, which was okay. 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 to help.
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 would plan to abort and switch escrows if problems started cropping up right away. They didn’t!
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 email-sent documents (PDF Format). I did not want delays caused by regular snail mail.
The selling bank was represented by an agent that was from India as well. I gambled that I could get more efficient cooperation between parties that were linked together to save time. It could have gone horribly wrong. But my decision to use them turned out to work out in my favor very well. In the end, they helped save the deal that went almost 2 months over deadline.
Local Insurance Agents Are The Best!
When you relocate to a new area, it is a good idea to get insurance agents from there. Homeowners insurance can get very expensive. In Florida, the potential insurer wants to know things. Facts like a home’s distance from the coastline, access to the property, surrounding terrain, and such.
The best quote I got before purchase was $2,400. per year. Almost no company wanted to insure a home in the area. That is $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. The overall coverage was good, however.
That “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 until a year after I purchased the house.
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 charges 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 will charge a fee for a credit check because they have to pay someone to do it. This will be a non-refundable charge.
I Am 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. You make the decisions that affect the rest of your journey workable 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 in this adventure. I will deal with problems that came up. They always will, but mine were more than should have been necessary. Till then!