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Here’s how home foreclosure sales really work Question: Thank you for your Nov. 29th article, “Advice if you’re trying to swoop in on a foreclosure deal.” It was very interesting and shed some light on what’s going on in the real estate market. However, I still don’t understand something. You stated, “At the foreclosure auction, the lender holding the first mortgage makes an opening bid equal to the total amount it is owed.” This is exactly what I’ve heard over and over. But what if the market value is below this amount and no one else bids? So many houses were purchased with close to 100 percent mortgages that this scenario must happen a lot. What would a bank gain by bidding an amount higher than the actual market value? Is this just a formality to take over the title? When (and how) does the house get resold at a real market price?Answer: I understand your confusion. You are correct when you say that many homes are worth less now than the first mortgage balance owed on the property, not to mention any second mortgages on the home. That’s why I said in my previous column that finding a real bargain in the foreclosure market is not as easy as some of the get-rich-quick guys would have you believe. Here’s how the process works: When a homeowner stops making the mortgage payments, within a couple of months the lender sends a notice of default to the borrower. If the payments are not brought up to date within 30 days, the lender records a notice of trustee sale. It is called a trustee sale because in this state we do not really finance property with a mortgage, we use a legal document called a deed of trust. The advantage of the deed of trust is that the lender does not have to go to court to foreclose as it would with a mortgage. Under the deed of trust, a third party called a trustee is appointed to handle the sale of the property. The trustee is responsible for advertising the sale, delivering all the required notices and literally selling the property at auction on the courthouse steps. After the sale notice is recorded, the borrower has up to 11 days before the trustee sale to bring the payments up to date and cover all of the accumulated legal fees and other costs incurred by the trustee. This is called the reinstatement period. In most cases, that is exactly what happens. The homeowner is able to prevent the trustee sale by coming up with the money somehow or selling the property before it goes to auction. When a home is sold for less than the mortgage balance, that is called a short sale. To complete one, the bank must agree to accept less money at closing than the full balance. This happens quite often because the bank is likely to net more money from a short sale than it would if they took title to the house at a foreclosure auction and re-sold it. The problem is that due to the huge backlog of short-sale requests, it can take several months for a bank to make a decision. If the homeowners cannot complete a short sale before the foreclosure auction, the lender automatically bids the amount owed at the auction. This is just a formality, the lender doesn’t actually put up any money. It gets credit for the amount owed by the former owners. If somebody else offers more than what’s owed, the bidder gets the property and the lender is paid off in full. But in many cases, there are no bidders at the auction because the house is underwater and there is no equity left. In that case, the home becomes a bank-owned property. Banks fix up the houses, if necessary, and then market them through real estate agents just like any other home seller. Sometimes you can get a “steal of a deal,” but bank-owned homes typically sell for about the same price as similar homes in the neighborhood, depending on the desirability and location of the particular home. Don’t expect banks to “give away” the homes they are selling. They are trying to recover as much of their lost loan revenue as possible so they try to get the highest sales price possible — just like any other home seller. Mail your real estate questions to Steve Tytler, The Herald, P.O. Box, Everett, WA 98206, or e-mail him at economy@heraldnet.com. |
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COMMENTS
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In many States forclosure auctions can get wild. The Pro's can do well. What has been common in many States is called "drop bids" Yes this is illegal, so is driving 65 in a 55, but this is still happening, on a regular basis.
Prices on some foreclosure homes are being dropped below the opening bid just hours or even minutes before the auction. Buyers aware of the "drop bids" scoop up the houses before other bidders know about the price drops. Is this illegal, you bet. Do the pro's come out ahead,you bet.
Lenders would rather cut prices than continue to carry the foreclosed homes on their books, observers say. Why lenders would drop prices at the last minute, instead of posting a lower opening bid the day before as required by law, is unclear.
Amatures beware.
Phillip Day | Dec 6, 2009 4:13 pm | 2 replies | Request removal
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People can be really unsophisticated when it comes to mortgages and banks. After all who would get one of those mortgages to begin with? Anyway. Banks do NOT like to reveal their losses. Even banks with hundreds of losses. Even banks closed by the FDIC will only show a couple of foreclosures on their old websites.
Not only that. Everyone. Look, I mean even the smartest have overlooked the fact that to big to fail banks and their subsidiaries (they have more than you can count). Swoop in and buy these banks before they default and go to the FDIC. The bank death toll isn't in the hundreds let me put it like that. In the case of "too big to fail" or "Electronically create more than they can spend". Chase may own say Bank of Chicago or Countrywide may own National City or used to anyway. The subsidiary list is big and growing.
You may also read about option arms or commercial loans. Mostly these are articles about banks fishing for bailout money. Option arms don't reset all at once. They occur at different times. True there was a boom. Commercial except for the small stuff to mid sized. Is mostly owned outright. With the Largest player just shifting their assets around. Assets bought mostly bought with your money. I would rather eat tree bark. Than bail out that which is mostly owned outright. Guised as part of a pandemic situation. Large Commercial. Just isn't failing. You have to ask yourself why?
If I didn't have to pay for the bailout money twice. I guess I would be ok with all of this.
Rolly991 Smith | Dec 08, 2009 6:31 am | Request removal
People can be really unsophisticated when it comes to mortgages and banks. After all who would get one of those mortgages to begin with? Anyway. Banks do NOT like to reveal their losses. Even banks with hundreds of losses. Even banks closed by the FDIC will only show a couple of foreclosures on their old websites.
Not only that. Everyone. Look, I mean even the smartest have overlooked the fact that to big to fail banks and their subsidiaries (they have more than you can count). Swoop in and buy these banks before they default and go to the FDIC. The bank death toll isn't in the hundreds let me put it like that. In the case of "too big to fail" or "Electronically create more than they can spend". Chase may own say Bank of Chicago or Countrywide may own National City or used to anyway. The subsidiary list is big and growing.
You may also read about option arms or commercial loans. Mostly these are articles about banks fishing for bailout money. Option arms don't reset all at once. They occur at different times. True there was a boom. Commercial except for the small stuff to mid sized. Is mostly owned outright. With the Largest player just shifting their assets around. Assets bought mostly bought with your money. I would rather eat tree bark. Than bail out that which is mostly owned outright. Guised as part of a pandemic situation. Large Commercial. Just isn't failing. You have to ask yourself why?
If I didn't have to pay for the bailout money twice. I guess I would be ok with all of this.
Rolly991 Smith | Dec 08, 2009 6:32 am | Request removal
a friend of mine offered $27,000 to a Bank foreclosed property in Lake Stevens. He never thought he would get it. They approved it & his loan, despite fact other homes in area sold for almost $100,000 at time.
Keep in mind, intersest rates were sky high at time, some people were paying 18% for a mortgage, 27 years ago. "My friend" was no different, paying $425/mo for his $27,000 bid. He sold it 7 years later at a huge profit.
THOSE days are gone. In fact they ended FOR GOOD during the last real estate crash of 2007.
As the baby boomers die, year by year, there simply are not enough of us to buy what they own. Over the last generation, baby boomers have made it perfectly clear our wages are lower than theirs. How then... can we buy their 401K plans? How can we buy their homes when we make 1/3rd of what they do? How can we pay for their Medicare, Social Security, when we make 1/3 of what they do?
WHO is going to pay for this when YOUR generation sent us a value to never raise taxes?
Only another manufacturing "Miracle" will save this region, & that seems unlikely ---considering you already scared Boeing away from any "future".
Great job Dad. Thanks for the future.
cme everett | Dec 6, 2009 7:37 am | 1 replies | Request removal
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Actually we are enjoying the lowest tax rates in history. Flipping homes for profit can still be done, many regions of the country offer great bargins. Houses for 50-70k and flip for 20k profit.
The Stock Markets are more active than in your "dad's" generation, and have made big gains, providing "huge" opportunity for investment growth, with much more to come.
The world is much smaller allowing everyone the opportunity to invest or do business much easier in other countries, not possible for your "dads" generation.
My glass is half full, and yours is empty, it's all how you look at things.
Phillip Day | Dec 06, 2009 4:52 pm | Request removal