Is it better to buy a pre-foreclosure on the courthouse steps for the remaining value of the note - or- later after the home is posted again on the MLS, this time under bank ownership?
Is there an advantage of one over the other? On an bank owned sale, wouldn’t the bank still be trying to recoup it’s outstanding loan amount only this time there would be realtor commissions and closing costs tacked on?
Thanks.
Hi,
A lender will try to limit losses and sell closer to FMV during the Notice of Default period to try to save the lender from losing any more than they need to.
At the time of a sale at the courthouse steps assuming that there were no exceptable short sale offers and the property is set for auction, the lender will take more loss at the court house and may offer to sell the property to the highest bidder even though the offer is below the amount of the note and below FMV for more than say 20% just because it is easier and cheaper to dump the property.
Now when the lender has to take the property back and make it an REO, the lender must hold 4 times the amount of the note in cash reserve plus the non-performing property note until they dispose of the property. Now if were talking say a $100k original note, then the lender is holding $400k in cash reserve against the $100k non-performing property for a total of $400k + $100k that the lender is not recieving income against.
The lender is most motivated to sell now, and although they wanted 85% of FMV as a short sale, and would have excepted 79 or 80 cents on the dollar of FMV at the foreclosure auction, they would now be happy to take 70 or 75 cents on the dollar of FMV for the REO just to get it off the books and free up the cash reserve required for lenders to hold on non performing properties.
As an REO they are happy to pay the realtor fee’s and cost’s just to move the property. You see the loss limits change when they have to start holding 4 times the loan amount as a cash reserve after a foreclosure. And they always have to pay the sellers closing cost’s reguardless of when in the process they sell.
Good luck,
GR
Gold River,
If I’m understanding the process, the courthouse auction is the only way the bank to legally transfer ownership of the property from the borrower back to themselves. I get that part. In this case for the upcoming auction they have placed an opening bid of $49k. It sounds like you are suggesting I can still bid lower than the opening bid there on the courthouse steps. Is that the case?
From what I witnessed at the last couthouse steps auction, the folks doing the “auctioneering” were substitute Trustees likely not authorized to make any decisions other than the opening bid amount. Should I be contacting the lender now before it hits the courthouse steps?? If so, is there a best practice way of determining how much lower I might go without insulting the lender?
Thanks again for your insights.
Anyone else have an opinion or any first hand experience?
From what I see, it varies from state to state on foreclosure sales at courthouse. Most counties in Florida do it online now and the banks is buying about 99% of them in major counties. in fact my friend was bidding online for a home, he went to 200K, the bank won at $215K, then listed it for 190K. Loan was for $370K on home. It seems to be hard to beat the bank on good homes in my area.
Hi bldfw
I would start by saying that foreclosures are governed differently depending on which state it is in. There are 2 main types of foreclosure 1 being a non-judicial foreclosure in which the lender must give the proper notices and after the states required waiting periods, then they can complete the foreclosure at the auction.
The 2nd type of foreclosure is a judicial foreclosure in which the lender must file a suit against the borrowers to complete the foreclosure. Each state has its own rules as far if a redemption by the borrowers is allowed and if so, when does it apply and how many months after the auction can the borrowers then redeme the property if they pay all arrearages and fees.
The last thing that comes in to play, not for you, but for the borrowers is if that state allows a deficiency judgement?
To start learning something, use this website
Dont forget that just because you have an idea what the lender wants for the property, that doesnt mean thats the only lien against the property that you may have to pay.
More to say…guess I’m long winded.
One issue that you run into trying to buy at auction is that you dont get to view the property unless you can convince the borrower and than can get dicey at times. You must also have a cashiers check for the total amount at the auction. Lastly if your planning on pulling cash back out via a loan, you will be required to wait between 6-12 months before most all lenders will allow cash out.
If that doesnt deter you from buying at auction, then you should call the company handling the foreclosure auction a few days before the sale date and they will give you the minimum opening bid on the property. They will not accept bids lower than that.
I hope this helps you understand the process better, but I highly suggest that you attend several auctions regardless if your buying or not, ask questions and learn. Good Luck
Rastusracing,
Thanks for the info. I’ve been reading this forum and others voraciously to get up to speed.
The Texas property I’m interested is listed for an upcoming courthouse steps auction with a posted opening bid. A substitute trustee will place a bid on behalf of the lender. I’m just trying to ascertain if it’s possible the substitute trustee will accept a lower bid or if they are required to bid the “opening Bid” amount in which case the amount is way more than the property is worth and thus bidding at the courthouse would be impractical.
If there’s the slightest chance the trustee can accept lower bids, then it would be worth it to show up at the auction (it will be anyway just to see if anyone bids) and have my cashier checks in hand.
I have been to many many auctions and in my oppinion, at least from my experience the answer is no, the trustee wont be able to accept less than the opening bid required by the lender. I wouldnt however just take my word for it, you never know, especially these days. Lenders are struggling to keep their alligators off their butts, better known as the FDIC come a closing them down on a Friday only to have them sold and reopened on a Monday as New Name bank…that doesnt currently have alligator problems.
My best advice to you is show up with cashiers check in hand, and make an offer and dont let it go over the limit you set yourself. You will very quickly findout if the trustee has the ability to accept your offer or not…hell it cost you nothing but time…now thats cheap compared to most things these days.
Good Luck