I Do Not Bid at the Auction. I Hold the Note.

When an income property goes bad, most investors line up on the courthouse steps. I would rather be the one everyone at the auction owes money to.

When an apartment building, a retail center, or a small office property goes bad, there are two places an investor can stand. One is the auction, where cash bidders compete for the property after the lender has given up on it. The other is the lender's chair, holding the loan while the property is still being worked out.

I stand in the lender's chair. Always a creditor, never a bidder.

Why not the auction

The trustee's sale is where price discovery happens in public. Everyone with cash shows up, everyone has the same information, and the property goes to whoever is willing to pay the most for a building they may never have been inside. You win by overpaying, and then you inherit whatever the borrower left behind: deferred maintenance, hostile tenants, unpaid taxes, and a lease file nobody has read in years.

I spent years as a broker reading those files for other people. I know how much of the trouble is invisible from the sidewalk. I am not interested in buying a problem at a price set by the most optimistic person in the parking lot.

Two things I buy instead

The first is a bank note on income property, secured by a deed of trust and, critically, an assignment of rents. When a borrower stops paying, the law in California and most other states lets the holder of that assignment step in and collect the rents directly from the tenants, without waiting for a foreclosure. The building keeps operating, the income flows to the creditor, and the borrower has every reason to sit down and work something out. If they do, I am repaid with interest. If they do not, I end up owning the building at the loan balance, which is a number I chose, not one I bid.

The second is the receiver's certificate. When a court appoints a receiver to take over a distressed property, the receiver often needs money to keep it running: repairs, insurance, taxes, a roof before the rainy season. The court authorizes the receiver to borrow it, and the loan is secured by a certificate that the court can place ahead of the existing liens. It is short, it is secured by the property, it is supervised by a judge, and the money goes to fixing a real building rather than to speculation. Very few people fund these, because very few people know they exist.

What I do not do

I do not buy notes on owner-occupied homes. The rules are different, the human cost is different, and it is not a business I want to be in. I work on property I can get to and walk through, wherever the deal makes sense. And I do not buy paper off a list. Every note and every certificate I have looked at came through a receiver, a special-assets officer, or an attorney I already knew. That is the only way the information is good enough to trust.

Why a creditor sleeps better

A bidder has one moment to be right, and it is a public one. A creditor has a document, a lien position, a rent stream, and time. The borrower can cure, refinance, sell, or hand over the keys, and in every one of those outcomes the creditor is paid before the equity sees a dollar. I would rather be paid first on a building I understand than own a building I won at a price I do not.

I do not chase these. Receivers, lenders, and counsel bring them to me when a loan needs a patient holder or a receiver needs the money to keep a property standing. When a property is stuck for lack of time or capital, I am the call.

Benoit Lapointe invests in healthcare and real estate. He is the principal of Meridian in Newport Beach and spent years in the broker's chair before becoming a principal. benoitlapointe.com