Hello, I’m a newbie to the real-estate investing world and have been looking into foreclosure sales through the county clerks office (I live in Duval County, Fl). I notice that many times the Plaintiffs (banks) max bid at a foreclosure auction is pennies on the dollar vs. the judgement amount (what is owed). This raises many questions that I need to get answered.
- Why would a bank drop the amount owed?
- Is there typically an agreement that is made behind the scenes between the bank and the bidder?
Sometimes, like in the case of HOA Liens, bidders get properties for a few thousand dollars. If there is still a mortgage on the house, does the winning bidder also take over the mortgage?
Thanks for the help
Hi,
If the lender has to take back the property, they are required to keep 4 times the face value of the note in cash against the non-performing note, so on a $100k mortgage in foreclosure the lender has to hold $400k in cash plus the non-performing note (Property) until they dispose of it!
Now if a lender knows for instance the property will not meet lender requirements for conventional financing because of the extent and scope of repairs, the lender knows they are better off dumping it rather than being forced to deal with it!
Some properties are sold for less because of overall market trends or markets with high numbers of foreclosures where the lenders only choice to get them off there books is to sell them for 10%, 20%, 30% or more below FMV!
No, the buyers at the point of foreclosure auction are arms length as the bank does not physically re-own them until there are no bidders and the property reverts back to lender as an REO!
HOA liens are handled very differently state to state so this is not addressable!
No mortgage is assumable if your bidding at auction, you must have cash or financing to pay for the property according to the terms and conditions of the Auction!
GR
Banks sometimes have their obscure reasons why they do certain things at certain times :biggrin
- Banks will take less because they know it will never sell as an REO at the loan amount which is owed - also they might have too many REOs on their books and they try to liquidate on the courthouse steps. They have done their homework - BPO, appraisal, so they know if the have a gem or a ugly house to deal with.
- Let’s hope not - that would be a scam if the bidder and bank have a behind the scene agreement - scams brought the mortgage business to a collapse years ago. Hopefully we have learned a little from it :biggrin
As far as HOA … the first mortgage does not go away (unfortunately …) - the second mortgage bidder does not assume the first mortgage, but if no one pays the first mortgage (payments or pay it off), the first mortgage lender will foreclose and wipe out the second mortgage lien and the holder will be out of money and any rights to the property.
Thanks for clearing that up. To Laura: If a property is bought at auction for the price of an HOA Lien, and the lender (assuming that there is still a mortgage on the property) decides to foreclose on the property, is it common to negotiate a sale price with the bank that the bank is happy with, and also makes the investor money?