i’m noticing that homes are being sold for less than the amount owed at the sheriff auctions. i thought the bank/mortgage company bids up to what is owed to them.
am i wrong? if not, are the lenders just taking whatever money they can get at these sales?
Typically they bid them at 2/3 of appraised value. Unless someone is bidding against the lender, the bidding stops. Occasionally, the bank won’t bid it in at all(Usually a very low-end property under 25K). However, must of the time they will continue increasing their bid if a private bidder is bidding against them. They won’t quit increasing their bid until they have reached a number that is pre-determined to be an acceptable amount(Sometimes that is what is owed, somethime not). Remember, this is moving from paper to an asset on their balance sheet so to the bank it really is seamless when they re-acquire the house at sheriff sale. It simply allows them to get control so they can then liquidate it as a REO.
Brockovich - actually I don’t think it is as seamless as you stated… I believe that any bank would likely let someone else take the property for less than it is owed if they believe they will not be able to sell if for more later. For example, let’s assume a property with a mortgage of $200k that is worth $150k. If anyone bids on this property the bank will probably measure the pros and cons of outbidding that person. Let’s say that someone bid $140k on the property. I don’t think the bank would increase its bid because it would probably not be able to net the same $140k later if the property is sold as a REO. Just my 2 cents…
j1dias,
I have to applaud that you have come to this conclusion. I would have to say that you did answer the closest.
ryanpal,
So this is what happens. Sometimes the investor (the institution that the lender is protecting) will preemptively give bidding instructions that are subject to current market conditions and their needs to make X amount of dollars on the sheets. They will usually get two BPO’s completed, average out the values and multiply by some derivative. At sale they will send what is referred to in the industry as a “silent bidder” on the banks behalf who bids up until a predetermined amount usually based on that previously discussed number or the amount that is owed. If the BPO derivative is higher they go for what is owed as anything made at sale past what is owed (including fees and costs) would go back to the homeowner. If the BPO derivative is lower then the bank will only want to bid up until what the home is valued at or slightly less. I used to work for the largest lender in the US. This is what I have seen in practice thousands of times. As we all know though every case is different.
Hope this answered your questions.
If you have any questions please feel free to message me.
Regards,
thanks for the replies guys ;]