Property Sharks And Minnows Swim Side By Side At Rollicking Harris County Foreclosure Auction

Attendees at the Harris County Delinquent Tax Sale and foreclosure auction describe it as a bizarre and arcane function akin to a circus. 

On the first Tuesday of each month, the Bayou City Event Center fills with people armed with $5 cash for parking — and far more in their wallets — to buy distressed properties, some hoping to get their foot in the door of real estate investing, others looking to add more residences to big portfolios.

Employees act as ringleaders, directing beginners and auction vets where to go. Colorfully clad vendors, some in costume, offer foreclosure sale information and the odd performance. Crowds gather around a stage where auctioneers navigate a high wire of rapid-fire bids for dozens of houses.

At the Harris County auction, commercial property sales get little more attention than a sideshow. But it's the kind of place where the quiet $50M sale of an apartment complex happens side by side with raucous battles to gobble up foreclosed-upon residential homes.

For small and first-time investors, the monthly event is an opportunity to step into the ring. And for a handful of others, it’s the place to snap up multimillion-dollar commercial properties at rock-bottom prices. 

“There are two kinds of people: people that have been to a foreclosure auction and people that have never been,” said Michael Knight, executive vice president of Better World Properties, a multifamily property owner and operator.

Knight has now attended two foreclosure auctions, seeking to learn more about the state of the market. He has noticed trouble brewing, bringing more complexes to the monthly sale.

“Everybody that's been always comes back and says the same thing, which is, ‘Wow, wasn't that some kind of circus,’” Knight said. 

The auction’s schedule is full of residential properties, creating an enticing Candy Land for those new to investing. But it’s also a place where serious CRE business gets done, including lenders officially taking ownership of properties after borrowers can no longer make payments on multimillion-dollar loans.

At the September foreclosure auction, lender MF1 sold a 282-unit multifamily complex after its borrower defaulted on a $51M loan backed by the property. Harris County real property records show that a newly formed limited liability company, Aspire 610, bought the complex for $49.8M. The LLC has the same address as Berkshire Residential Investments, part of a joint venture with Limekiln Real Estate that launched lending vehicle MF1 Capital. Berkshire didn't respond to requests for comment. 

MF1 provided the $51M loan in March 2022 to Rockstar Capital, an apartment syndicator owned by Robert Martinez, who calls himself “the apartment rockstar,” The Real Deal reported. Martinez told the outlet this was his sole lender issue throughout his portfolio of 4,800 units and only occurred when his loan situation became unworkable after it reached its maximum interest rate of 5.65% last September.

While Knight didn’t catch this sale, he did watch the August sale of Cabo San Lucas, the fifth apartment complex that Applesway Investment Group lost through foreclosure this year.  

In many cases, the commercial sales that get signed are as good as agreed on even before auction day rolls around, he said, and this one was no different.

“The Cabo San Lucas foreclosure sale was a done deal before it ever happened, but we were anxious to see who might show up and what info we could get out of the trustee,” Knight said. “Turns out, no one else of interest showed up, and the trustee was not able to tell us much that we didn’t already know.”

In contrast to the festive atmosphere around it, the sale was a stripped-down affair. The trustee, an attorney, read the full foreclosure document out loud and opened the bid at $50M, a prearranged sum offered by a newly formed LLC, according to a video seen by Bisnow. The complex received no other bids, leading the trustee to declare the property sold to the prearranged buyer.

Cabo San Lucas' lender, Ellington Management Group, previously declined Bisnow's request for comment on the sale.

The audience watching this sale was “a random grouping,” Knight said.

“Probably a dozen people who were milling around and found it interesting to see a $50M property get auctioned off. People standing around in shorts and T-shirts that were playing with houses,” he said. “The attorney looked up and said, ‘Are there any other bids?’ People looked at one another jokingly and said, ‘Hey, you got $50M I can borrow?’ Certainly no response, but there was a little bit of a chuckle.”

The crowd at this month’s auction was similar. Upon entrance, attendees were handed flyers advertising investment advice. One of those came from Linda Muscarello, the self-proclaimed “queen of foreclosure” who attends each auction wearing a purple cloak with leopard-print trim, a purple suit and light-up tennis shoes while carrying a scepter.

“How did you identify me?” Muscarello asked with a laugh when approached for an interview.

Muscarello has been attending foreclosure auctions for more than 20 years, she said. She is one of the vast majority of auctiongoers who attend to invest in houses, a calling inspired by a divorce and having her beauty salon business displaced by a freeway expansion.

She became involved in real estate investment networking groups, eventually becoming the first Black female president of the National Real Estate Investors Association, she said. 

“For any investment, you need money, expertise and time,” Muscarello said. “I didn’t have money, but I did have time and I could get the expertise. So I delved deep and studied and just learned. … They started calling me the queen of foreclosure because I was determined to know all the answers related to foreclosure.” 

Now Muscarello feels like she is “behind the curtain with the gurus,” she said. She hands out a free 25-page guide, teaches low-cost investment classes and webinars, and buys properties with other people interested in investing. 

It is important to be educated about buying foreclosed properties, she said, citing the example of a Houston woman who purchased a house at the auction not knowing there was a demolition lien on it.

By the time the newly minted owner went to the property to change the locks a month later, the property had been razed. The owner was also on the hook for the cost of the demolition, Muscarello said. 

Neither the Harris County Tax Office, nor the taxing jurisdictions it represents, makes any warranties about the condition of the properties, completeness of the property listing or the accuracy of the information, according to the tax office's website.

Gene Boykin has been attending foreclosure auctions for six years, but this month was only his second time at the Harris County auction, he said. He came to the city from Iowa, attracted by the auction “craziness” he saw on social media, he said.

“This is one of the main reasons that I moved to Houston,” Boykin said. “My deal administrator was making a video at an auction, and I saw it and my heart fluttered. It’s like a festival.” 

Houston auctions are far more packed with people and excitement than auctions in Iowa, he said. At this month's auction, Boykin had a table set up advertising his creative financing education services, branded as The GoGetter Family. That wouldn’t have been possible in Iowa, where auctions don’t allow vendors, Boykin said.

“It’s much more exciting. It’s just not your traditional or typical auction,” Boykin said. 

Tony Halaris of P.C.F. Property Management, a residential landlord, has purchased more than 100 single-family homes over the 12 years that he has attended the foreclosure auction, he said. 

“It’s the source of the best prices today,” Halaris said.

Halaris researches the houses he plans to buy, filtering by ZIP code, making sure they are within 30 miles of his home and double-checking that the first lienholder is the one foreclosing, he said. 

While Muscarello, Boykin and Halaris are quite familiar with the foreclosure auction scene, none had details about the $51M apartment complex set to be auctioned off that day. Knight also missed that one, delayed by a flat tire.

Trustee auctions are just one part of the larger Harris County Tax Sale and aren't conducted by Harris County, according to a fact sheet. Foreclosure notices filed with the Harris County Clerk's Office specify when and where the trustee sales will happen. 

“Some of these foreclosure documents will actually specify the metes and bounds of the room that the foreclosure is supposed to be held in, but it's big enough space that you can put several hundreds of people in there,” Knight said. “People are walking in and out constantly with their foreclosures. If you're not paying attention, you can easily miss it altogether.”

Knight has been asking around but hasn’t discovered any further details about the Aspire at 610 sale, he said. Through his limited auction experience, Knight said he has seen that lenders have generally already “shopped the deal around,” so the trustee auction is just a formality.

“They don’t expect anyone to outbid them,” Knight said. “It's the legal process that they're required to follow. There's certainly every opportunity for somebody to come in and bet against the lender or the note holder and do something different.”

The Harris County Clerk’s Office, which posts commercial foreclosure documents online, directed an inquiry for this article to the Harris County Tax Assessor-Collector’s Office, which posts delinquent tax properties and basic tax sale information. That office directed the inquiry to the Harris County Attorney’s Office, which didn't respond to questions by publication time.

For auctiongoers, the mystery of the event is just part of the draw.

“I had to go just because it's so bizarre,” Knight said.

Yet auction attendees should plan to be cautious, Muscarello said. It can be a minefield for novices, and she recommends linking up with an expert for guidance. 

“They should just replace the words on the outside of this building with ‘Casino,’” she said. “People are in here gambling.”