WAY O/T - banks Foreclosures

I'm in Ohio. The foreclosure process here is that the bank gets a judgment, court orders a sheriff's sale, it's appraised (for True Market Value - TMV), and is then offered for sheriff auction starting at 2/3 of appraised value. If the bank does not want to sell it, they keep bidding it up, and the bank thereby forecloses, and thus owns the property.

I'm in this game. We bought a 4bdrm house 3 years ago at 72% of appraised value. Good enuf deal.

But things have big-time changed. This month out of 20 or so foreclosures, about half a dozen were bought back by the bank at MORE THAN THE APPRAISED VALUE. This means at the auction, there was a real third-party buyer bidding it up, but the bank kept on bidding so that they ended up as owner.

Why? Why does the bank want it back? The answer can't be to sell it at a profit, 'cause the next to the last bid (from a third-party buyer) would have accomplished that.

I'm suspicious that the bank gets some bailout - insurance settlement - something - if they become the owner through foreclosure. Can anybody share what is happening behind the scenes here that is making the foreclosure auction process a sham to give the banks a clear title????

Simple. The bank wants to recover their loan value.

There is no conspiricy.

Dean

I've been there. All that I have watched here go like this. At the sale the bank bids it in at their mortgage owed plus all expenses they have, like phone calls and lawyer fees. Very first bid, No bidding at all Then they sit on it, One I tried to buy owed 82,000 bank bid and took possesion at 148,000. Then it sat 2 years until they listed it with a realtor. Needless to say there are many empty, foreclosed houses here. I think the bank carries the empty house on their asset list at the bid value--makes their paper work look good.
BTW, if you win bid, you need cash or bank draft for full amount within an hour or so of sale.

They want to keep those houses off the market, thereby preserving the value of other homes going into foreclosure. They're gambling that the market will recover and they'll get their money back when they eventually do sell them.

I've checked the judgment amounts. The sale price is WWAaaaayyyyyy over the amount owed on the mortgage, plus interest, plus court fees.

Other costs are involved.

The bank is in business in order to make money as are you.

Aside from a VERY few exceptions, there is no conspiricy.

Dean

When I worked for the Farm Credit system in the early '80's farm debacle, we always bid the amount owed, plus fees and costs, rather than what we thought it was actually worth. Reason- If you took the loss on the loan (by bidding in the property at actual value), it impaired your capital and could drive you into bankruptcy. If you bid in the amount of the loan, and later took the loss on "sale of acquired property", it did not have that effect.

But as to why they would bid substantially MORE than the loan, that's a mystery. We haven't seen that around here. I can't imagine they want a big inventory of houses laying around, deteriorating. Nobody I know is predicting a big turnaround in values, in the forseeable future.

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I have looked here at some foreclosures. What I see is loan amounts higher than market value. The banks bid the loan amount plus other costs. Then they sell it. Sometimes they have to take losses, but usually not.

I bought some property that was foreclosed just as you described. The bank bought it at the sheriffs sale for what they had in it. I then purchased it from the bank over a year later when they listed it with a realtor at a price they would basically come out whole on, i.e. not lose anything. They had few offers at that price. I started out low and each time they would counter and we finally got to a point where I said "Final offer" which was still at a substantial discount to what they had in it (i.e. what they had bid at the auction). The bank wasn't thrilled but they told the realtor they didn't want to take a chance they would sit on it another year. My estimate is they lost about 40% on the property after fees, etc. This was a few years back. In today's market, there are some great deals written (from the buyer's perspective) but there are a lot of banks who just can't take the hit on their books if they sold ALL of their properties at distress prices.

My point is that I don't think there is a hard-and-fast rule for bank held real estate transactions today. The Detroit Free Press has been running a series on Freddie Mac's & Fannie Mae's role in the foreclosure process. Interesting reading but kind of one-sided, IMO.

Conspiracy? I doubt it. Banks are trying to maximize their return (or minimize their losses) on ALL parts of their operations and I'm sure this is what drives their decision making.

The filed judgments may not be ALL of the mortgages against the property. I have seen some home foreclosure sales around here that there where actually three different loans on the property. They only have to foreclose on one to regain the property. Some of the fees are based on the judgment amount.

It is a public sale if you want it you are free to bid it over what they are willing to go. As far as worrying about how the paperwork and tax issues are on the banks side. I have much better things to worry about that that. Most of these house are not worth what was loaned against them. They where bringing low dollars at the foreclosure sales. Some of the banks are buying them and selling them with financing to new buyer at much higher than auction price. That is just good business. These new buyers maybe out of the normal market now that the loan requirements are higher.

While I've been out of the business for a number of years now, like the others here, I don't know of any reason a Bank would bid substantially over the amount owed on their mortgage + fees etc.
Since it doesn't seem to make sense, you have to try to figure out under what circumstances it WOULD make sense...
Off the top of my head, the only thing that comes up is if these mtgs are enmeshed in the securitization mess, where the foreclosure title is in question---if so, the Bank may not want to risk not being able to get title ins. on a bank sale, or have to hold harmless the title co.
But, even so, it would seem the Bank woild only have to outbid by the legally acceptable raise in bid, not a "substantial" overbid...Curious...