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The Primitive Way to Buy Real Estate: The Courthouse Steps

It’s a place where flip-flop wearing bidders can seal the deal in minutes, but they better have done their research.

At a time when normal real estate deals are muddled with extra negotiations and delays, there’s something striking about the unadorned procedure underway every day at the courthouse steps in downtown San Diego, El Cajon and Oceanside.

There, flip-flop-wearing, clipboard-wielding bidders buy foreclosed homes at auction, and the whole transaction takes a few minutes. Prove you have the funds in cashiers’ checks to cover the price, bid, win the bid, sign over the checks, get the property.

“This appears very primitive,” says Brad Tuck, an investor and a regular at auctions in downtown San Diego and in El Cajon. “But it’s so efficient.”

The setting for this auction is not a glitzy hotel ballroom. There’s no tuxedoed auctioneer pounding a gavel here — instead, shorts-and-Oakleys-sporting Jay Gafner jokes with the regulars and answers newbies’ questions.

“Just because I’m an auctioneer, it doesn’t mean I wear a black hat and have a black mustache and am glad to see people losing their homes,” he says. “That’s a real big misconception.”

On a recent morning on the courthouse steps downtown, a crowd of close to 50 stretches from the sidewalk, up the stairs, and all the way to the courthouse building. About 15 regulars sit on the edge of a planter. Others surround Gafner, who stands with a tablet-screen computer and a handful of files, trading papers with his assistant.

Gafner starts reading a long list of addresses — these are properties for which the banks have postponed or canceled the sale today. The borrowers may have declared bankruptcy, or they’ve worked out a loan modification or a short sale, where the bank has agreed to let the borrowers sell for less than they owe.

The regulars are friendly with each other, but competitive. There’s a lot of furtive earpiece talking, rumor-swapping. Some of the bidding wars end up with the same rival bidders. They share pens and joke, until it’s time to bid.

Most have spreadsheet lists of the properties scheduled for sale that day. They take notes, call in information to their companies. But mostly their job is to hear the announcement that a particular house is up for bid, and bid on it.

None of the most prolific such bidders working for investors elsewhere would let me print their names. But they all had battle tales to share.

One 20-something guy in a turquoise polo and jeans said someone he knew in Orange County once relieved himself in his pants rather than go inside the courthouse to the bathroom and risk missing the chance to bid on a property his bosses wanted him to snag.

For each of the couple hundred files Gafner has to read this morning, he calls out the address. On the ones for sale, he then recites some boilerplate language: “No warranty is given as to the completeness or correctness of this address. The sale of this property is on an as-is basis …”

They range from a lot in Rancho Santa Fe for more than $1 million to a spot near Chollas Creek for $85,000. Also up for bid: homes in Santee, Ramona, El Cajon, Oceanside, Escondido, Chula Vista and several neighborhoods of San Diego.

Sometimes homeowners show up that day to present valid bankruptcy papers, a last-minute trump card to save a home from auction. Otherwise, the bidders at the steps don’t know the faces behind the address. The address could be home to victims or loafers, those with lost jobs and hospital bills or those simply giving up on the mortgage payments.

When an address comes up that interests bidders, they stand toe to toe and stare each other down. Five of them step closer, some whispering behind their clipboards into cell phone earpieces. Those runners work for investment groups elsewhere. Behind the scenes, the savvy ones have done title searches and combed the available records to determine if the home would be a good buy. During the auction, the bidders usually chat with their counterparts or bosses who are sitting at the computer researching the property while they’re at the courthouse bidding.

One house starts at $110,000 and in the span of five minutes, it’s bid up in increments of $100 until it ultimately sells for $151,000.

“I think you sucked the marrow out of the bone on that one,” Gafner said to the bidders. “Good work.”

These daily trustee’s sales are the official format for disposing of foreclosed homes. Notices of these auctions have been flooding the county’s mailboxes increasingly in recent years, with more than 2,400 sent out in March, according to data firm ForeclosureRadar.

In the vast majority of cases, no one bids. The property goes back to the bank and will likely be sold one day on the regular market.

The game on the steps is intense. And risky. Buyers are paying for properties with cash, mostly. The efficiencies that make the auctions so attractive also cut out many of the consumer protections that the real estate process usually provides, like title insurance or the escrow period that allows buyers to negotiate for damage or back out.

These investors get none of the disclosures or disclaimers that calm the nerves when you’re investing hundreds of thousands of dollars in the normal market. An investor might buy a property today that has a tenant living in it. Or pricy prospects like a cracked slab or mold damage. Or someone might have died there. Or the house might not have the necessary papers to allow someone to actually, you know, live there.

But it’s lucrative. Home prices are rising in the county, especially in some lower-priced pockets like Lemon Grove or parts of Chula Vista. Prices there are going up, making them especially attractive on the courthouse steps. Many investors are buying with the intent to rehab and sell the homes on the regular retail market as soon as possible. And to reap a profit.

Not that the rising prices actually make sense to many of these long-term investors, who think the market still has a ways to fall.

“They look at it and look at each other and we’re shaking our heads, but you just deal with what it is,” said Ward Hannigan, a mainstay in the local foreclosure scene since 1982 who now trains others how to win on the courthouse steps.

“If there’s a pocket over here that’s booming, for whatever reason, even if it doesn’t make sense, then let’s take advantage of it,” Hannigan said.

It appears more people are attempting to do just that.

There’s been a growing number of auctioned homes selling at these auctions on the courthouse steps, rather than just going back to the bank. In March there were 397 such sales, the highest number recorded since January 2007, according to ForeclosureRadar.

But there’s also been an increase in the number of sales that banks have canceled, frustrating buyers who’ve researched a property only to get to the steps and discover it’s not for sale that day. In March, the most recent data available, 961 properties went back to the bank in the auction, and 1,263 others were cancelled.

A couple of years ago, the crowd of bidders used to number 10 to 12 people. On Thursday, 47 people were there for the first bid at the steps.

It was “Aloha Thursday,” and eight regulars wore Hawaiian shirts.

A lot of them are buying with OPM, Gafner said — other people’s money.

“There’s a lot of money standing out here,” Gafner said. “I like all of the horses in the race but I can’t have favorites.”

By 1:10 p.m., Gafner has sold 12 properties, sent 22 back to the bank, announced 12 cancelled sales and called out about 200 cancellations. He’s done for the day.

He pounds fists with a few regulars and tells them he’ll see them tomorrow.

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