How Do Trustee's Sales Work?

If you fall behind on your mortgage payments and default, a lender may sell your home through a trustee's sales. The second option is usually foreclosure. The two are only slightly different in terms of what they include, with the trustee's sale being preferred because it allows the lender to recover more of the money lost due to the defaulted loan.

Presales: A trustee's sale is normally scheduled at least 90 days in advance of the actual sale. This happens so that a person who has defaulted on a home loan has time to straighten up his financial status and retrieve any potentially lost assets. When a lender chooses to use a trustee's sale, a notice is usually filed with the county recorder's office, and the borrower is given a notice of sale detailing the date of the sale. Investors attend trustee's sales with the hopes of purchasing property for less than market value and reselling it for a profit.

Sale: A trustee's sales is similar to an auction, except that the property for sale has been seized as a result of someone's failure to pay their debts. The property, as well as any remaining seized possessions, is auctioned off. Individually or in groups, these are available for purchase. In most cases, the buyer is required to acquire the property without seeing it beforehand and is taking a major risk in doing so. For many investors, though, the prospect of purchasing real estate or other items for substantially less than market value is enough to entice them.

Stipulations: Before you may participate in a trustee's sales, you must normally meet certain requirements. You can't just come up and begin bidding without first registering for the auction. You must also demonstrate that you have enough money to bid on the products you want to win at the auction. This must be in the form of cash or a cashier's check in most cases. One of the reasons the lender may opt for the trustee's sales is that it will receive quick cash payment for the property being auctioned off.

Figure 1: Trustees Sales

Bidding: The person who has lost the property will be subject to the same bidding regulations as everyone else interested in the sale once bidding commences for the property. Bidding might start as low as one penny over the lender's asking price. If the winning bidder has the winning bid, he should expect to pay certain costs. The charge is usually around 1%, however it varies based on the state where the auction is held.

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