Building Auction Loans

Table of Contents

What is a construction auction loan?

Borrowing money from a financial institution using a building (including a house, storefront, or land) that you won at auction as collateral.
Mainly Based on the winning bidand because of the nature of the auction, they are sold below market value, resulting in a lower **LTV** than a regular sale.

1. Basic structure of an auction loan

Purpose: Paying the balance on a property you won at auction or securing post-auction funds.
Differences:
- For regular trades, the Bank review after confirmation of purchase and sale contract + deed → Loans.
- The auction is a Court auction → Before ownership transferNeed money for → loan structure is different.
Collateral Valuation Criteria
- View appraisal, winning bid, and market price together By lowest amountto calculate the loan limit.
- (Example: Appraised value 500 million, market price 4.5 million, winning bid 3.5 million → base 3.5 million).

2. main types

Bid money loan (balance loan)
Renovation and remodeling loan (additional operating funds)
- The winning bid is vacant or has squatters Brightness Cost Required.
- If your building is in poor condition, you'll also need funds for repairs and remodeling.
- Some financial institutions offer them as a package.
Post-lending (meridian funding)
- After you've already paid the balance on your own and taken ownership, How to get a second mortgage.
- Interest rates may be lower than balance loans.

3. Features of each loan type

(1) Cash Advance (Instant Balance Loan)

Target: A person who has won a court bid and is about to pay the balance.
Features: The lender gets some collateral security because the auction deposit has already been paid.
Conditions:
- LTV: 40 to 701 TP3T (depending on property type/location/credit rating).
- Interest rates: typically 5-91 TP3T (lower for banks, higher for capital/savings banks).
- Term: 1-35 years (long-term for homes, short-term for commercial/land).
Required documentsBid acceptance decision letter, bill of sale, ID, proof of income, bid deposit receipt.

(2) Post-loan (after ownership is acquired)

Target: pay the balance out of your own pocket and need additional funds after the ownership transfer is complete.
Features: Treated like a normal plinth, but evaluated based on the winning bid.
Conditions:
- LTV: 60 to 801 TP3T available (bank-insurer oriented).
- Rates: 4-7% range (closer to the prime rate).
- Pros: Low interest rates, long term.
Utilization: Temporary financing of auction funds (debentures, etc.) → post-auction loans.

(3) Bridge Loan (short-term funding)

TargetIf you need to pay for brightness, remodeling, or clearance in a hurry.
Features: Short-term high interest rates (often over 10% per annum).
Duration: 3 months to 1 year.
Utilization: Charter/rental matching after clearing, and replacement as normal.

(4) PF - Business Auction Loan (Entity - Storefront/Land)

TargetBidders on commercial real estate such as storefronts, buildings, land, etc.
Conditions:
- In loan underwriting Lease Yield - Development Value Evaluation.
- LTV 40 to 60%.
- Interest rates: 6-12% (higher for private financing).
Utilization: land auction leads to construction loan → development type investment.

4. loan terms

Collateral Valuation Criteria: Based on the lower of the auction appraisal, the winning bid, and the market price.
LTVLower than a conventional mortgage (40 to 701 TP3T levels, depending on the institution).
Interest rates: Depends on creditworthiness, condition, and use, usually between 5 and 91 TP3T.
Loan Term: Ranging from 1-year short-term (in the form of a bridge loan) to 30-year long-term (for homes).

5. procedure

Winning the auction → Deciding on the sale permit → Paying the deposit
Court notice of balance due date
Apply to be considered for a financial institution (or private lender) loan
- Submitting the winning bid, the winning bid, the bill of sale, payment history, and credit documents
Execute balance loan → Pay to court
Transferring ownership + placing a lien

6. risk factors (reasons for loan decline/limit reduction)

ViolationsConstruction
- Illegal expansion, use violation → no loan or greatly reduced limit.
Senior rights exist
- Liens, statutory liens, senior tenants → risk hedging by banks.
Brightness issues
- Squatter-tenant eviction issues → Shunned by financial institutions.
Winning bidder creditworthiness
- Banks won't lend to you if you have a low personal credit rating → you have to go to capital and savings banks, P2P.
Object Types
- Commercial properties, office buildings, and land are valued lower than homes.

7. Notes

ViolationsConstruction: High likelihood of loan denial. Illegal expansion, illegal change of use, etc.
Tenant-Reputation RiskHaving an occupant is a loan underwriting disadvantage (requires a clearance lawsuit).
Rights relationships: Unable to borrow or significantly reduced limits if there are senior liens, liens, statutory liens, etc.
Liquidity risk: Auction loans have higher interest rates and stricter terms than regular mortgages → Funding plan required.

8. Simulate a real-world example

Situation: Appraised value 500 million / market price 4.5 million / bid price 3.5 million apartments
Conditions: Apply bank LTV 70% → 3.5 billion × 70% = 70% 245 million available for lending
Pay the balance: 35 million deposit paid, 315 million balance → 245 million loan + 70 million equity required.
Post-loan conversion: Bank post-lending execution after closing → up to 280 million.
Investor strategy: If we hit 300 million chartered after Mingdo → Almost recovered equity + loan repayment structure.

9. Utilization strategy

Real users
- Buying your own home: Meridian balance loan → Long-term mortgage.
Investors
- Market arbitrage: low bid → remodel → sell.
- Charter leverage: Minimize equity by matching bids to charters.
Entity-Business
- After winning the auction for a profitable building, connect PF → Run a rental business.

Investors: Bid below market value, remodel → convert to rental/sale → pay off loan.
Real users: Use a balance loan to buy your own home if you don't have enough money.
Legal entities: Proceed with rental business after winning auction for profitable real estate → Loan in the name of the corporation.

10. summarize

Auction loans are more demanding and have higher interest rates than regular mortgages.
LTV ranges from 40 to 701 TP3T → Equity capitalization required.
Violations - Architectural - Rights-of-Way - Clarity Issuesmust be pre-reviewed.
Investors can switch from balance loan → clarity/remodel → post-loan Strategize a lot.

✅ The winning bid is lower than the market price Ensure a margin of safetywhich is why investors utilize it. However, Rights Analysis - Clarity - Violating Structureto be safe.