[quote author="alan" date=1209035033][quote author="EvaLSeraphim" date=1209029791][quote author="alan" date=1209022871]I'm saying what IR reports in all the blogs about REO's. When the bank files NOD on the loan and goes to court to recover the asset (property) the court follows with an auction of the property to repay the bank. Since the bank is the only bidder, no money changes hands, so it is a sham transaction from the bank's perspective. As long as no one bids against the bank, which is most of the time now in these cases, the bank gets the asset (home) back. So the bank can bid whatever it wants, even just $1.
See, sham transaction, no money changes hands and there is only one party, the bank at the court.
In a real transactions, there have to be two parties, a buyer and seller and money and assets have to trade hands.
I thought everyone here understood this concept.</blockquote>
Well . . . not really.
When the Jones family buys a home and gets a mortgage to purchase the home, the Jones take title to the home, but the bank puts a lien on the property to secure the loan. (The mortgage is a secured loan versus something like a credit card, which is typically an unsecured loan.) As part of lending the money, the bank negotiates certain rights (like requiring the Jones to have and maintain fire insurance, among other things). One of those rights is the option for the bank to take ownership of the property in lieu of nonrepayment of the loan. In other words, the bank has rights regarding, but not ownership of, the property. When people refer to "renting from the bank" or some similar phrase, that is not a legally accurate characterization of the status of ownership.
Fast forward . . . For various and sundry reasons, the Jones don't make their April mortgage payment, and none of the payments thereafter. The bank sends (or "serves") copies of various documents as the foreclosure process unfolds. One of these documents will be the Notice of Trustee's Sale (assuming this is a nonjudicial foreclosure - and most are). The NTS will notify the Jones and the public of the time and place of the sale and the amount due the bank (unpaid principal and interest, penalties, etc.).
At the auction, if no one bids the opening amount, then the auction ends with title passing to the bank in exchange for extinguishing the lien. While no money changes hands when there is no bid, no money has to. The bank got the benefit of its bargain on the loan (although not the one it wanted). It's not a sham transaction because it was open to the public.
What Graph has noted lately is that banks are setting the opening bid amount significantly below what they are owed in an effort to not take the property into their own portfolio. The bank would love to <em>not</em> take the property back, but no one else is stepping up to buy these properties even at the "discounted" amount. So it is very telling that no one is picking these up at the foreclosure sales.</blockquote>
Yes no one is bidding so the "auction" price doesn't equal the market price. One would presume that the current market price is lower; however, trustee auctions may not match buyers and sellers because only a limited number of potential buyers ever have access to trustee auctions. I bought a property at a trustee action in 94 but I stumbled onto this property a few weeks before the auction only by sheer luck. It is still a sham transaction and a transaction that doesn't establish a true market value of the asset. If the bank had only bid $1 and there were no other bidders would you say the value was $1. I think not. My point is that trustee sales do not establish a current market value nor due they establish a comp. For all you know the bank also had a reserve price that was higher than the initial bid and if you had gone and bid more the bank would have bid you up to their unpublished reserve.</blockquote>
<blockquote>There is no pre-auction marketing, no pre-auction inspections and very few buyers aware of these auctions; therefore my point that these auctions fail to establish true market value.</blockquote>
Well... it is no longer 1994, and in 2008 people have several choices of where to find notice trustee sale info. There are 5 sites that I know of, and posted about, that provide this information for free. Then you have the pay sites like realtytrac, foreclosure.com, foreclosures.com, foreclosureradar.com, etc., which all have been quoted in several news articles, including the OCR and LA Times. If you are not aware of the trustee auctions, you have your head in the sand or just can't read. Hell, if you are here at this site you have enough info to find out about the auctions.
There are plenty of people going to the court house auctions. In fact, the day I went with Matt Padilla of the OCR, there were about 50 or so people there. There were people there willing to bid too, if the price is right. I would say about 10-20 homes a month are actually bought at the foreclosure auction. It isn't due to lack of people or lack of cash, it is purely a price issue. These homes are being discounted up to 50% of what is owed to the lender, if people with cashiers checks in hand are not bidding for these homes, then that is the market value. Sorry, but it is, because when the bank lists the property they list it very close to the auction price, or they end up lowering to that price, and some are now listed at prices below what the bank took them back for.
Banks do sometimes have a minimum bid of $1 for the home, and the reason no one bids is because they know the home has some sort of big issue. How do they know this? They inspect the home, and do their homework on the title history. Anyone can easily do this, and do it in very little time, especially if they had a specific area and type of home. Is it worth only a $1? Yes, because the cost to fix WTF is wrong will cost more than what the home is "worth". You wouldn't bid up a home to $400k if it meant you had to tear it down and build another one that costs $450k to build, and now the home is "worth" only $400k or even worth $700k.
BTW, the bank is never at the auction, and what the minimum bid is, is exactly that. Never have I ever seen, or heard of the bank being there to bid up the price, ever. That statement is totally ridiculous.