I am interested in a property that is scheduled for auction at the end of the month. This would be for us to actually live in. I?m trying to determine the probable opening bid price to see if we can even afford to bid. However, even after analyzing trends of past sales by this particular lender (Ocwen), I cannot see a consistent pattern between loan values, property values and the actual starting price.
I have a couple questions about starting bid price:
- How is the published bid determined? When I called the trustee, they claimed that the price was not announced and wouldn?t be until the day before auction. If this is true, where did the published price come from?
- What are the most important factors in predicting starting bid price? Is it more dependent on the loan value, property value or published bid?
- Do lenders vary the starting bid prices by geographic location or do they go only based on numbers and %?s? Meaning: will they likely increase the starting bid in ?hotter? areas even if the loan value is very low?
- Is there a way to look up public NTS records to actually see the documents?
- Do you have any general rules of thumb to recommend to predict opening prices? We are looking to decide soon if its even worth getting the cash together to go to auction.
Thanks for any help you can offer!
The published bid is the amount owed on the foreclosing loan (principle, past due interest, foreclosure fees) at the time the Notice of Trustee Sale is recorded. Keep in mind that interest and fees continue to accrue.
The lender gets to set the first bid which is oftentimes called the opening bid or drop bid. The lender can add the additional interest and fees to the published bid or they can substantially discount the opening bid to a much lower amount and sometimes more in line with the current value.
In CA the lender is under no legal obligation to announce the opening bid in advance of the sale. Sometimes you will see the opening bid days before and other times you will hear the opening bid for the first time when the sale starts.
We wish we could tell you that there are some predictive calculations to determine the opening bid. This is what drives auction investors crazy and keeps them up at night. There is no way of knowing if the lender will discount the opening bid or determine how much they will discount. A lender could be servicing the loan for an investor and their could be other entities like mortgage insurance companies involved. If you consider that BofA services loans for over 500 different investors then you can see that there is no real way of determining the opening bid until it is officially announced.
We have a great video on what happens at a trustee sale.
- Published bid is the full debt owed on the loan as reported by the lender on the date the notice of trustee (NTS) is published
- Very opaque w many variable factors. Some of these factors are objective and some subjective. Lenders’ asset managers pricing formulas are not for public consumption and are often changed. Such factors likely include:
* Current market value of property - oft via a broker’s price opinion or other formula.
* Projected loss/gain if property is taken back (REO) @ full debt bid
* Lending institution’s market forecast
* Lending institution’s balance sheet
* Lending institution’s current REO portfolio (shadow inventory)
* Memo of the week from the lending institution’s CFO to asset managers - quantity and $ value they can take bank-owned this month.
* Implementation of legislation (e.g. Jan 1, 2013 in CA)
* Disposition of homeowner - e.g. Abandoned the property? Not communicating w lender? Attempting to sale & on MLS at reasonable value? Short sale price approved? 5th time they’ve had NODs/NTSs filed/cured = foreclosure roulette?. Sent 15 letters to lender threatening litigation?, Suing lender or mort broker? etc.
- I’m sure geographic location plays a factor. If an area is inundated w distressed property, then bids will have to be lower to entice 3rd party investors. And the opposite (higher bids or full debt) in regions w low foreclosures and strong demand.
- You can view the full NTS down at the recorder’s office. You can also commonly find publication of the NTS just using Google search. Put the owner’s name in quotation marks “Joe Y. Sixpack” + Notice of Trustee Sale, then hit search. If that doesn’t work try the address in quotation marks + Notice of Trustee Sale. Good chance you’ll find the full NTS via a newspaper’s online publication. Look in the NTS text and you’ll also find the published bid $ amount.
- While lenders clearly have their rationale for opening bid amounts, sometimes it seems, to steps investors, to defy all logic. And that can be a good thing!
You will find that *some* lenders in certain regions, will choose to engage in high/low bidding, whereby they instruct the trustee to post an enticingly low opening bid and then the lender will “credit bid” though the auctioneer. Some criers (auctioneers) will “up front” (thank you) clue in the assembled investors as to the “high” amount … thereby saving everyone the time/pain of an often pointless bidding process (is there any equity remaining above the lender’s predetermined high $ amt?). I am personally not a big fan of the high/low credit bid game, as I often drive a long distance to attend auctions and conduct research, and what a waste if it just a game (super low *phantom* bid) to get investors to attend.
Thanks idannyb. You rock as usual! Always happy to see your posts!!
There is at least one legit reason I can think of for a low bid - there was a case 15 years or more ago (Safeco Ins.?) where the Appeals Ct. said the lender couldn’t claim a loss on a fire because their loan was satisfied by the full (credit) bid made at the sale. I don’t know if that case was ever overturned.
Also, it prevents a Trustor or junior lender from claiming the lender was claiming too much money.
It doesn’t waste time if the auctioneer tips off the bidders as to the high bid.
Hi Miket … I think I’m following … In the specific “fire loss” case you’re referencing, the lender posted the full debt bid at a trustee sale, which was far more than the property’s actual worth due to extensive fire damage. And the insurer then claimed that they did not have to pay damages since the lender “valued” the property @ full debt by virtue of the opening bid posted?
On a different but related path … I often wondered about the tax treatment lending institutions might benefit from by posting a low opening bid (sometimes stupidly low – e.g. $100 dollars for a property worth $500K) and then making sure the auctioneer informs everyone up front that the lender will credit bid up to $480K). When the assembled investors hear the end game amount ($480) and quickly determine it’s too skinny to bother, no one bothers to qualify/bid and it goes back to the bank at $100. It seems to me that the bank/lender might be able to show a greater loss on that loan or perhaps a great profit on a subsequent REO sale?
In one such “stupid low opening bid” (wherein auctioneer pre-disclosed high credit bid $ amount), I went ahead and qualified (showed checks) and bid an amount that I was willing to pay … well above the $100 opening bid but also well below the lender’s now disclosed (thanks to auctioneer) high amount. Due to my bid, the auctioneer (credit bidding for the lender) had to officially go higher before taking the property back. I’m not sure my bid accomplished anything noble or just wasted a bit of time? Anyone know how lenders might benefit by taking a property back at a stupid low bid amount?
I am also interested in how the winning bid amount affects the bank’s accounting. I am trying to figure out whether there is a difference between the bank taking back a property with an opening bid of $100 (not challenged) vs. taking back a property with a winning bid of $300k (it was bid up a bit but does not reach beneficiary minimum of $350k).
In the “olden days” savings and loans (remember those?) and banks had to immediately write down potential losses when loans became 60 or 90 days delinquent - and not wait until they took them back at foreclosure. The fact they don’t have to show the full loss until the property is sold may account for the fact that banks don’t bother even starting the fcl. process for years and sit on the properties when they do take them back.
As I understand it, now, they don’t have to take the major hit until they sell the property. At the end, there should be no diff. as far as the amount of loss that is taken.
Thanks, that makes sense. Doesn’t matter what the bid amount is if it goes back to the bank. The REO sale is what they use for the writeoff