Losses Outside of Irvine

[alan_IHB]

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.

 

[EvaLSeraphim_IHB]

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.

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 not 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.

 

[awgee_IHB]

Thanks for a great explanation Eva.

Alan, I think much of the point is that no one bid higher than the banks opening bid of $743,000. To me, that is telling. No interested party cares to bid more than $743,000 on a property that sold for $1,195,000 less than two years ago. CalGal and I are both interested in properties of this size is this neighborhood and neither of us bid. And there are probably others who are interested in a property such as this in Coto. But, no bids. What does that tell you?

 

[EvaLSeraphim_IHB]

Hey Skek, I just noticed you got your condo. Congrats!!

 

[skek_IHB]

.

 

[alan_IHB]

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.

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 not 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.

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.

 

[awgee_IHB]

"only a limited number of potential buyers ever have access to trustee auctions."

I have not actually been to an courthouse step auction yet, but Graphrix has and from what he tells me, there are always potential buyers at the courthouse step auctions, and the NTS notices are available to anybody who can read a newspaper or click a mouse. It is my understanding that there are always sharks at these auctions ready to purchase any property which is selling for less than market value.

Graph, are you there? Do you care to weigh in on this?

 

[CalGal_IHB]

Awgee, I was talking to hubby last night about 1 Tanglewood. He reminded me that when it sold back in 2006 that it was on the market for 1 million. When we watched it sell to somebody else we were curious as to why it would sell for $1,195,000 when it was only on the market for 1,000,000 (bidding wars weren't happening at that time). We asked our realtor and she said that they probably bought it for $1,000,000 but she thought they had the selling agent write it up for $1,195,000. I'm assuming it would look like they gave the sellers a downpayment of $1,195,000 thus helping them get a mortgage. I'm not sure how that all worked - but I'm sure it's illegal somehow.

Our realtor had one house listed and she had a buyer come in and propose the same deal to her. She refused to play that game and artificially inflate the price; and those buyers bought a different house. That house has since been foreclosed on as well.

 

[acpme_IHB]

ahhh, the good ol' "auctions are not comps" argument. what is current mkt value? whatever someone is willing to pay for it regardless of whether they bought it from auction, off craigslist, or through your trusty neighborhood realtor.

if the $1000 watch you're trying to hock on ebay sells for $50, guess what -- it's worth $50. it's not worth more because ebay didn't give your auction more prominent placement or because you posted the auction on a weekday when people are busy at work. but that's not fair? sorry, that's what it's worth.

 

[alan_IHB]

ahhh, the good ol' "auctions are not comps" argument. what is current mkt value? whatever someone is willing to pay for it

But no-one did pay for it. That's my point. The bank took it back. There was only one player in the auction, the bank. You have to have two players to establish a market. The bank could have taken it back for $1.

While there may be some bottom feeders at these auctions, they are not well publicized and marketed like eBay, people can't preview the listing for say 4-6 weeks, research comps, have the property inspected, etc. so these court auctions are not in the same league as eBay in terms of matching potential buyers with sellers.

If we had a true home auction company which the banks could turn their properties over to, say alanhomeauctions.com, and alanhomeauctions set a an auction date, say 1st Sunday of the month, advertise the properties up for auction, qualify buyers and have pre-auction viewing dates available for qualified bidders, then I would say you had a fair auction.

 

[acpme_IHB]

you're missing the big point. no one paid for it because no one wants it! if you really think banks can take back homes for $1 and someone, even if only a handful of people actually show up to an auction, wouldn't gobble it up, then you clearly don't believe in how free mkts work. *thinking back on the whole healthcare debate in the other thread.... hrrrrrmm....*

now we've heard it all -- lower property values are the fault of bitter renters who want to crash the mkt, portable basketball hoops... and not enough advertising for auctions! it's why you see listings with triple digit DOMs. "but, but but... why did my million dollar home for only sell for $743k?? how come no one wants?" maybe because it's NOT worth a million bucks, and apparently not even $743k. IMPOSSIBLE! it must be someone else's fault because these homes ARE worth what i think they're worth.

if only they had a better website, all these americans with buttloads of cash and good credit are just waiting, aching... with burning, itching, intense pants-on-fire desire to buy a home -- and no where are there any homes to be found!!! no deals, no listings, no reduced prices, no nothing! the ONLY hope is maybe they can find some auctions to attend, but alas, where are the auctions??? please help them! for petessake, IHB, you SELFISH SELFISH bastards. you have all the knowledge. you know where the auctions are! so why won't you just tell them where to go?! just tell them PLEASE so these people know where to spend this all their excess cash!

 

[alan_IHB]

you're missing the big point. no one paid for it because no one wants it!

I guess we will have to disagree. You are missing the point that these auctions are not the same as auctions run by ebay, Christies or any cattle/pork bellies auction. 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.

Your comments that the asset being auction (home in this case) having a true market value below what the bank took it back for is most likely valid. You don't need to rant on and on.

In order to establish a fair market value you have to set up a market that matches buyers and sellers first. Court auctions aren't set up to do this, so you can't put any weight on the value the bank sets when it takes the property back.

I think we are just arguing about the nuisances of economic theory.

 

[acpme_IHB]

prev comment was intended to be sarcastic not a ballistic rant. anywho....

In order to establish a fair market value you have to set up a market that matches buyers and sellers first. Court auctions aren't set up to do this, so you can't put any weight on the value the bank sets when it takes the property back.

irrelevant. you're saying a market requires buyers and sellers to come together. but if there's no buyers, then clearly the market is structured unfairly and preventing buyers from accessing it. but the housing bubble didn't burst because lack of buyer access, let alone poor marketing. if you expect a ton of people to show up for these auctions, than that overlooks why there are so many homes up for auction to begin with. they go to auction because no one is willing to buy them, period. not 10-20-30-60-90-180 days on the market. not with several price reductions. not after both the homeowner, lender, and bank have jumped through a dozen hoops.

the economic truth which has been pointed out earlier is the banks don't want those homes to begin with. even for a buck, the bank isnt happy about owning a home they've already overpaid for once, and they're not in the property mgmt business to begin with. there's no scam. and if there were really opportunities out there to be found, buyers would find a way. actually if you stay up late enough, there's ridiculous get-rich-on-real-estate-auctions infomercials on every other channel. people know its a bad housing mkt out there and homes are going into foreclosure.

the whole mentality of blame is what bothers me. on the upswing no one ever seems to think about why things are because as long as everyone makes money, they shut up. lottery system, who gets in line first by camping out before for a phase release, builders arbitrarily raising prices by X each release -- none of that exactly establishes true market value. only on the slide down, then all of a sudden there's a whole slew of explanations (excuses) for lower values, bad comps, and slow sales which are apparently undermining true market value.

 

[No_Such_Reality_IHB]

If we had a true home auction company which the banks could turn their properties over to, say alanhomeauctions.com, and alanhomeauctions set a an auction date, say 1st Sunday of the month, advertise the properties up for auction, qualify buyers and have pre-auction viewing dates available for qualified bidders, then I would say you had a fair auction.

REDC is that you? Oh wait, you said qualify the buyers. Sheeesh why do that, unqualified buyers will bid of the price on everybody else increasing the profit margin. Add some shills too to spur bidding.

Alan, your idea is already done. They aren't doing much better, between the secret reserves, unqualified buyers and shills, many of the properties still don't sell. For the ones that do, the prices are still punishingly low. That is in an auction that is still grossly weighted to the advantage of the seller.

 

[alan_IHB]

I never considered REDC a fair auction, I think of it as a marketing gimic put out by the sellers marketed to the public as a fair auction.

 

[No_Such_Reality_IHB]

Exactly Alan, look how bad they do even though everybody under the sun knows the low low low starting bids, financing is available, and what not and they still get punished on the pricing.

If a fair auction, with no reserves, available financing for anybody with a FICO above 600 and 10% down was around, the prices, IMHO, would be truely frightening for how low they would be.

 

[Axiom_IHB]

I would have assumed Dove Canyon would be holding up better than this. My bad.

But it is... at least that's what a Coto/Dove realtor told me just last weekend.

Better buy now, we've already bottomed and prices are not going to drop anymore in this area... it's special you know.

Hmm let's see, REO's at 29, 35, and 41 Muirfield.

1, 32, and 34 Muirfield all on the market as well.

(haven't researched status on any of them)

Plus the one I liked on that street... pulled for now.

From what I understand because the seller was tired of dealing with unrealistic low ball offers and no way was he going to sell for less than the house was worth, so he's waiting for the market to turn around.

Any bets on how that's going to work out for him?

And that's just one street!

 

[graphrix_IHB]

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.

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 not 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.

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.

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.

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.

 

[awgee_IHB]

If there is anybody who thinks the properties at courthouse auction sell for less than true market value, why aren't those folks buying at the auction and then turning around and selling the properties for "true market value"?

 

[alan_IHB]

Just because you can't find a buyer at a trustee auction doesn't mean that with adequate time and marketing a buyer couldn't be found.

Look... I need a new employee. I post adds in the help wanted.. maybe I have to advertise for 3-4 months and interview 30 people before I find the person I want. You just can't expect to spend no time, no money and find the right person in a week.

Look how long some stores have to keep inventory before it moves, you think the china hutch sells after 1 day or a car only sits on a dealers lot for a week on average before a buyer willing to pay the sellers price arrives.

Last week the most expensive home in Anaheim Hills ever sold for asking price, and it spent 1 year on the market.

I just don't see how you can compare a trustee auction to a normal market. There isn't enough time before the sale to adequately market the property to all potential buyers and the marketing done if any is minimal. The buyer pool isn't the same. I'll bet it's the same 50 people at every trustee auction you go to. They probably can form their own club.