winning bid at auction below min bid price
How does this happen? Min. bid price indicated in docs/publications indicate 142K, but a bank won it for 126K (not sure if it was the same bank that foreclosed or not). If you are the only one at an auction can you offer less than min? I wasn't there, just trying to figure out how this happens. I was under the impression that the min. bid was the min. bid or the bank would take it back. Any insight would be appreciated!
Why the Bene Cost is lower than posted "Opening bid"...
The loan amount or "total debts" amount on the data you buy from a notice of trustee's sale data company (or from a free list) will list the TOTAL debts. This may include Juniors, 2nds/3rds, Seniors, etc. Any junior loans will drop off at time of sale. Example: Total Debts $140,000 The subject loan (one being foreclosed on) is $120,000 and the 2nd or Junior loan is $20,000 and will drop off at sale (assuming it IS junior).
Also the "Opening Bid Amount" is sometimes based on the original loan amount (which may have been paid down). If it is based on what is currently owed, it will include about $1000 of additional fees (what the trustee sales firm charges the Beneficiary for executing the sale).
Thirdly, oftentimes the Bene will "discount" the sale, having an opening bid amount of a few thousand less than what's actually owed. This can be because: #1 The property isn't worth much more than the amount owed, and the Bene doesn't want to carry a non-performing asset on their books, so they discount it to dump it. Notice that this happens to ones that "revert to bene" (stuff that no one bids on because it's crap). or #2 the Bene knows the property is wrecked, and doesn't want the time/costs of fixing it and holding it as an REO. These are only 2 reasons, there are more possibilities.
There's good money to be made (if you're careful and REALLY research and view the property and all loans/liens) in the one's that nobody wants. I see them go back to the Bene all the time because no one wants to haul out to remote areas (So Cal Deserts) to do the work. (just one example) I've been watching one bidder that just goes for the ones that no one bids on, buys them for 1 penny over asking price, and flips them for a modest profit. ($10K instead of $30K). BUT, THIS GUY DOES SO MANY that he makes as much as the big boys do on their few.
Hope this helps.
Buy it, fix it, sell it.... PROFIT! Good Luck.
-Ken Fleming
**Please See My Profile**
Mako Investments LLC
Thanks, that was very helpful! I appreciate your insight!
Mako
Is this really the norm in GA. Junior loan dropping at auction sale.
Ex. 45000 first 23000 second. At time of auction the 23000 falls off and the min bid should be 45000 is this correct
I'm not sure about GA, I was being specific to the So Cal market. However that is usually the norm. The juniors drop off, some tax liens will drop off. Fed Tax stuff will NOT drop off, and you have to give (wait) 120 days for the IRS to reclaim or walk away from the property, then you get to work. If they reclaim it, you get your cash back, but no holding costs.
In my experience, All Juniors drop off (in my state) at time of sale. If it didn't drop it wasn't junior. That's where the research comes in, actually beating feet to the recorder and actually viewing the deeds and encumberances recorded against the property.
I had one recently where the wife (since divorced) had a lien against her for a car she wasn't paying on. She WAS NOT listed on the ex husbands' deed for the prop, but she listed it as her address. Well, it showed up as a lien recorded against the property... but it dropped at time of sale. A quick call to my title company verified this before the sale and I felt confident when I viewed the lien on paper. Hope this helps. Sorry I was gone for a month. -MakoShark
At the courthouse sales in my area of the country, the plaintiff's representative (a local lawyer) is often a veteran of these auction sales.
The plaintiff's representative will often start the bidding at a low price to encourage competition. For example at this month's auction, for a property in which I was interested, the opening bid from the plaintiff's attorney was $2500. After spirited bidding, I dropped out after bidding $50,500 (my limit). The plaintiff's representative won the auction with a bid of $60K. The lender's lien was $63,456.
In this instance, the bank won the auction with a bid that was less than what was needed to satisfy their lien. The bank was prepared to bid the full amount of their lien anyway; it just so happened that the rest of us dropped out of the bidding before it got that high.
So, to answer your question, my opinion is that the lender at your auction just won the bid for less than the amount needed to clear their lien plus foreclosure costs. If the bidding had gone higher than their costs, the bank would have dropped out.