Sitting on 38k cash and deciding between a pre-foreclosure note at 71 cents on the dollar or waiting for the trustee sale on the same property

The assumption doing the most work in your note analysis is that the deed-in-lieu goes smoothly. If the borrower is 14 months behind and uncooperative, you are looking at a judicial foreclosure in Washington, which runs longer than most people quote and costs more than 6k once you add missed timeline risk. Your 71-cent entry can drift to 78 or 82 cents by the time you actually hold title, which compresses the spread on a 112k as-is comp considerably.

On the auction side, the opening bid in Washington is typically set by the beneficiary, usually at or near the full loan balance plus accrued interest and fees. On a 54k UPB with 14 months of arrears, attorney fees, and any advances, that opening bid could be sitting at 62 to 70k easily. That's above what the broker is asking for the note. Confirm the specific bid amount with the trustee before you treat the auction as a cheaper alternative, because it may not be. The trustee's notice should show the estimated opening bid. That number changes your whole decision tree.

The broker's margin question is the right one, but I'd reframe it. He bought this note at some number below 38,300, probably somewhere in the low 60 cents range if he needed room. His margin being thin or fat is less relevant to you than whether your all-in cost to title, including the realistic foreclose-yourself scenario, stays below 50k on a 112k as-is comp. That spread still works if the process is clean. It gets uncomfortable if the borrower contests or the timeline extends.

The risk you have not named is the property condition. As-is comps can move fast in Puyallup, and you have not mentioned a walkthrough. A note purchase on a property you have not seen adds a layer of underwriting exposure the auction path shares but the note path starts earlier.

Have you been able to pull the trustee's estimated opening bid figure yet?

You are asking a real question with real stakes, so I want to be clear upfront: this reply is a framework for thinking, not advice on what to do. A real estate attorney licensed in Washington and a CPA should be part of your decision before you commit $38k.

Here is how I'd frame the two paths.

The note purchase at 71 cents. You pay $38,300 now and own the debt, not the property. To get the property you still have to either negotiate a deed in lieu (where the borrower signs the house over to you to settle the debt) or foreclose yourself. In Washington, non-judicial foreclosure still takes time, and you've already estimated $6,000 in legal costs and four to six months of calendar. So your all-in cost before any repairs is roughly $44,300 plus carrying costs during that window. Against a $112,000 as-is value, that spread is meaningful. The advantage is that you control the conversation with the borrower right now, and no one else is bidding against you.

Waiting for the trustee sale. The opening bid at a Washington trustee sale is typically set by the beneficiary (the current lender) and is often near the amount owed, fees included. You haven't seen that number, and neither have I. It could be $42,000 or it could be $55,000. You would be bidding in a room where others have done the same math you have.

The thing worth confirming before anything else: ask the note broker for the payoff demand or the trustee's opening bid if it has been set. That single number changes whether 71 cents is a bargain or ordinary.

What state is your title research in, and have you pulled the lien position on that property?