What a foreclosure auction and a trustee’s sale are
When a borrower defaults on a loan secured by a deed of trust, California allows the lender to foreclose without a court through a trustee’s sale. The trustee records a notice of default, waits the statutory period, records a notice of sale, and then sells the property at a public auction, usually on the courthouse steps or at a designated location, to the highest bidder. The opening bid is set by the foreclosing lender, often at the loan balance plus costs, and the property sells for that or for whatever the room will pay.
The rules are the source of both the opportunity and the risk. The winning bidder pays in full, in cashier’s checks, at or immediately after the sale. There is no inspection, no seller disclosure, no financing contingency and no title insurance issued at the sale. The property comes with whatever is on title behind the foreclosing lien (junior liens are wiped out; senior liens, property taxes and certain other claims are not) and with whoever is living in it. The trustee’s deed is recorded, and the buyer owns the property, problems included.
Because most buyers cannot pay in full on the day, the room is small and the prices are lower than the open market. That is the opportunity, and it is why trustee’s sales are an investor’s channel.
Three ways to buy with hard money
All cash, then refinance
The standard structure. The investor bids with their own funds, wins, records the trustee’s deed, and then refinances with a hard money bridge within days to pull the cash back out for the next sale. Loan Goat’s hard money residential bridge publishes a close in as quickly as 3 days, and the bridge loan publishes up to 75% LTV on cash-out, so the capital cycles quickly. This is the structure that lets an investor buy at several sales a month on one pool of cash.
Cash, then a longer hold
The same purchase, followed by a refinance into a term loan when the property will be kept. Once the property is rented, the rental DSCR loan refinances it on the property’s cash flow, with first time investor OK and DTI not calculated. When it needs work first, the fix and flip loan funds the renovation through a holdback and the DSCR loan or a sale follows.
Lender funds on the day
Some private lenders will fund the purchase price for a pre-approved investor so that the cashier’s checks at the sale are drawn on the lender’s funds, with the deed of trust recorded against the property as soon as the trustee’s deed is. It requires an approval before the auction, a maximum bid agreed with the lender, and a title search done in advance. Whether Loan Goat funds a specific trustee’s sale on the day is confirmed per deal; the two structures above are the published path.
How to use hard money at a trustee’s sale
- Pre-approval. Before the auction season, not before the auction. Send Loan Goat the schedule of real estate owned, proof of funds and the target markets, so the bridge approval is in place and every purchase can be refinanced within days.
- Identify the property. Track the notices of sale, drive the property, estimate the repairs from the outside and the records, and run a title search for senior liens, taxes and other claims that survive the sale.
- Notify the lender. Send the property, the maximum bid and the plan before the sale date. A lender who has seen the deal can move the day the trustee’s deed records.
- Cashier’s checks and proof of funds. Bring cashier’s checks to the sale in the amounts the trustee requires; the same proof of funds satisfies the lender’s file.
- Winning bid and same-day payment. Pay the trustee, collect the receipt, and start the recording of the trustee’s deed.
- Valuation and title. The lender orders the valuation where one is required (the hard money residential bridge publishes on some cases appraisal not needed) and title insurance is obtained now, after the sale, when the buyer can be insured.
- Close the bridge. The cash-out refinance funds, the capital returns to the investor, and the property goes into the renovation, rental or resale plan.
Pricing and terms
The bridge program carries the post-auction refinance: terms of one or two years, LTV up to 75% on residential and 70% on commercial, loans from $150,000 to $25,000,000, rates from 9.00% to 13.00%, a 650 minimum credit score, no borrower experience required and no prepayment penalties, on SFR, condo or townhome and 2-4 unit non-owner occupied property, with defaults, notices of default and matured loans weighed against the equity and a close in as quickly as 3 days on a clean file. Points, fees and the rate on a specific property are quoted on the Letter of Intent; every published figure is subject to change and not a commitment to lend. For a property bought as land or a lot, the land page covers how the collateral is valued.
The risks, and how investors price them
An auction purchase is bought blind, so the discipline is in the bid. Investors price the unknown interior with a repair budget drawn from the year built, the size and the exterior condition. They search title for the liens that survive the sale and for property taxes. They assume an occupant and budget for the time and cost of possession. They set a maximum bid that leaves the margin the plan requires after financing costs, and they walk away when the room passes it. And they arrange the financing before the sale, because a bridge that is approved in advance is what makes the cash cycle work; a bridge sought afterwards is a scramble.
Where auction purchases fit
- Bridge loans for the post-sale refinance that recovers the cash.
- Fix and flip loans for the renovation that follows most auction purchases.
- Cash offers only for the listed properties that sell on the same terms.
- Auction.com and Hubzu for the online channel, where the timeline is longer and the rules differ.
A trustee’s sale rewards the investor who has done the title work, set the bid and arranged the refinance before the gavel. Loan Goat’s bridge is the piece that turns one pool of cash into a season of purchases.
