My first Courthouse experience...?

Question

I went to my first Courthouse Sheriff sale today. Interesting to say the least. Not much action. 3/4 of the properties either received a stay or were postponed to a later date. Maybe some of BP's pros could answer a few questions for me.

1. Why was there only 1 attorney representing most of the properties for the banks? Is it he is the most well known in the area and is funneled the business? There was a couple others but they only dealt with one case. Then they left.

2. When a property came up for auction. They would call out the actual money owed to the bank. Then bidding started at $1.00. The attorney for the bank accepted the opening bid and nobody else bid. "Sold to the bank for $1.00". Will someone please explain why the bank has to bid in the first place. They hold the mortgage already. Wouldn't it be easier if the bank could just file with the courts, take possesion of the property, proceed to REO status, and take the loss on there books for a discounted price. Is the attorney there just to make sure an investor doesn't come in and buy that property for a $1.00? Wiping out the complete amount of the loan?
Kind of like the cop who doesn't show up for his own court date. All his ticketed offenders are now innocent.

3. I wasn't able to stay for the whole auction. Not one property, at least while I was there, had a counter offer. 40 people in the room an no bidders. The question here is, if someone countered. At what point would the banks attorney bid the price up to? 
Is he required to bid up to the amount owed or does he have a stopping point at which the bank is willing to let it go at?

Am I making this more complicated than it really is?
Thanks in advance.

Steve Babiak · Answer

There is one other reason in PA that the bank instructs the attorneys to keep the bid as low as possible - something called "poundage".  Poundage is a percentage of the bid that gets paid to the sheriff for performing the sale; you can think of this as sort of like a sales commission.  Every dollar that the bank doesn't have to pay is one dollar less they have to try to recover when they sell as REO.  The bank is happy to pay the poundage when a real third party buyer wins the bid, because the bank is getting paid and does not have to take on another REO; they hate paying it when they get stuck with another REO to boot.

Chris Vasquez · Answer

Thanks Guys,
 I didn't do any research on the properties other than a quick Zillow.  I just happen to be at the courthouse last week and saw the flyers of the upcoming sale. 
Thought I'd check it out. I went to one in Miami years ago. What a nightmare. This one was like entering a Poker Tournament. Everyone sizing each other up. You had, from my read, the pros grouped together, the husband and wife teams, a couple of guys who looked like they just left the dog track and a few onlookers like me. Thanks again for answering my questions.

Steve Babiak · Answer

Chris V,

Based on where you are at, I'm guessing this was Chester County in PA.

Each county does things a bit differently, but some things are very similar if not the same all over.

To answer your question #1: There are probably lots of law firms performing the foreclosure work, but they usually do one of two things.  If it is a big firm, they will have one attorney from their firm handle all of the firm's cases at the sheriff sale.  If it is a smaller law firm, they will usually hire the bidding to a local attorney; think about the time spent travelling back and forth, paying for parking, sitting at the sale for an hour or more - this all costs money, so paying somebody else to do this (who will also be doing this for many other law firms) makes lots of sense.

As to question #2: The state laws require that this be handled in a public auction, so that is why it happens in the way you observed.  If the debtor did a deed in lieu, then it could bypass the sheriff sale and go directly to REO status - but that would require the debtor to actually do something, and it would also require that no junior liens be in place (lenders aren't stupid enough to do DIL when there are junior liens - they'd rather the junior liens get wiped out at sheriff sale instead of paying them off which they'd have to do if they took the deed).

The bank's attorney identified how high somebody would have to bid in order to outbid the bank.  When nobody is willing to bid that high, then the bank's low dollar bid wins  and this saves lots of time that would get wasted bidding back and forth below the bank's price.  Every now and then somebody will underbid the bank's number, and the bidding goes back and forth until somebody is the last bidder (usually it's the bank and below the bank's number still).

The bank's attorney will follow the bidding instructions given by the bank when it comes to how high they will go.  The seasoned buyers know ahead of time that they will have to outbid the bank, so they usually stay quiet unless they intend to bid more than the bank wants.

Chris Martin · Answer

I can answer parts of your questions from a trustee state perspective. I live in NC but our processes are similar enough.

The beneficiary of the foreclosure will want a specialty attorney service to handle the foreclosure. So banks will focus on law practices that can handle the volume and have sizable resources. For instance, in my area, a firm like Hutchens, Senter, and Britton handles hundreds of cases in Wake county alone.

I assume the $1 is the amount over the bank's opening bid. Our local custom is for the sale crier to start bids at the price determined by the beneficiary. Generally this is the amount owed on the note plus court costs, attorney filing fees, sale costs, etc. As you suspect, the bank doesn't actually "bid" per se. In NC there is no law that a bank can't bid. In fact, I have lost bids to 'banks' before. Regarding "Wouldn't it be easier if the bank could just file with the courts, take possession of the property, proceed to REO status, and take the loss on there books for a discounted price." No. There is due process for a reason. The process is necessary. Just because there are few or no bidders now doesn't reflect on past (or future) market conditions.

I have bought several properties from courthouse sales. Almost always I was the only bidder. And no, the bank attorney (actually in a trustee state, the trustee) accepts the highest and last bid above the opening bid price.  Generally if there are multiple bidders, the bidders go back and forth with escalating price at $100 or more above the prior highest bid.