How does the bidding process work in CA for trustee auctions at the courthouse steps?


#1

What happens if the starting bid price which is what is owed on the home is so high that no one bids on it, will it come back for sale at a lowered price or how would you go about bidding on it? Why is the bidding price the full amount of what is owed if that is how the process works??


#2

Hi Susan,
The bank gets to set the first bid which is the opening bid. They can bid as high as what is currently owed on the foreclosing loan or they can substantially discount the opening bid. If no one bids above the bank then the property will become bank owned (REO). The bank will they sell the property through normal channels usually by hiring a local agent to list and sell the property.
We have a great video on buying properties at trustee sale. Go to http://www.foreclosuretruth.com/blog/sean/video-foreclosure-auction-guide/


#3

Hi Michelle maybe im asking my question improperly if for example, at auction at the courthouse there is an opening bid of $400,000 which they say is owed on the home if however the open market price for that home is really $250,000 why is the opening bid so high? And if no one bids on it for that amount what happens to that home do they put that property back on auction at a later date or lower the price what happens? Bc today I did go to the auction and thats what I saw.


#4

Hi Susan, The lender can set the opening bid regardless of the current value. There are a variety of reasons they may do this. There may be mortgage insurance or an investor may not be willing to discount the property. If no one bids above the bank then the property becomes bank owned. It does not go back through the sale. The bank would then own the property and then sell the property through regular channels. There is no way of knowing why one lender would substantially discount the opening bid and why another would set the bid at the max amount owed on the foreclosing loan. A high percentage of the properties that go to sale go back to the bank because the opening bids are not low enough to attract an investor.


#5

Michelle is right. There is a rhyme/reason why the lender sets the opening bid at their “chosen” level … but you’d have to be a fly on the wall inside the bank’s foreclosure unit to know why one property is put up at full debt owed (full debt bid) while another might be substantially discounted. I have my own theories re lenders’ pricing motivations and tactics but it’s a complex mix of ever-changing variables. One safe bet is if there’s ample equity after the “full debt” would be paid on the foreclosing loan (more common if there are open 2nd and 3rd loans pushing the homeowner underwater), then it’s likely that the foreclosing lender will opt for a full debt bid, as the lender has no motive to discount … if no one (3rd party) takes the property at full debt then it becomes an REO and quite possibly with equity for the bank.

It is not always the case that the property automatically becomes bank-owned if no one (3rd party investors gathered at the steps) chooses to bid (e.g. “a penny more” than the opening bid). On a number of occasions I have seen the lender choose to postpone the auction to a future date if there were no takers at the opening bid price. In such cases the auctioneer will announce the postponement right there (after “going for the third and final time”). This is not common. As Michelle noted, in the majority of cases, if no one chooses to bid, after the “third and final” … the property becomes bank-owned (REO). But … some lenders simply do not want to own the property and will “test the waters” with their opening bid and if no one bites, they will automatically postpone versus exercise their REO option. This “postpone if one one bids” tactic is rare … I’d guesstimate in less than 5% of steps sales. But it is an option for lenders.