I attended a foreclosure auction in Bellevue, WA last week to discover if the rumor was true that banks are opening their bids below the amount owed. I received confirmation from three professional investors that yes, the banks have been doing that, it’s no secret, and there seems to be no discernable pattern. It’s not one particular bank or lender, it’s not particular types of property or in any specific area. It appears to be random.
In addition to the 92 active trustee sales scheduled for that day in Bellevue (auctions were also going on in other King County locations,) there were 81 postponements. Only a few of the trustee sales attracted bidders, and the rest were deeded back to the bank. Out of the 92 active sales, 25 had opening bids below the amount owed to the bank.
Why would a bank or lender set their opening bid below the amount owed?
Banks and lenders have duties to their shareholders and investors to maximize profits and miminize losses (well, at least they use to.) If opening bids are set LOWER than what’s owed, perhaps the banks have already tallied their losses, realized that if they had to take back the house, get it cleaned out and cleaned up for resale, pay a real estate agent their commission to sell it, pay for title, escrow, excise tax, utilities, and any other carrying costs, they might as well sell it at a discount at auction. But maybe there are other reasons. I wondered if the banks were trying to keep more REO inventory off the market in an attempt to prop up home values for their existing REO inventory. Maybe appraisers can ignore trustee sale prices in their reports. Not knowing the answer, I emailed three appraisers for help and here’s what I learned: Appraisers need to mention trustee sales in the neighborhood if these trustee sales make up a significant percentage of available comps because they are legitimate sales even though title is transferred using a trustee deed instead of a warranty deed. If an appraiser choses to ignore these, he/she will run the risk of having the appraisal run through an “enhanced review” process in order to catch trustee sale market activity. If a trustee sale is a significant comparable sale, it can be used. The requirement to use closely comparable trustee sales as comps can also vary based on the requirement of the lender and investor. It may not be absolutely required but it may be in the appraisers best interest to mention trustee sales. Thanks to Jonathan Miller, Shane Leady and Richard Hagar for teaching me something new today.
That still doesn’t explain the phenomenon of banks undercutting their own principal balances at the auction. My theory is that banks are relying on third party information such as a mini appraisal or Broker Price Opinion (BPO) prior to auction. If the BPO suggests that the outstanding principal balance is so high and out of range as to likely attract no bidders at auction, then the banks have nothing to lose by setting the opening bid closer to or significantly lower than the principal balance owed. If no one bids at auction, they’re still only out the money they would have been out anyways and on the upside, if the low opening bid attracts investors, then perhaps the bidding will rise closer to the payoff. If not, they have an immediate loss that could be significantly LESS than losses that would add up over time, having to carry the REO on its books for months of marketing time in addition to the other costs mentioned above.
If banks are undercutting their own payoffs, then why isn’t this phenomenon more widely publicized? Okay, so we know that bidding on a home at a trustee sale is too frightening for most first time homebuyers but still, if more people know about this, then maybe there would be more folks showing up at the trustee sales and bidding those homes UP, thereby reducing the banks losses. There certainly is NO shortage of tall, well-groomed, good looking, muscular investor gurus in shorts showing off tanned legs, even though it was only 63 degrees outside hanging out at foreclosure auctions with all kinds of downpayment solutions to offer newby real estate investors: “We have zero down financing available for the right investor!” and “We have private hard money financing available for your purchase and you can refinance out of that loan in 30 days….My mortgage broker is right here, let me introduce you to her.”
Maybe the banks aren’t publicizing their low bids because they don’t want to bring buyer attention away from purchasing their REOs or short sales, knowing that investors are the ones who typically show up at the auction anyways. The banks also have a vested interest in keeping traditional buyers focused on MLS listings.
If I owned stock in a bank or lender that was undercutting their own payoff at auction, I’d want to be darn sure that this practice was saving the bank money and not hiding something else such as higher losses to be pushed on into the next earnings report…or the next stress test.
Foreclosure Auction Video Part 1
April 24, 2009
Bellevue, WA
Here is the rest of the auction.
Special thanks to Phil Leng for introducing me to all the investor bidders.
I don’t understand why you’re so surprised. Many of these properties were purchased with 97% LTV, 100% LTV, or even 105-120% LTV at the peak of the bubble.
Housing prices go down and the owner doesn’t want to or can’t pay his/her mortgage, so the bank picks up the property. If they listed at principal balance, no one would bid because the market is down at least 30%. So they place the bid where the BPO tells them to, or even below to stimulate multiple offers. Seems perfectly reasonable to me.
-Erica
I don’t understand why you’re so surprised. Many of these properties were purchased with 97% LTV, 100% LTV, or even 105-120% LTV at the peak of the bubble.
Housing prices go down and the owner doesn’t want to or can’t pay his/her mortgage, so the bank picks up the property. If they listed at principal balance, no one would bid because the market is down at least 30%. So they place the bid where the BPO tells them to, or even below to stimulate multiple offers. Seems perfectly reasonable to me.
-Erica
So tell me this. The banks can pick up the home and set the price at auction. So now the homeowner has to do a foreclosure instead. The homeowner can’t sell their home cause the banks screwed them over every which way but Sunday. So instead of letting the homeowner sell the home for what they owe on it to avoid foreclosure and wreaking their credit, the banks go ahead and auction the home off anyhow. Talk about greed!
The banks are selling for less than they are owed because they loaned more money than what the house was worth in the first place.
Get it?
The banks are selling for less than they are owed because they loaned more money than what the house was worth in the first place.
Get it?
Nice report. Thanks.
You represent that there appears to be no discernible pattern and that the markdowns appear random.
Erica offers one basis.
Another, more cynical, would be potential collusion between bank employees and a set of investors looking for advantageous terms. It wouldn’t be the first time in this sorry on-going episode that unscrupulous banks would collude with self-styled real estate investors to facilitate transactions….
I’d want to know whether below-principal auctions more frequently transact at auction. If so, it likely ain’t “random.”
Nice report. Thanks.
You represent that there appears to be no discernible pattern and that the markdowns appear random.
Erica offers one basis.
Another, more cynical, would be potential collusion between bank employees and a set of investors looking for advantageous terms. It wouldn’t be the first time in this sorry on-going episode that unscrupulous banks would collude with self-styled real estate investors to facilitate transactions….
I’d want to know whether below-principal auctions more frequently transact at auction. If so, it likely ain’t “random.”
Hi Erica,
That’s somewhat oversimplifying a complex problem for the banks.
Traditionally, banks and lenders set the opening bids as the payoff; what’s owed the bank at that point in time. If nobody bids, then the banks foreclose, become the owner, and resells. Banks are bypassing their traditional channels and trying to dump these houses at auction.
This tells us many things about what’s going on with the banks and lenders, especially if we can get confirmation that this practice is widespread in other parts of the U.S.
If the banks have time on their hands to do the math on these auction bid prices, then why aren’t we seeing faster response times from banks when a “30% below market” offer is brought in from a short sale buyer?
Instead of cutting the bid at auction, maybe banks and lenders should be focusing their efforts on doing the quick math on these short sales.
I’m also surprised that the bank’s low bids aren’t being more widely publicized. The bankers seem to either be doing a careful dance around possible regulatory guidelines as well as trying to follow all rules to avoid future shareholder lawsuits.
I think this practice tells us the banks are in far worse shape than most of us realize. But we should know a little more by the end of this coming week when the stress tests results are made public.
Hi Erica,
That’s somewhat oversimplifying a complex problem for the banks.
Traditionally, banks and lenders set the opening bids as the payoff; what’s owed the bank at that point in time. If nobody bids, then the banks foreclose, become the owner, and resells. Banks are bypassing their traditional channels and trying to dump these houses at auction.
This tells us many things about what’s going on with the banks and lenders, especially if we can get confirmation that this practice is widespread in other parts of the U.S.
If the banks have time on their hands to do the math on these auction bid prices, then why aren’t we seeing faster response times from banks when a “30% below market” offer is brought in from a short sale buyer?
Instead of cutting the bid at auction, maybe banks and lenders should be focusing their efforts on doing the quick math on these short sales.
I’m also surprised that the bank’s low bids aren’t being more widely publicized. The bankers seem to either be doing a careful dance around possible regulatory guidelines as well as trying to follow all rules to avoid future shareholder lawsuits.
I think this practice tells us the banks are in far worse shape than most of us realize. But we should know a little more by the end of this coming week when the stress tests results are made public.
“If opening bids are set LOWER than what’s owed, perhaps the banks have already tallied their losses, realized that if they had to take back the house, get it cleaned out and cleaned up for resale, pay a real estate agent their commission to sell it, pay for title, escrow, excise tax, utilities, and any other carrying costs, they might as well sell it at a discount at auction.”
Why then didn’t the banks try to keep the borrowers/debtors/”owners” in the house in the first place, renegotiate a contract that works, and protect the asset? I realize the economics of this are complicated but these are difficult times. It seems that every home that goes to auction is a series of expensive mistakes that do nothing but create a huge number of ancillary costs and problems.
Can someone explain the cost/benefit of sending the home to auction rather than reworking a loan? I’m sincerely curious.
“If opening bids are set LOWER than what’s owed, perhaps the banks have already tallied their losses, realized that if they had to take back the house, get it cleaned out and cleaned up for resale, pay a real estate agent their commission to sell it, pay for title, escrow, excise tax, utilities, and any other carrying costs, they might as well sell it at a discount at auction.”
Why then didn’t the banks try to keep the borrowers/debtors/”owners” in the house in the first place, renegotiate a contract that works, and protect the asset? I realize the economics of this are complicated but these are difficult times. It seems that every home that goes to auction is a series of expensive mistakes that do nothing but create a huge number of ancillary costs and problems.
Can someone explain the cost/benefit of sending the home to auction rather than reworking a loan? I’m sincerely curious.
Hi James,
There was a report that recently came out, I want to say it’s been in the last several weeks, that determined when a bank/lender offers a loan modification and the homeowner re-defaults, the bank’s losses are much higher than if they would have just foreclosed quickly. I will try to find the report for you.
Here you go:
http://www.calculatedriskblog.com/2009/04/fed-paper-on-reducing-foreclosures.html
Hi formerseattleite,
Yes, we get. The question is why are they suddenly making an about face and turning in the opposite direction from past behavior, and why aren’t the banks making this more public? Those are the deeper questions that we’re trying to answer.
Debtpocolypse,
Thanks for the insight. You could be on to something there. With so many short sales taking forEVER to get approved, it seems as though the investors would be better off just quickly approving the short sales and clearing out their inventory well ahead of auction. Now the homeowner has lived in the home several months paying nothing, with other costs adding up.
Maybe the investors are receiving some sort of tax benefit from doing it this new way.
Our house is in foreclosure and even though we had a short sale offer of 90 k on the table just waiting on the banks approval, the bank went ahead and auctioned the house off for 33 k to a third party. The bank is now telling us they cant work with us on a short sale since it was sold, the kicker is the bank still holds the second mortgage (since it was a first and second) so this really puts us in a bind to sell
Is this even legal for banks to auction less than an offer that’s on the table? The loss makes no sense to me????? Before they auctioned did they do a public notice?
As a person that sets bidding instructions for foreclosure sales for banks and investors for years. I can tell you this is a come practice throughtout the US. The goal is to save money by getting non-performing assets off the books as quickly as possible. For example, if a property is worth 100K and after eviction, real estate closing costs, real estate commissions, eviction costs, property preversation and maintance you are going to net 83K after you have foreclosed, evicted, cleaned up the property and than remarket it. Why wouldn’t you sell it at FC sale for 80K….you get your money now and don’t have to wait 6 months for a standard REO sale. The differences in foreclosure bidding strageties that you are observing at the trustee sale are variances in bidding practices of investors. GSE (Fannie/Freddie) and FHA loans as a practice always bid total debt…..the discounting that you are seeing are private MBS or whole loans that are held on banks balance sheets. The standard foreclosure bidding practice is to determine FMV with the BPO and apply an REO NPV model to the value…taking into account the costs referenced above and HPI (Home Price Index) to the value to determine the bid amount….normally between 75% to 85% of current FMV.
I hope this helps answer your questions.
Bill
Hi Bill, can you contact me, I would really like to ask you a few questions.
Bill–is it still true that: GSE (Fannie/Freddie) and FHA loans as a practice always bid total debt?
Hi Jim,
I have not heard of any change in this practice since first writing this blog article.
OH BOY! It sure does!
You are saying the thieving lender wants 85% of current market value.
Bidders at auction are brain dead. Then idiots buy this boon doggle after the brain dead paint the place.
Don’t worry, you can always send your foolish purchase back to the bank when you figure it out.
As a person that sets bidding instructions for foreclosure sales for banks and investors for years. I can tell you this is a come practice throughtout the US. The goal is to save money by getting non-performing assets off the books as quickly as possible. For example, if a property is worth 100K and after eviction, real estate closing costs, real estate commissions, eviction costs, property preversation and maintance you are going to net 83K after you have foreclosed, evicted, cleaned up the property and than remarket it. Why wouldn’t you sell it at FC sale for 80K….you get your money now and don’t have to wait 6 months for a standard REO sale. The differences in foreclosure bidding strageties that you are observing at the trustee sale are variances in bidding practices of investors. GSE (Fannie/Freddie) and FHA loans as a practice always bid total debt…..the discounting that you are seeing are private MBS or whole loans that are held on banks balance sheets. The standard foreclosure bidding practice is to determine FMV with the BPO and apply an REO NPV model to the value…taking into account the costs referenced above and HPI (Home Price Index) to the value to determine the bid amount….normally between 75% to 85% of current FMV.
I hope this helps answer your questions.
Bill
OH BOY! It sure does!
You are saying the thieving lender wants 85% of current market value.
Bidders at auction are brain dead. Then idiots buy this boon doggle after the brain dead paint the place.
Don’t worry, you can always send your foolish purchase back to the bank when you figure it out.
Any chance that trustee sales cause the FMV assessment to change? (I’m not in the area.) It would lower the carrying cost (of the taxes) in that case.
Jillayne:
Thanks for article. While I’m not much interesting in buying properties on the courthouse steps, I am very interested in bank behavior, and loan performance.
The link in #7 was awesome, and it’s conclusions are almost in stark opposition to the common understanding of the problem.
Jillayne,
Good job on the videos and the interviews!
Thanks for the insight, bill.
“you get your money now and don’t have to wait 6 months for a standard REO sale.”
I wonder if these banks need that money NOW. LOL.
What is owed on the mortgage has nothing to do with the opening bid amount or sales price. The opening bid and sales price have to do with market value. Many of these properties have a market value lower than the amount owed and is why the opening bid is less than what is owed.
I recognized Matt Steel of REIF in the white shirt before clicking on the video. Most of the same guys show up. In fact if you don’t see these guys when you arrive, it’s a good sign there’s nothing good on the list.
Have to agree that lienholders opening bids below what is owed is not new. Saw one about a year ago. The amount owed was a huge cash out refi and not reflective of tested market value, as in a purchase money loan of the same timeframe. Opening bid was more than 50% less than amount owed. One of the reasons being it was a flip gone bad by a long term owner. House was in worse shape than when the loan was made. If the borrower gutted the place and couldn’t get money to finish, as example.
Another explanation would be the lienholder trying to get a higher price than a short sale bid price. The market may have already been tested via short sale, prior to foreclosure. Say they are owed $350,000 and highest short sale offer was $250,000. They might start the bid at $250,000 to try to beat it.
A few things:
1) I can’t find videos #5 and #6. Jumps from #4 to #7
2) Video 2 is very interesting. The bidding slows up when it starts jumping in $100 increments. Interesting to see one person get it for that $100 bump up.
3) 1st time buyers rarely buy sight unseen with no opportunity to have a home inspection. Good idea to go see the short sales, even if they are overpriced. That way if it gets to auction stage, you have the added advantage of having seen it.
4) Novices can use the investors to target property. Investors have to pencil in more resale costs than an owner occupant. Targeting a heavily bid property and beating the investors by $1,000, looks like a decent strategy.
5) As to the large number of postponements, from what I hear a first time 30 day postponement request is common, and not hard to get. Longer timeframe or repeated postponements get harder. An owner putting in a request for modification is almost always an automatic postponement during the loan mod review.
My $.02 GREAT and informative videos, Jillayne. Thanks for taking the time to do them and post them.
One more thing that answers one of your questions, Jillayne. Sometimes it’s a liability factor.
When the lienholder can’t put it on market, because viewing the property is dangerous, they really have no choice put to dump it. A few short sales have no lockbox, as the listing agent and listing company don’t want the liability of someone getting hurt during the viewing.
If the short sale process reveals hazardous conditions via the short sale offer including photos of damaged deck (especially cantilevered high decks) or other hazardous conditions, better to dump the property cheap than have a lawsuit filed by someone who gets hurt during a showing.
Did one like that years ago with mold photos. One lawsuit by a potential buyer for mold illness caused by viewing the property, is not worth it. Better to dump the property cheap, at auction, sight unseen. Most of the bidders have already “broken in” to these properties and seen what’s involved, at their own risk. Once the bank takes it and lists it, they would be responsible for claims by those “invited in” via being listed inthe mls.
Reviewing the title report is not good enough for any first time buyer, and often most investors, unless it sells for lot value.
Pingback: Banks Undercutting Themselves at Courthouse Foreclosure Auctions | Seattle Bubble — News & discussion about real estate & the housing bubble in the Seattle area.
JP,
I did one where the taxes were lowered, but only temporarily until improvements were made. It gave the buyer some extra funds to make those improvements. But the condition was that the taxes would jack back up after the improvements were finished.
Ardell, I still have a few more auction scenes to upload. Just had to get number 7 in there so I could link to the mortgage broker interview.
Pingback: Banks are setting bid prices below the principal balance at auction : ceforward.com
Your video is headlined on Calculated Risk. Congratulations!
Jillayne,
Read through the comments on Calculated Risk. Worth noting: Not all areas require 100% cash at foreclosure sales. I was surprised to see that here, and that practice lines too many pockets with extra and IMO unnecessary dollars.
Some areas are more owner-occupied-buyer friendly by allowing as low as 10% cash at auction, and 30 days to get their loan in place. Perhaps 10% down and a pre-approval letter would be a better practice to move more of the properties to end users, and cut out some of the “pork” sandwiched into home values.
Who controls the “must have all cash to buy at foreclosure” rule?
Jillayne,
Read through the comments on Calculated Risk. Worth noting: Not all areas require 100% cash at foreclosure sales. I was surprised to see that here, and that practice lines too many pockets with extra and IMO unnecessary dollars.
Some areas are more owner-occupied-buyer friendly by allowing as low as 10% cash at auction, and 30 days to get their loan in place. Perhaps 10% down and a pre-approval letter would be a better practice to move more of the properties to end users, and cut out some of the “pork” sandwiched into home values.
Who controls the “must have all cash to buy at foreclosure” rule?
I don’t understand why this comes as any surprise. You say the opening bid is below the amount owed, but you don’t say it’s below market price. Maybe the opening bid is still 20% above market price. The banks can do a 2-minute paper appraisal and be pretty confident the opening bid is still well above what they’d get on the open market. They hope a sucker will give them a bid.
In Phoenix, without even looking at the property or the loan I could safely say almost any house purchased in 05, 06, or 07 with less than 20% down is worth less than the balance on the loan. If I were a bank I’d probably glance at the loan and property just to make sure, but in just a couple of minutes per house of research I could easily pick a price well below the loan balance but well above market value (especially considering the costs of selling). Why not take a chance to get lucky?
For example, maybe the loan balance is $350K but the house has been sitting on the market for 4 months trying to do a short sale for $250K without a single bid (not unusual in Phoenix) and has now foreclosed. What’s the downside in setting the opening bid at $250K or even $225K?
Why haven’t we seen banks doing this in the past? Seems like there are numerous rather obvious reasons which all boil down to the fact the banks haven’t been in a position like this before. I’ll give one example – because the unprecedented price drops and unprecedented use of 0% down financing it has never before been possible to immediately determine that the value is WAY below the loan balance.
Ardell, it’s state law that controls “must have all cash to buy at foreclosure” Here’s a link to our state’s rule:
http://apps.leg.wa.gov/RCW/default.aspx?cite=61.24.070
I am sure the bean counters have a hand in it. REOs net the bank about $.52 on the dollar. the discounted foreclosure price is netting the bank more than an REO.
in addition, an REO may require the bank to maintain additional capital on hand to meet bank regulator stress ratios. Toss in the toxic loans which require additional capital. Banks would rather sell at foreclcousre than get the knock on door ten minutes before closing on a Friday from the FDIC takeover team because the bank failed to raise additional capital.
Jillayne,
I would rather see the State changing that rule, than handing out $8,000 advances to home buyers as loans against their Tax Credit.
Many of the buyers buying thru the foreclosure auctions did see the houses when listed as short sales, and rather than negotiate with the homeowner who is short, waited till the property went to foreclosure.
It seems to me that bank shareholders ought to be very concerned. The short sale process is being undermined by the lenders refusal to work quickly enough to make a short sale agreement happen, resulting in lower sales prices at foreclosure auctions, and lower sales prices for an entire neighborhood.
Hmmmm. Perhaps various County Assessor offices around the country should be included in a class action lawsuit. As values decline, the immediate effect hurts County revenues too.
From my dealings with two banks when buying a short sale, the banks weren’t actually making the decisions on how much of a loss to take. Rather, they were acting as bureaucratic middlemen between me and the real decision makers – the “investors” who’d bought the loans.
In my case, only one of the investors even bothered doing a BPO. The other – I came to believe during the course of negotiations – would simply take any offer that would result in their recovering at least 80% of their original loan amount.
Hence the lack of a pattern in which banks will accept less than their principal balance. It’s usually not up to the banks to make that decision; it’s up to the hidden “investors.”
Hi Jillayne,
Nice site (I surfed here from CR). I am very much a newbie–a homeowner trying to modify their mortgage. Unfortunately, just as we were set to do this our mortgage lender went BK (Thornburg) so now we have to wait for a new owner to surface!
I just wanted to point out that I think you are somewhat misreading the study from April cited by CR. The study says that modified mortgages often end up in foreclosure, true, but it doesn’t say that this costs the lender any more than it would have originally. The real problem, they say, from a lender’s perspective is that homeowners who don’t need a modification will apply for them unless you make it brutally hard to get one. Better to let the deserving get screwed than let the undeserving get more than they need!
Notwithstanding the banks’ reluctance to make meaningful mods, the study suggests that they WOULD be better off doing them if they could actually prevent foreclosures (without drawing the attention of secure homeowners looking for a better deal). And the only way to do a successful mod is to lower (not raise) homeowner costs and lower principal to better reflect market conditions.
Thanks for the posts and the videos. I hope real people can profit from your insights.
Although such a response might have already been posted, in some instances lenders are bidding less than the amount owed so they can then sue for the difference. In Idaho, the lender is entitled to a deficiency judgment. That judgment, however, is limited to the total owing to the lender (at the time of sale) minus the fair market value (at the time of sale). Idaho Code section 45-1512. Although I have not read California’s foreclosure statute (it’s probably about 300 pages), I have read from more than one credible source than under certain circumstances the lender there may also get a deficiency judgment. Given the numerous reports that an increasing number of homeowners are walking away from their home even if they can afford the payment (since the loan balance so greatly exceeds the home’s value), why shouldn’t a bank sue for the difference, assuming the law allows for such?
The answer for me is extremely simple…INSURANCE! I am in the middle of doing a shortsale with my servicer and asked “since my home was valued at over $1million when I refinanced in April 07 and now you have already approved my buyer’s short sale for $640,000, then why would you not just drop the principle to the current valuation since I’ve been in the property for over 11 years and would prefer to have a loan modification?”
ANSWER: “…I don’t think I’m supposed to say this, but we are covered by insurance and if we foreclose or do a short sale, then we will be reimbursed for the total amount of the loan…” i.e., that’s why the banks did NOT want the cram down legislation!!
Amazing isn’t it. Now we know why the banks aren’t lowering anything but the interest payments. They could, of course, keep the current loan principle, do the loan modification for a fixed 40-45 year term, and make a profit, and still keep the current buyer in the property.
Anyway, just my opinion. In the meantime, although I’m in the process of the short sale, I plan on turning it down and plan on filing suit re Tila and Respa violations. After doing an audit, we have found that just one of the things my lender did was to overcharge me $311K over the term of the loan. I will also be pursuing “where’s the note” theory here in California.
Good luck to anyone else out there having similar problems.
kensingtont
kensington.taylor@verizon.net
The answer for me is extremely simple…INSURANCE! I am in the middle of doing a shortsale with my servicer and asked “since my home was valued at over $1million when I refinanced in April 07 and now you have already approved my buyer’s short sale for $640,000, then why would you not just drop the principle to the current valuation since I’ve been in the property for over 11 years and would prefer to have a loan modification?”
ANSWER: “…I don’t think I’m supposed to say this, but we are covered by insurance and if we foreclose or do a short sale, then we will be reimbursed for the total amount of the loan…” i.e., that’s why the banks did NOT want the cram down legislation!!
Amazing isn’t it. Now we know why the banks aren’t lowering anything but the interest payments. They could, of course, keep the current loan principle, do the loan modification for a fixed 40-45 year term, and make a profit, and still keep the current buyer in the property.
Anyway, just my opinion. In the meantime, although I’m in the process of the short sale, I plan on turning it down and plan on filing suit re Tila and Respa violations. After doing an audit, we have found that just one of the things my lender did was to overcharge me $311K over the term of the loan. I will also be pursuing “where’s the note” theory here in California.
Good luck to anyone else out there having similar problems.
kensingtont
kensington.taylor@verizon.net
Jillayne,
Banks seem to be finally getting to the point where they want to sell REOs even at an obvious loss so long as they can get rid of them. The theory likely is to cut your losses while you can, at least in many markets, like here in Las Vegas.
Esko,
Are you seeing more investors/buyers show up at the trustee sale auctions in Las Vegas and are those low opening bids going higher?
Hi brianinboise,
Yes, I travel to Idaho to teach from time to time and the Realtors tell me that Idaho’s foreclosure laws are much tougher than other states. This makes me wonder if your foreclosure statistics are much lower compared with other states….
Hi KensingtonT. Not sure about the insurance company reimbursing the lender for the total amount of the loan. That would be some kind of fancy insurance. Maybe they can file an insurance claim with the mortgage insurance company for the amount lost with your short sale. Mortgage insurance benefits the lender, not the homeowner and the insurance payouts are not secret. Best of luck to you with your lawsuit.
Hi Kelli,
Thanks for the clarification on that report. It is a very good read, and thanks for stopping by raincityguide.com Remember to try and avoid the predatory loan modification companies and seek out the free HUD approved Housing Counseling Agencies or hire legal counsel if you need some help with your loan mod.
Hi sampai,
Hope you have been well. Yes, with some banks and lender/servicers, the decision is up to the investors. Sometimes the banks are holding the mortgage loans on their own books and then the decision is up to the bank. You bring up a really good point in that perhaps this is all about the investors. Maybe if they’re getting aggressive on price cuts at the auction, they will start getting aggressive on short sale approvals.
Hi leanne,
Yes, lower sales prices at auctions and lack of fast short sale approvals mean lower county excise tax revenues. Not quite sure that would translate into a specific lawsuit against banks, though.
Hi Michael,
“an REO may require the bank to maintain additional capital on hand to meet bank regulator stress ratios. Toss in the toxic loans which require additional capital. Banks would rather sell at foreclcousre than get the knock on door ten minutes before closing on a Friday from the FDIC takeover team”
This is what’s on my mind, too.
I’ve heard about this and I’ve been informed that Banks are now gearing up to exercise their right to a deficiency judgment to recoup losses against defaulting borrowers. So it does not matter how low it goes, they will get it of their books and then get the rest from the borrower from the judgment which is a personal unsecured debt and not a lien on an asset. Somehow by selling for less than the loan balance banks get around any non-recourse terms in the first mortgage that would have prevented their exercise of deficiency judgment rights before the court. I cannot speak the legal accuracy of all this but a recent WSJ article did spell out the fact that banks are now often going back to court after foreclosure and seeking deficiency judgments or they are forcing borrowers to sign promissary notes to pay for any shortfall between principle and net sale price of the home.
The banks have financial analysts, statisticians, and software running models to determine the least costly and most profitable way to divest. West of Market in Kirkland has a large number of foreclosures and short sales of recently built million dollar homes. Westsound Bank. developer Lux and other kaput developers.
Joe,
The states are mix by type of sale and which lien holders. Some states are non deficiency states for all loans in a foreclosure and short sale. Some are ND only for foreclosure. WA is non deficiency foreclosure state on the foreclosing lien holder. Most lenders take the non deficiency component into account when making financial decisions. In WA a lender may be better off accepting a short sale as satisfaction in full with non recourse as a foreclosure with no recourse will net the lender less $$.
there is nothing surprising about this. i’m not even sure how someone could find something surprising about this. these bids are priced to sell. banks are not in the business of holding and maintaining foreclosed houses. and as obvious as it is that millions of high LTV loans were made over the last several years and house prices fell dramatically over the same period, so is it obvious that lenders are willing to bid less than the amount they’re owed to move foreclosed assets and avoid putting foreclosed assets onto the their balance sheet. duh.
I’m with Duh – the surprise is that anyone would think this is a surprise.
Or, to put it another way – why would you think the bank would care, _at all_, about the amount owned? It’s not the slightest bit interesting at this point. Zero, nada, pointless, useless, whatever you want to call it. Might as well ask about the price of tea in China.
What matters is the current market value of the property. That number, and the outstanding loan balance, are chalk and cheese.
What I don’t get is why banks bid at all.
The bank isn’t in any better position to bid than any other real estate investor. Their past history with the property is useless information. Seems like their best move is to make it known in advance that they have no intent to bid on anything, and let the market find a price at the auction.
By bidding, they just get into the real estate speculation game. The fact that they used to have a loan on the property doesn’t change that at all. Seems like a waste of time and assets that should go into their core business instead.
I’m with Duh – the surprise is that anyone would think this is a surprise.
Or, to put it another way – why would you think the bank would care, _at all_, about the amount owned? It’s not the slightest bit interesting at this point. Zero, nada, pointless, useless, whatever you want to call it. Might as well ask about the price of tea in China.
What matters is the current market value of the property. That number, and the outstanding loan balance, are chalk and cheese.
What I don’t get is why banks bid at all.
The bank isn’t in any better position to bid than any other real estate investor. Their past history with the property is useless information. Seems like their best move is to make it known in advance that they have no intent to bid on anything, and let the market find a price at the auction.
By bidding, they just get into the real estate speculation game. The fact that they used to have a loan on the property doesn’t change that at all. Seems like a waste of time and assets that should go into their core business instead.
James,
Since people are buying these at auction and then putting them on market and selling them at a higher price, wouldn’t that suggest that the bank can do the same?
Ardell –
No, it demands the exact opposite.
There’s a functioning market. The fact that there are investors there, and a liquid market, means that the prices are getting to the right point – there’s a bit of a profit to be had, but competition between investors is going to mean that the profit is about right for the risk level. If there were risk-free profits to be had, more money would be attracted, right? This is very basic capitalism in action.
The bank doesn’t want those profits. The bank, presumably, has better uses for its capital (more/better profit opportunities) than chasing real estate speculation profits. If it doesn’t have better profit opportunities in it’s own real business, then it should stop being a bank and go completely into the real estate speculation business.
Banks are in the business of loaning money, not speculating on real estate. They shouldn’t dabble in real estate speculation, and it should surprise people when they do.
James,
Having worked in a bank for 20 years prior to real estate for 20 years, I have seen “banks” need to sell property at top value. I was in the Trust and Estate area. When a piece of property ended up in an estate, and we had to sell it, the fact that we were bank employees did not relieve us of the fiduciary obligation to achieve highest attainable value for the heirs.
Given the level of support the banks are getting, I doubt many would agree with your statement: “The bank doesn’t want those profits.” When the taxpayer is being asked to bailout the shortfall, I would think “capitalism” is not in play as much as it would be if it were bank funds being left on the table.
Pingback: Bridget Magnus » Another Hole in the “Phantom Inventory” Theory
You have to be kidding. Why do homes go into foreclosure – because they are worth less than what is owed. Otherwise the owner would simply sell it and pay off the loan.
Banks are smart enough to know that. So why try to get an unrealistic price out of a home.
Duuhhh!
To all the people who are just saying “duh.” I agree with you. It’s what’s behind the decision that’s more interesting to me, along with why this isn’t more widely publicized. I see this as a symptom of a bigger problem. Yes, we already know that banks are in a world of hurt….Maybe it’s even worse than we realize.
Pingback: HSH Financial News Blog » Blog Archive » Lowballing Foreclosure Auctions?
“Given the level of support the banks are getting, I doubt many would agree with your statement: “The bank doesn’t want those profits.
James,
Banks make money from the interest on the loans they make. The low rates have fueled a refi boom, which is helping some of the bigger banks right now.
There’s another part of this blog post that seems to have gone undiscussed.
81 postponements is quite a lot. Some are trying to refinance, some will probably be successful in getting a loan modification and some are probably trying to sell short.
I will bet that out of those 81, few will be able to refinance. Looking at the number of transactions in King County, and recalling the low percentage of short sales that actually close, along with that we have 50% of loan modifications redefaulting, this means King County’s 81 postponements will turn into even more sales in May and beyond.
We are far from over with this foreclosure mess in King County.
James,
Banks make money from the interest on the loans they make. The low rates have fueled a refi boom, which is helping some of the bigger banks right now.
There’s another part of this blog post that seems to have gone undiscussed.
81 postponements is quite a lot. Some are trying to refinance, some will probably be successful in getting a loan modification and some are probably trying to sell short.
I will bet that out of those 81, few will be able to refinance. Looking at the number of transactions in King County, and recalling the low percentage of short sales that actually close, along with that we have 50% of loan modifications redefaulting, this means King County’s 81 postponements will turn into even more sales in May and beyond.
We are far from over with this foreclosure mess in King County.
James,
Reminds me of the bible verse that says, if your right eye causes you to stumble, cut it out. A little easier to grasp than “sunk cost fallacy”, but basically the same idea.
The math of deciding when to let it go, charge it off, let it sell at any price, is more complex than I see anyone calculating.
Everyone is looking at what the bank is owed on each individual default, without considering the risk based premiums paid by homebuyers at large. When the banks opted to be self insured via risk based pricing, vs. requiring Mortgage Insurance, they made a business decision. No one is questioning whether or not that decision paid off. You can’t look at each individual foreclosure to know that.
Say the bank made 100 loans of $100,000 each. They charged a 2% premium on the first mortgage (7% vs. 5%) and a 4% premium on the 2nd mortgage (9% vs. 5%). That is the method they used to be self insured, and those percentages are pretty close to reality.
Now let’s look at a 5% default rate, with 95% holding those loans for an average of 7 years, given it became impossible for many of them to refinance due to changed mortgage approval guidelines.
100 loans at $80,000 with 2% risk premium = $1,640,000 extra interest on the 1st mortgages that didn’t default. They charged $532,000 extra interest on the 2nd mortgages of the 95% that didn’t default. Without counting any of the extra interest paid by those who did default, the bank has a pool of “risk based premium” to cover the risk (of all loans made), vs having mortgage insurance.
$2,172,000 in extra interest vs. mortgage insurance. 5% defaults = $500,000. The bank is still ahead by $1.6 million due to the risk based “extra interest” charged to all of the people who did not default.
If the “extra” interest charged to all borrowers is not looked at as an offset to those that did default, then what is the purpose of charging it?
That’s a simple calculation, but let’s not forget the high interest rates being being paid by many today, who did not default, whose extra interest was based on a set aside toward those that did default.
I wonder if the banks put any of that high interest into a self insured set aside account? Did they count it as extra profit in the year they collected it? Did they pay any of it out to shareholders, or in corporate bonuses?
I think they forgot to be self insured with the risk premium.
James,
Reminds me of the bible verse that says, if your right eye causes you to stumble, cut it out. A little easier to grasp than “sunk cost fallacy”, but basically the same idea.
The math of deciding when to let it go, charge it off, let it sell at any price, is more complex than I see anyone calculating.
Everyone is looking at what the bank is owed on each individual default, without considering the risk based premiums paid by homebuyers at large. When the banks opted to be self insured via risk based pricing, vs. requiring Mortgage Insurance, they made a business decision. No one is questioning whether or not that decision paid off. You can’t look at each individual foreclosure to know that.
Say the bank made 100 loans of $100,000 each. They charged a 2% premium on the first mortgage (7% vs. 5%) and a 4% premium on the 2nd mortgage (9% vs. 5%). That is the method they used to be self insured, and those percentages are pretty close to reality.
Now let’s look at a 5% default rate, with 95% holding those loans for an average of 7 years, given it became impossible for many of them to refinance due to changed mortgage approval guidelines.
100 loans at $80,000 with 2% risk premium = $1,640,000 extra interest on the 1st mortgages that didn’t default. They charged $532,000 extra interest on the 2nd mortgages of the 95% that didn’t default. Without counting any of the extra interest paid by those who did default, the bank has a pool of “risk based premium” to cover the risk (of all loans made), vs having mortgage insurance.
$2,172,000 in extra interest vs. mortgage insurance. 5% defaults = $500,000. The bank is still ahead by $1.6 million due to the risk based “extra interest” charged to all of the people who did not default.
If the “extra” interest charged to all borrowers is not looked at as an offset to those that did default, then what is the purpose of charging it?
That’s a simple calculation, but let’s not forget the high interest rates being being paid by many today, who did not default, whose extra interest was based on a set aside toward those that did default.
I wonder if the banks put any of that high interest into a self insured set aside account? Did they count it as extra profit in the year they collected it? Did they pay any of it out to shareholders, or in corporate bonuses?
I think they forgot to be self insured with the risk premium.
Ardell:
You are SO funny! And yet, the analysis is so good.
There is no way all of the 80/20 subprime lenders set aside the profit from high interest in a self-insured account. If they had been required by law to, well then maybe…
The lenders knew darn well what the game was;
Pay themselves huge salaries, suck in investors by boosting stock performance, drain off as much assets as possible by selling inflated stock, and leave the taxpayers with the bill.
And you know what?
It will happen again.
On a lighter note, I have to link to this awesome movie trailer, courtesy of the Housing Wire, regarding a foreclosure gone awry.
http://www.housingwire.com/2009/05/04/i-see-dead-peoplewith-mortgages/
Ardell:
You are SO funny! And yet, the analysis is so good.
There is no way all of the 80/20 subprime lenders set aside the profit from high interest in a self-insured account. If they had been required by law to, well then maybe…
The lenders knew darn well what the game was;
Pay themselves huge salaries, suck in investors by boosting stock performance, drain off as much assets as possible by selling inflated stock, and leave the taxpayers with the bill.
And you know what?
It will happen again.
On a lighter note, I have to link to this awesome movie trailer, courtesy of the Housing Wire, regarding a foreclosure gone awry.
http://www.housingwire.com/2009/05/04/i-see-dead-peoplewith-mortgages/
Roger,
I don’t know why expecting “risk premium funds” be set aside to cover uh “risk” is funny.
If you are telling me the entire banking and mortgage industry shifted to being self insured, dropped the insurance requirement, and didn’t use the risk premium to offset risk…that is fraud – not funny at all.
There continue to be many people paying these risk premiums. If someone is calling that “profit” and spending it, that should be stopped.
They can’t have their cake and eat it too. Charge a higher rate for a 20% down than a 40% down because of the added “risk”, and not set aside that “extra” money to cover risk, is a huge fraud perpetrated on the public at large. The DOJ should get into that can of worms.
Roger,
I don’t know why expecting “risk premium funds” be set aside to cover uh “risk” is funny.
If you are telling me the entire banking and mortgage industry shifted to being self insured, dropped the insurance requirement, and didn’t use the risk premium to offset risk…that is fraud – not funny at all.
There continue to be many people paying these risk premiums. If someone is calling that “profit” and spending it, that should be stopped.
They can’t have their cake and eat it too. Charge a higher rate for a 20% down than a 40% down because of the added “risk”, and not set aside that “extra” money to cover risk, is a huge fraud perpetrated on the public at large. The DOJ should get into that can of worms.
Roger,
The same applies for credit cards paying 30% interest…that is not “profit” to be distributed and spent annually. That is a risk premium to be applied against losses.
If the going rate should be even as high as 12%, then the difference needs to be segregated into an account that covers charge offs.
Someone needs to revise the bank’s accounting systems OR remove the risk premiums, one or the other.
Ardell:
Do you think there is a law requiring subprime lenders to set a side a “risk premium”?
I don’t know, myself, but since there definitely was not a law requiring sufficient deposits to cover the so-called “insurance” sold to cover the MBS (credit default swaps), it seems hard to believe the subprime lenders would have had greater reserves than required by law.
I don’t think it makes sense to remove risk premiums (who would play, if greater risk did not promise greater reward?), but there definitely ought to be a better accounting system, and reserves to cover the added risks.
The banks and lenders who made the subprime loans and other toxic loans such as the Pay Option ARM used models to estimate the percentage of loans that would default. The computer models gave the banks and lenders predictive number in terms of how much to set aside in loss reserves.
We now know that the banks used the WRONG model to evaluate how many of these loans would default.
They used the model for PRIME loans. At that point, there was no model for the subprime crap and the toxic mortgages.
Therefore, defaults started to rise in about 2004, 05 and for sure in 2006. At the 04 level, prices were still rising so the subprime homeowner could just quickly sell.
You can see how the shrewd, smart people at the very top of the bank/lender chain figured this out. For example, Angelo Mozillo filed a report to begin selling his stock right about that time.
Not enough money was set aside for loss reserves.
But that was the 2007 story.
The 2009 story is: How much money is it going to take the banks to get rid of the toxic loans or to sell off foreclosed REO inventory, BEYOND these stress test numbers.
I have heard some estimate the losses to be in the trillions when we factor in subprime credit card losses and subprime car loan losses.
The banks and lenders who made the subprime loans and other toxic loans such as the Pay Option ARM used models to estimate the percentage of loans that would default. The computer models gave the banks and lenders predictive number in terms of how much to set aside in loss reserves.
We now know that the banks used the WRONG model to evaluate how many of these loans would default.
They used the model for PRIME loans. At that point, there was no model for the subprime crap and the toxic mortgages.
Therefore, defaults started to rise in about 2004, 05 and for sure in 2006. At the 04 level, prices were still rising so the subprime homeowner could just quickly sell.
You can see how the shrewd, smart people at the very top of the bank/lender chain figured this out. For example, Angelo Mozillo filed a report to begin selling his stock right about that time.
Not enough money was set aside for loss reserves.
But that was the 2007 story.
The 2009 story is: How much money is it going to take the banks to get rid of the toxic loans or to sell off foreclosed REO inventory, BEYOND these stress test numbers.
I have heard some estimate the losses to be in the trillions when we factor in subprime credit card losses and subprime car loan losses.
“Do you think there is a law requiring subprime lenders to set a side a “risk premium
Jillayne,
“Not enough money was set aside for loss reserves. But that was the 2007 story.”
No, that’s the continuing story. There are still many current loans paying risk premium, and that money should be shifted to the problem and used to repay the taxpayer if there is any overage beyond covering defaults.
It’s not “old news” and someone should pay more attention to what’s happening with the loans paying well in excess of the current going rate today.
In the old days we used to define it as “profit centers” at the bank. There is no shared profit, until each individual profit center covers its own losses and expenses.
Jillayne,
“Not enough money was set aside for loss reserves. But that was the 2007 story.”
No, that’s the continuing story. There are still many current loans paying risk premium, and that money should be shifted to the problem and used to repay the taxpayer if there is any overage beyond covering defaults.
It’s not “old news” and someone should pay more attention to what’s happening with the loans paying well in excess of the current going rate today.
In the old days we used to define it as “profit centers” at the bank. There is no shared profit, until each individual profit center covers its own losses and expenses.
Ardell, Roger,
It’s important to tease apart banks who hold loans in their portfolios, from wholesale (subprime and prime) lenders who were just another middleman. The Wholesale Lenders packaged up those loans and sold them to investors through the Wall Street securitization process.
BANKS have to set aside loss reserves. These rules are stipulated by their regulator, the FDIC or by the state if it’s a state chartered bank.
Wholesale lender servicers also had to set aside money to buy back the loans that went bad, out of the pool of securitized loans.
Wholesale lenders from late 2006 onward through 2008 went bankrupt one by one when buyback provisions ate up their loss reserves. Many/most of these wholesalers did not have bank charter.
Unfortunately, many consumer loan companies with a credit line like to call themselves “mortgage banks” but they are NOT banks!!
This (calling one’s company a ‘mortgage bank’) is deceptive and subject to challenge by regulators.
Ardell, Roger,
It’s important to tease apart banks who hold loans in their portfolios, from wholesale (subprime and prime) lenders who were just another middleman. The Wholesale Lenders packaged up those loans and sold them to investors through the Wall Street securitization process.
BANKS have to set aside loss reserves. These rules are stipulated by their regulator, the FDIC or by the state if it’s a state chartered bank.
Wholesale lender servicers also had to set aside money to buy back the loans that went bad, out of the pool of securitized loans.
Wholesale lenders from late 2006 onward through 2008 went bankrupt one by one when buyback provisions ate up their loss reserves. Many/most of these wholesalers did not have bank charter.
Unfortunately, many consumer loan companies with a credit line like to call themselves “mortgage banks” but they are NOT banks!!
This (calling one’s company a ‘mortgage bank’) is deceptive and subject to challenge by regulators.
Ardell, the insolvent banks will be identified tomorrow. Many more have been given TARP money.
The banks are a long ways away from being able to recapitalize on their own.
Especially when we read about defaults on 2008 vintage loans are rising.
News on the street is the Dow passed the 8,500 mark today in anticipation of the stress tests looking better than expected. I also heard that was based on “leaked” info, and not simply predictive speculation.
RE: #42
gee, look at that…..the FDIC takeover team came knocking just before closing on a friday evening at Westsound.
Sorry my original comment to this got lost.
The thing is that banks do have a duty to investors and share holders. Propping up auction prices is a part of that.
Sorry my original comment to this got lost.
The thing is that banks do have a duty to investors and share holders. Propping up auction prices is a part of that.
It is no mystery or theory to the banks actions. You are right, asset managers are hiring local real estate agents at around $50 a BPO. Usually the bank will use the 3 middle figures and averages them out. This happens to many properties in San Mateo County, CA. I have attended close to 30 days of auction there and guess around 30-40% of the homes actually sold are lower then the loan amount. Banks need to give investors incentive to buy property as they are the main purchaser of residential real estate currently and will be for the next 2+ years. Banks do not expect homes to sell for the loan amount but do not have the capacity, management to do BPO’s for all homes. If the homes don’t sell, whether BPO priced or loan amount, the listing is often given to realtors who have performed BPO’s for that company. While I would also like to see more first time home buyers getting into this thrilling business, there would be much more heartache then joy. There are too many risks if thorough research isn’t completed on each potential property. There would be many families buying a home, believing the purchase price is for the 1st loan, but is actually a second. As for keeping the bid prices quiet till day before/day of auction, the banks just don’t have the resources to handle so many auctions effectively and timely. At the auctions, the auctioneer usually waits on 90% of the properties because the banks aren’t sure whether they want to postpone or sell. It is a very uncoordinated system. My parents bought one home, signed the papers and surrendered the check, only to be called the next day to say the bankruptcy papers had been filed and the house was taken back. All and all it is a fun experience though and as lucrative as you want to make it. (There have been homes that go up 200% + from auction to mls sale).
Thanks for writing the article
Mike
Also, one practice that isn’t being acknowledged is banks are sometimes leaving foreclosed homes in the previous owners name, thus not responsible for the property. Quite disturbing.
Mike
Hey Jillayne,
It’s funny how the conspiracy theories have already popped up…”maybe it’s collusion between bank employees and investors.” It’s really not that sinister, complicated, or sexy. I have no idea why banks are lowering the opening bids so much but it really doesn’t matter. The auction I attend has about 15 “regulars” there every day, probably 15 more amateurs thinking they can steal a property without realizing that they need $300,000 or more in cashier’s checks in hand to stand a chance.
People are making A LOT of money going there. Then again, they’re taking huge risks. I’ve bought two so far and have been very happy. Then again, I have a dedicated title officer, do my own drive bys, comps, and permit searches so it’s really a full-time job to do it right. (and then the property you have in mind could get postponed, might not be reduced enough, or could sell to a higher bidder!)
There are no restrictions, it’s open to the public. If anyone in this blog is tired of seeing other people make big returns then gather your own life savings and take a shot.
Hope that sheds some light.
Hey Jillayne,
It’s funny how the conspiracy theories have already popped up…”maybe it’s collusion between bank employees and investors.” It’s really not that sinister, complicated, or sexy. I have no idea why banks are lowering the opening bids so much but it really doesn’t matter. The auction I attend has about 15 “regulars” there every day, probably 15 more amateurs thinking they can steal a property without realizing that they need $300,000 or more in cashier’s checks in hand to stand a chance.
People are making A LOT of money going there. Then again, they’re taking huge risks. I’ve bought two so far and have been very happy. Then again, I have a dedicated title officer, do my own drive bys, comps, and permit searches so it’s really a full-time job to do it right. (and then the property you have in mind could get postponed, might not be reduced enough, or could sell to a higher bidder!)
There are no restrictions, it’s open to the public. If anyone in this blog is tired of seeing other people make big returns then gather your own life savings and take a shot.
Hope that sheds some light.
It is not uncommon for the beneficiary, especially during such value regression to spark competitive interest on a property by listing it well below the OLB. Typically by doing so, there will be at least a couple of investors fighting for the property so the banks get as much as possible out of a property this way.
Now trustee drop bids can certainly be shady… although the trustee may refer to the Credit Bid Statement prepared by the Beneficiary, a determination will be put in place sometimes only 15 min before the property is expected to be blocked off, dropping the opening bid even further, sometimes only benefiting those on the inside track.
I BOUGHT THREE MONTHS AGO CONDO IN GARDENA,CALIF.I PAID$112,000.00 CASH FOR IT,BUT A MONTH AGO I FOUND NOTICE OF TRUSTEE SALE ON MY PROPERTY UNDER OLD OWNER NAME ,I GET MY MONEY BACK $112,000.00 FROM TITLE COMP.DO I STILL THE OWNER OF THIS CONDO BECAUSE I STILL HAVE THE GRANT DEED UNDER MY NAME.THE OLD OWNER DEFAULTED ON FIRST LOAN.BUT I NEW BUYER BOUGHT FROM FANNMAY ,,OBVIOUS IT IS TITLE COMP. MISTAKE BECAUSE DID NOT CLEAR THE SENIOR LOAN IN FIRST PLACE ,SO DO I STILL THE CURRENT OWNER? AND CAN I BUY BACK AS SHORT SALE ,,THANKS
Hi Fahmy,
Thanks for visiting Raincityguide.com Hearing that you have received a “Notice of Trustee Sale” is not good. Also hearing that you paid all cash is not good. Hopefully you went to a reputable escrow company. Locate all your paperwork from the cash/purchase transaction.
Find an attorney in your city that practices real estate law and pay him/her to look at all the paperwork and advise you of your legal rights. Do Not Delay!
http://www.calbar.ca.gov/
I asked this elsewhere and am looking for current information.
Does anyone attend the trustee sales on a regular basis?
At the trustee auctions, have the banks been setting minimum bids below what is owed. Looking at the Vestus website, ignoring the “sale off” properties, it seems most revert to bank. The ones that are selling to the bank are 1/3 to 3/4 of what the owed amount is.
Are there bidders for every price range? Are the investors who go and buy to flip, staying towards the lower price tiers? Are the investors bidding on $500k and up houses? Are the banks setting minimum bids lower than what is owed on those $500k or more properties?
IN our Country, The Opening Price is always the value/estimated price of the property ready for sell not the outstanding loan balance and costs of the borrower. it seems absurd to prepare for sell a property worth off 2000, making an opening price of the borrowers loan which 30000.