Lender relists for profit in Texas. Can he keep the profit?

Question

Lender is high bidder at auction and bids minimum bid so no money is
owed to Borrower. Lender then lists the property for sale w/ a real
estate agent and property sells at a profit over the original auction
bid. Can the lender keep the profit or does he have to refund that
profit back to the original borrower?

Mac Bradley · Answer

Thanks...

Greg E · Answer

all cash -    The migration of a loan to REO does not magically convert an asset to a liability.  Consider the simple case of a bank.  Depositors deposit funds into their savings accounts.  Those funds represent a liability to the bank (they owe the money to the depositors).  The bank in turn lends the money out in the form of a mortgage.  That is an asset.  The loan defaults, the bank forecloses and the property is now owned by the bank as REO.  It is still an asset and the corresponding liabilities (deposits) are still in place.

Frank Adams · Answer

The answer to mac66's question is contained in the post regarding the "google" search.

Think this through. Why would the lender bid more than the note balance?

Put yourself in the lender's position, they're standing on the courthouse steps, holding a debt for a $100K. Even if the property is worth $130K (very unlikely as it would've probably sold already in that case), the lender can get the property just by bidding the $100K, they would NEVER bid more!!!

If a third party, with CASH bid anything more the bank would ACCEPT IT. Of course there are legal fees and other things to chew up part of that supposed profit.

Remember, we look on a property as an ASSET, but to a lender they are a LIABILITY. The loans are their assets, ending up with the property moves that from one side of the other of the ledger.

all cash

Scott Weaner · Answer

Conversely, if the lender then sold the property at a loss, they would not expect the previous owner to make up the difference.

Mac Bradley · Answer

But I am having some confusions because I got this answer during my search on google:

Q: What happens if the lender bids more than the note balance and is the highest bidder?
A: The lender has to pay the excess to the foreclosure trustee who then distributes it to the former owner if there are no other liens that have to be paid.

Please clear my doubts.
Thanks

Jim Gordon · Answer

Mac66 -- You are talking about two different things.

1 At the forclosure sale any amount over the judgement is due the   person forclosed on.

2 After the forclosure sale the new owner can do with the property as they wish as they are now the owner and are not responsible to any previous owners.

Jon Holdman · Answer

Yes, that is correct.  The buyer of the property at the sale, whether the lender or someone else, now owns the property and can do whatever they want with it.  If they sell it, they get the profit, if there is any.

In reality, the lender does not want to buy the property.  They will attend the auction and bid exactly the amount they are owed.  This is to protect their interest in the property.  If that's a good deal, other people will bid the price up higher.  The lender will get their money and the owner will get the excess.  If nobody else bids, the lender is stuck with the property, and the owner gets nothing.

Now, the lender has to dispose of it.  Even if they sell it for 10-15% more than the auction price, they won't even get back the money they were owed.  That's because of the expense of holding the property and selling it.  They pay the same costs to sell all the rest of us pay.  And, that doesn't count the costs of the foreclosure itself.  and, the lender may well end up selling it for less than they paid at the auction.

From the way you state the questions, you were the previous owner or were close to the previous owner.  The property is no longer yours.  You have no interest in it at all.  You have no claim against the purchaser at the auction, whether that's the lender or someone else.  Its too late for you to do anything about this situation. Move on.

Jon

Mac Bradley · Answer

Ohio Realtor...
You mean to say ones the lender got the ownership of the property (as he is the only highest bidder) after foreclosure then he can sell it at any price as he would like and make the profit for his own without paying for the previous owner.
Am I right?

Frank Adams · Answer

The lender bid the "loan amount" at the "trustee's sale", not a foreclosure. In fact the average cost, nationwide of a "foreclosure" is around $70K to the lender. The last trustee's sale that I had performed for me (I'm a lender in TX) cost me about $1200 or so, plus my lost interest, late charges and my fix-up and reselling costs (another $12K).

My attorney cuts me a pretty tight fee for handling these for me, more than I could do it myself for, less than the bank's attorney (generally a brother in law deal) charges them. IIRC a "white shoe attorney" acquaintance of mine told me their usual (on the legal part) fee for handling a trustee's sale is closer to $5K, and the borrower is generally 5+ month behind before they even receive the paperwork!

all cash

Jon Holdman · Answer

The lender bought it at the auction.  The property now belongs to the lender.  The previous owner is no longer in the picture at all.  Any profit on the sale goes to the lender.  In reality, there's not likely to be any profit.  The lender probably had a whole range of costs associated with the foreclosure.  There will be costs to sell.

Think of it this way.  If Joe Schmoe buys the property at auction, then sells it for a profit, would you expect Joe to give the profit to the previous owner?

If there's a profit to be made, the previous owner should sell the property themselves before the sale.

Jon