trying to understand bank's motivation for bid at auction

Foreclosures
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trying to understand bank's motivation for bid at auction

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Member since 2008 · 7 posts · 0 votes

I've heard about banks bidding at auctions - would this only be for the sole purpose of raising the bid to try to cover their lien on the property? Otherwise, I don't understand why a bank would send an agent to the auction.

For properties whose mortgages have been sold to secondary mortgage market - the bank who is managing the mortgage payments - they aren't under any obligation to try to get the house sold at a decent price or are they? At which point during the foreclosure process does the bank hand the property over to Freddie Mac, etc.?

Also - I am looking for stats on what percent of mortgages are currently sold off to the secondary mortgage market and am having trouble finding it. I guess it doesn't matter if the foreclosure process is the same up to the auction but I'm trying to get a better feel for what the bank's role/responsibility is up to this point.

Any help/direction would be much appreciated. Thanks!

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  • Jason Barnett
    Dayton, OH · Member since 2008 · 517 posts · 17 votes
    19y

    Well here are a few things to consider...

    1. Banks don't necessarily have to send someone in order to bid. Some banks will just send the "max bid" to the court and have a clerk bid up to the min amount they will accept at auction.

    2. Yes, lenders want to minimize their losses.

    3. In some cases there will be more than one lien on the property. The banks might have to cover for some of these other liens (I'm mainly thinking of tax liens here)

    4. There might be more than one lender for the property. In this situation the lender with first lien position will get his money first, so the second (or third!?!) creditor might bid up the price a little higher to minimize their loss.

    5. Some banks do not service their own loans... some banks pool mortgage interests... or sell off parts of their loan portfolio... regardless of the situation, there is SOMEONE that is a fiduciary for the property. This person will be responsible for recovering as much cash as possible for the collateral.

    6. Some loans are guaranteed against default by pseudo-governmental agencies. If a bank is unable to sell the property to cover their loss then the agency will reimburse the bank and then try to sell the property themselves.

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    OP
    Member since 2008 · 7 posts · 0 votes
    19y

    Thanks for posting your response. I am trying to get a decent handle on what happens (or at least on one tiny part I can focus on at any one time)!

    For the life of me I couldn't understand why a bank would bother to bid on the property they're going to get anyways. It sounds like it's easier for the bank to get their max money this way rather than sitting placidly by during the auction time and then trying to go after the homeower for any additional monies owed over the sale price.

    Thanks again for taking the time to respond to my question. I appreciate it!

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  • Jason Barnett
    Dayton, OH · Member since 2008 · 517 posts · 17 votes
    19y

    But that's just the thing... banks cannot go after home owners in some states. That's called a "deficiency judgment". So it is always in their best interests to increase the sale price of a property. When they bid at auction they aren't trying to win... they don't want to win... but they will win if they aren't offered a dollar amount that will satisfy the loss mit department.

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  • Jim Gordon
    Residential Real Estate Agent · OH · Member since 2008 · 553 posts · 24 votes
    19y

    In some areas the lender is required to bid the judgement amount of the forclosure proceeding. In Ohio that is called the remedy amount and no matter what the minimum bid is on the Sheriffs site you have to bid at least the remedy amount to beat the bank.

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    Tyler, TX · Member since 2008 · 69 posts · 0 votes
    19y

    I know here in Colorado, the banks will typically bid the amount due on the loan, just out of practice because it is easier to tie the numbers together between what they "in theory" bid for the property and what they are"in theory" owed on the property.

    The reality is they can take any amount under that they want and still be paid in full because in Colorado, the person that defaultsa on a mortgage note is by default judgement liable for any deficiency the bank incurs through the foreclosure process. I have heard of asset management companies going as far as attaching wages and performing till taps through the local law enforcement agencies to recover the deficient amounts.

    So "in theory" the lender is always going to recover 100% of what is owed in Colorado..."in theory."

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