Question for anyone watching foreclosure auctions closely:

[Stacy Noble]

I am a lead manager for a couple of real estate investment companies. Both companies purchase foreclosure properties, so I spend a lot of time looking at foreclosure data, auction results, opening bids, balances, and post-auction opportunities.

A trend I am noticing that feels pretty new for our regions is banks drastically discounting the amount at auction.

It has happened in the past, but within the last few months we are seeing a pretty noticeable increase. In some cases, the amount owed is much higher than the opening bid or final auction amount. It is happening enough that I have a team member pulling a full-year analysis so I can prove to myself that I am not imagining it.

Is anyone else seeing this trend?

And for those of you who understand the bank/lender side better than I do, what do you think is causing it?

My working theory is that some lenders may be trying to avoid taking back more REO inventory, especially on properties where the asset may need work, has title/occupancy issues, or does not fit cleanly into their resale process. Instead of bidding close to the full debt and ending up with the property, they may be discounting the opening bid to encourage a third-party buyer at auction and move the asset off their books faster.

I am also wondering if this could be tied to internal risk, servicing pressure, carrying costs, insurance, taxes, property condition, or a general shift in how certain lenders are handling distressed assets.

I am not saying this is definitely what is happening — it is just the theory I keep coming back to based on what we are seeing.

Curious if anyone else is seeing the same thing in their market, and if so, what explanation makes the most sense to you?

[Jay Hinrichs]

its the indication of price compression on the values compared to when they made the loan.

Also keep in mind if there is mortgage insurance banks will bid higher if no mortgage insurance and they do not want inventory they will drop the opening bid. 

Its internal controls for them.. you also have drop bids that then have step bids.. IE they are owed 400k show an opening bid of 200k and the second someone bids at 200k they bid up to 350k first bid.. Just never know.  

I have also seen the opposite for the opening bid was 300k and when they cry the sale the cryer opens the sale at 200k and no one has checks for it and it reverts.