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  #1  
Old 04-15-2009, 09:07 AM
skx172 skx172 is offline
 
Join Date: Mar 2008
State: New York
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Default Why do mortgagees (banks) often buy the homes they are foclosing on?

I have noticed that banks have a tendency to be the highest bidders in foreclosure auctions they initiate. Also it appears that their bid is correlated with the outstanding mortgage amount. Can anyone shed some light as to why this occurs?

In other words the banks are not in the business of owning real estate and they eventually sell the homes that they own (REO), what scene do they see in buying a home at a foreclosure auction then incurring more transaction costs to sell it again?
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Old 04-15-2009, 09:21 AM
Randolph Kinney Randolph Kinney is offline
 
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Quote:
Originally Posted by skx172 View Post
I have noticed that banks have a tendency to be the highest bidders in foreclosure auctions they initiate. Also it appears that their bid is correlated with the outstanding mortgage amount. Can anyone shed some light as to why this occurs?

In other words the banks are not in the business of owning real estate and they eventually sell the homes that they own (REO), what scene do they see in buying a home at a foreclosure auction then incurring more transaction costs to sell it again?
As part of the foreclosure process, a notice of trustee sale is served. This is an auction open to the public to bid on buying the foreclosed property.

The bank enters what is known as a default bid - the mortgage amount plus whatever expenses involved with the foreclosure process. If anyone bids higher than the default bid, they get the property.

The bank is forced to enter a bid sufficient to cover the amount that is owed to it as a matter of protection of the claim.
  #3  
Old 04-15-2009, 09:39 AM
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Greg Bell Greg Bell is offline
 
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Correct..The Bank will put up the property with back payments and all the mickey mouse fees and hope some chump will bite.If no bids the property reverts to the first lender and all seconds are wiped out (Except the IRS).Banks can offer a price below what is owed but usually do not because they want to make sure any attached mortgages will be wiped out.Second mortgages can forclose also as long as they bring the first mortgage current.
  #4  
Old 04-15-2009, 10:06 AM
JoeGermade JoeGermade is offline
 
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If you are referring to the banks names on all the radius searches in NY this is because when the deed is transferred back to the bank it appears to be a sale.

I have been doing tons of review work where appraisers are using these transfers to get the numbers.

This is typically the deed transferring ownership from the person to the mortgage holder for the balance of the loan. THIS IS NOT A SALE OR AUCTION!
  #5  
Old 04-15-2009, 10:20 AM
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David R. Stevenson David R. Stevenson is offline
 
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Default Its the only legal remedy

I bought one once and bid against a bank at an auction at the court house steps .....

.... this was back in the mid 90's in Naples, FL ......

...the bank just wanted their money ..... the primary loan ..... along with legal fees and back interest ...

.... it made since for the bank to let me have the winning bid $1 over the amount they wanted to satisfy them ...

... other lein holders ... like second mortgages were out of luck .....

.... the other lein holders did not bother to show up .......

.... I bought the house for $54,000 and got a mortgage on it 6 weeks later based on an appraisal of $70,000 ....

... those were the days when banking and real estate and individuals had jobs where income was not based on phoney economies, phoney commissions and phoney leaders .....

... although we were headed that way ..... pre-dot.com crashworld ....
  #6  
Old 04-15-2009, 10:22 AM
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nauthead nauthead is offline
 
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Actually the bank will bid as high as the mortgage amount and no higher. Their hope is to bid the beginning amount of $100. In my state, the higher the sale amount the higher the taxes on the sale. They would prefer that someone out-bid them and then they get paid off and don't have to take the property. The savy reps for the bank annouce before the bidding starts what their high bid will be. The attempt is to discourage people from bidding up the amount and then dropping out, thus driving up the doc stamps on the purchase. When people bid up the price and drop out it makes matters worse for the borrowers who are losing the house because the bank will add the cost of the additional doc stamps to the deficiency judgement (assuming there is no equity in the home).
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  #7  
Old 04-15-2009, 10:31 AM
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hglenbetts hglenbetts is offline
 
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Originally Posted by nauthead View Post
Actually the bank will bid as high as the mortgage amount and no higher. Their hope is to bid the beginning amount of $100. In my state, the higher the sale amount the higher the taxes on the sale. They would prefer that someone out-bid them and then they get paid off and don't have to take the property. The savy reps for the bank annouce before the bidding starts what their high bid will be. The attempt is to discourage people from bidding up the amount and then dropping out, thus driving up the doc stamps on the purchase. When people bid up the price and drop out it makes matters worse for the borrowers who are losing the house because the bank will add the cost of the additional doc stamps to the deficiency judgement (assuming there is no equity in the home).
This true now, but I can remember when there were only a few foreclosures a year, and with values growing 10+% annually, bank and buyers would often over bid the redemption amount (mortgage plus bank costs).

Something new we're seeing here in Michigan, the banks are submitting minimum bids based on current wholesale market value (REO value). This is ofter as much as half (or less) of the actual redemption amount.
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  #8  
Old 04-15-2009, 11:41 AM
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Riick Riick is offline
 
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Quote:
Originally Posted by hglenbetts View Post
....Something new we're seeing here in Michigan, the banks are submitting minimum bids based on current wholesale market value (REO value). This is ofter as much as half (or less) of the actual redemption amount.
So then what happens if yoiu bid $1 over that.
(a) Any Junior liens still outstanding and need to be paid.
(b) Unpaid taxes still due?
(c) Any mechanic's liens still good?
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  #9  
Old 04-15-2009, 12:23 PM
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Lloyd Bonafide Lloyd Bonafide is offline
 
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Sometimes they won't even put their bid as high as the mortgage amount. If the current property value is $200,000 less than the total mortgage amount owed, sometimes they will only bid around that amount, or even a little less than the current value, hoping that some idiot will bid a little higher.

I have seen multiple cases this year, where the bank bid less than the current value, and way, way less than the mortgage amount, a private party outbid the bank, then immediately resold the property at a profit. The bank must have gotten an especially crappy BPO for that property.
  #10  
Old 04-15-2009, 12:42 PM
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DTB DTB is offline
 
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Quote:
Originally Posted by Lloyd Bonafide View Post

I have seen multiple cases this year, where the bank bid less than the current value, and way, way less than the mortgage amount, a private party outbid the bank, then immediately resold the property at a profit. The bank must have gotten an especially crappy BPO for that property.
The true business calling of a professional appraiser. God bless BPOs.
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