Foreclosure auction

25 Replies

i am participating in a county foreclosure auction. one of the property being auctioned is a lien type foreclosure. My question is if i win this bid, will the mortgage get transferred to me, if there is one.

I would like to ask the same question, whether the mortgage will be transferred to the buyer if instead of being a lien foreclosure, it would be mortgage foreclosure.

your answers are much appreciated.

thanks

The mortgage will become the winners problem, but it will not be transferred. The winner will need to pay off any senior liens in order to prevent them from foreclosing.

Thanks Jon for your reply. I don't quite get what you mean, that the mortgage will be the winner's problems yet it will not be transferred.

i tried to call you, i hope thats ok.

What Jon meant is that the bank with that mortgage will not automatically "transfer" (allow the new owner to assume) that existing mortgage. Yet because the lien from that mortgage attaches to the real estate, the new owner (or winner as you called it) will have to see to it that the bank with the mortgage gets paid - otherwise, that bank is allowed to foreclose on this new owner (who won't feel like as big a winner then).

Joe -
Please don't take this the wrong way, but you should not be participating at this auction if you don't already know the answers to the questions you're asking. I'm guessing that there are a lot of other questions that you probably have - or don't yet have - because you're probably not ready to buy at auction.

I STRONGLY urge you to stop, take some time to get more educated about buying at auction, and what you're going to do once that happens.

Do you have a business plan to map your path through this first deal that you're chasing?

I don't want to hear stories about how you got hurt financially because you weren't prepared for what you're about to do. I hope you'll slow down, start reading the site, and start asking questions before your in too deep.

Im at a real keyboard now, so I can give a more complete answer. Steve clarified the situation, so, let me give an example.

Say the house has a $100K mortgage and a $10K lien. The lien is junior to the mortgage. This sounds like you situation, Joe. The lienholder gets tired of waiting for his money and files a foreclosure. The property goes to auction and someone wins the auction, say for $1000. That winner now owns the property (notwithstanding any redemption periods or upset periods.)

However, the bank that has that $100K mortgage still has a security interest in the house. They are within their rights to immediately start foreclosure proceedings because the due-on-sale clause in their mortgage has been violated. If this second foreclosure goes to auction then whoever wins that auction (or the bank if no body bids) gets possession of the house. So, even though the winner of the first auction got possession, they do not have a good claim on the property, and have no way to prevent the winner of the second auction from taking the house.

So, when would it make sense to buy the house at the first auction? Well, say its worth $150K. You'll probably have to pay more than $1000 to win the first auction (maybe even more than the $10,000 that's owed), but it you can win that auction for, say, $10,000, then even if you have to turn around and pay the first mortgage holder the $100K they're owned, you've bought a $150K house for $110K.

When would it NOT make sense to win the first auction. If the house is worth less than $100K plus whatever you have to pay at the lien auction. If the house is worth $90K, and you pay $1000 to win that lien auction, you have just thrown away $1000. The first mortgage holder will file foreclosure and, unless you're willing to pay too much, take back the house. Maybe you get lucky, and they start the bidding at some lower opening bid. But then you HAVE to bid and win if you want the house.

Winning the auction for that lien gives you very little leverage. You might as well wait for the auction for the first mortgage, or approach the first lien holder for a short sale.

I STRONGLY agree with Josh. The trustee sale is a place for VERY SEASONED investors. You could lose a lot of money if you make a mistake and that is not hard to do.

Thanks a lot guys for all the answers. Josh, i do agree with you, you are absolutely right. I actually registered in the auction (its an online auction) to see what's going on and to learn. However when you see great deals passing by, the greedy nature wants you to jump in. I am realizing everyday, that there is just sooo much to learn.

Any advices on where to go to learn more about foreclosure auctions?

Originally posted by Joe J:

Any advices on where to go to learn more about foreclosure auctions?

I am not sure if you have ever heard of this website Biggerpockets.com. Check it out, I have only heard super great things about it.
:mrgreen:

Joe - Great deals will always come and go . . . preparing yourself is the key to being a real estate investor vs. someone who thought they could make a quick buck and got screwed trying.

This a great testament to this site. The fact that people will jump in and offer to help guide one's path is something you don't find everyday in this world.

Steve,
Once again, thank you for the links.

Ray

thanks Steve for the links, i guess i got homework to do tonight :).
I just registered for this site yesterday and already proved to be a great site, nice job Josh.

Thanks, Joe! Make sure you get your profile filled in, a personal photo up, and start getting to the reading! Also, be sure to help spread the word and let others know about BP!

I concur with Josh's advice (and others). Get educated FIRST, then pull the trigger. You find the right place to do both here at BP Nation. Spread the word.

I cannot agree more with the advice everyone has given you here. Do not delve into trustee sales without knowing what you are doing.

The situation at auctions isn't as rosy as it seems with bid rigging and fraud openly taking place. Luckily some of these guys are going down with the recent FBI stings in Stockton CA::

http://sacramento.fbi.gov/dojpressrel/pressrel10/sc041610.htm

I'm hoping they clean house and make it a fair playing field for everyone involved. I'd love to hear from other BP members who have experience and are aware of the realities in auctions.

Nice link. But I don't think you understand exactly what the bid rigging did.

The bid rigging as described only hurt the bank and the defaulted borrower (and possibly gov't on transfer taxes and other fees). Any other buyer could have competed against this character and outbid him; the rest of his group seemed to stay out of the public bidding - and thus prices were kept artificially LOW. So, the way they carried this out, there was really nothing too unfair toward other bidders IMO.

I always like to have as few people bidding as possible, to keep my auction purchase prices LOW. Best for me when I'm the ONLY bidder (other than the lienholder).

Many property auctions tend to be "sketchy" especially with many websites that advertise foreclosure auctions. In a time such as this people try to prey on popular trends or sometimes out and out greed. If you're going to do foreclosure auctions learn all you can from the wonderful people here! Then try your county auctions, in person if possible. These are generally held at county buildings and are much more legitimate than online auctions.

The foreclosure auctions i want to participate in are online auctions for the three main areas in Florida. Orange, Miami and Broward Counties. Anyone familiar with the laws of these counties can shed some light as far as to what happens to the mortgage when i am the highest bidder of a property in the case of:
- tax deed sale
- lien foreclosure
- bank foreclosure

Originally posted by Khizer Hayat:
...

The situation at auctions isn't as rosy as it seems with bid rigging and fraud openly taking place. Luckily some of these guys are going down with the recent FBI stings in Stockton CA::

http://sacramento.fbi.gov/dojpressrel/pressrel10/sc041610.htm

...

Here's another bid rigging story:
http://www.nationalmortgagenews.com/dailybriefing/bid-rigging-foreclosures-1030829-1.html

What kind of auction is this? In Michigan, if someone doesn't pay their property taxes, the county auctions off the property. All mortgages become void because the tax lien automatically becomes the first lien. If this is a tax auction, there shouldn't be a mortgage lien depending on the rules of your state and/or county.

Good luck.

Steve,

I read several of your links. Thanks. I was interested in the bid rigging ones, so forgive me if this should be posted elsewhere. In the two cases you posted, the conspirators stopped bidding then held a private auction among themselves.

I've been to courthouse auctions where one investor will pay another investor to not bid it up any higher. The paying investor then wins the property and moves on. No additional private auction. This seemed odd to me at first, but it appears to be a common practice. Are you familiar with this? Thoughts?

@Clint Dorris - bid rigging or collusion is against the rules. Does that stop bid rigging from happening? Driving a car above the speed limit is also against the rules; does that stop speeding from happening?

Now, with public bidding, there is nothing to stop somebody new (or an outsider) from bidding against the folks who are in collusion ...

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