I am trying to purchase a home to own. The auction that I attended was in El Cajon today, 11-01520-DS-CA. After verifying that the opening bid was going to be $703000 on the trustee’s website I prepared to offer more. Immediately prior to my auction and after all but three other observers (in this auction) had left I qualified at $718,000. The camera was turned off. The auction began by the auctioneer saying the opening bid was $708,750 and the bank was going to protect the bid to $850,000!
How can the auctioneer announce a second bank bid prior to my first bid? Am I to expect that the bank will continue to bid until my funds are exhausted?
The listing real estate agent told me he had an offer of $850,000 but the bank wanted $875,000! Crazy but the San Diego MLS listing # is 120010773!
Can someone help me understand the process?
Bob
Hi Bob,
Lenders (beneficiaries) are allowed to post any opening bid they choose at or below the full debt they are owed. In most cases the lender is prepared to accept any bid over that opening bid amount, and if the bid is below the full debt owned they hope that there will be some competitive bidding action which will help them to recover some of the losses on that loan. On other occasions, the lender will post an enticingly low opening bid (e.g. $703,000) and then instruct the auctioneer to “credit bid” on their behalf to a predetermined amount (e.g. $850,000). The beneficiary, whose loan is going to auction (trustee sale), is the only party allowed to bid through the auctioneer and they can only bid up to the full debt they are owed. This is sometimes referred to as a “low/high” bid. Some auctioneers/auction cos will let the assembled investors know what high bid (at the time of auction) will be … and that was apparently the case today in El Cajon. Most investors appreciate when this “heads up” is provided as they can quickly determine whether there is any point to engaging in any bidding action as the high bid may eliminate any profit potential. I do know several investors who make a point of qualifying and bidding regardless of whether they intend to out bid the high amount. They do this because they don’t want to let the bank take a property back at an artificially low price (i.e. the opening bid) hence they will bid right up to the point (but still below) where the bank set the high bid. I don’t know enough about bank accounting shenanigans to know whether this accomplishes any noble objective?
Based on my anecdotal experience (in my region), I would estimate about 20% of the time you will see a low/high credit bid scenario at trustee sales, wherein the lender will “bid you up” to their predetermined $ amount. However, if you attend and Auction.com trustee sale, you will see low/high bidding or alternatively “full debt” bid in virtually every case. They always play games to get you in the door – posting an enticingly low “phantom” opening bid … and then bid you up.
Other lien-holders can also show up at a trustee sale to protect their position, but they must bring cash/checks and bid in person (or send a rep) like everyone else.
Thanks for your comments. In this case there was no representative except the auctioneer and I don’t have any question about the banks having one bid after the initial opening bid but really can the auctioneer continue to bid until you have exhausted all your funds when they are not present. We both agree with the Auction.com behaviors but they are dealing with a different audience and different laws apply.
Hi Bob … I am not sure I am fully understanding your question.
Most likely what happened today in El Cajon was the auctioneer let everyone know that this was going to be a low/high credit bid … opening @$703K and he (lender) would go to $850K … my guess (I was not there so I need your help) is that everyone shrugged their shoulders and balked at participating in the bid (since $850K might wipe out the profit) and the auctioneer then announced the opening bid “I’ve been authorized to place an opening bid on behalf of the beneficiary @ $703,000 are their any further bids? Going once… going twice… third and final … I now pronounce the property sold back to the beneficiary at the opening bid”
You would only have to tender your cashiers checks if you win the bid. So if the lender opens at $703,000 and you bid 703,100 … the lender (through the auctioneer) would counter bid you higher. Sometimes the lender will instruct the auctioneer to move up by $100 increments and some lenders will “get to the point” more quickly (e.g. $5,000 increments). But bid you up the lender will until they have reached their “high bid.” In the sale today, the auctioneer wanted to save everyone the time and pain of the most likely pointless (profitless) bid by letting all assembled investors know that he (the beneficiary) would go up to $850,000. So unless you brought and bid $850,001, you would never have to tender your checks, as you would lose the bidding to the beneficiary who was predetermined to go up to $850,000. Again, the lender (beneficiary) is the only entity allowed to bid through the auctioneer … all other parties must be there in person with cash/cashiers checks.
Re Auction.com… they do both REO auctions (which they are more well known for) and also trustee sales … so they must follow CA Code when they do trustee sales, but they are also notorious for posting low phantom bids at trustee sales (albeit so authorized by the lenders) then then doing the low/high “bid you up” game.
I understand, finally. I was not aware that the lender had the option of having the auctioneer make multiple bids on a property at a trustee sale. Somehow we got the numbers confused but the message got through loud and clear.
Thank you,
Bob
Hi Bob, This is typically referred to as a low/high bid. The beneficiary set the first bid which is the opening bid and can be substantially discounted. They can instruct the auctioneer to credit bid as high as what is owed on the foreclosing loan. In your case the auctioneers made it clear that this was a low/high bid which usually stops investors from bidding unless they intend to bid above the high bid. There is nothing illegal about a low/high bid.
Sorry, I should have posted what I just created a new thread post for in this thread because I didn’t realize I had so similar a question…that does make sense, although disadvantage for investors about the high/low bid, but what I am still wondering is shouldn’t the winning bid be what the property went back to the highest bid of the benificiary and not their low opening bid because that seems illegal and creates several benefits I can think of for them in regards to taxes, paying off debts, equity to owner, etc.
I don’t know why this is firing me up so, but I can just see how this is not FR’s fault at all, and probably done on purpose by auction.com and creates this mutually beneficial relationship where the bank gets all the benefits of taking the property for a lower price even though it was bid higher and auction.com gets to advertise these deals to potential buyers (increasing investors competition) saying how these properties could have been good deals if only someone was there to bid on this cheap property. If I am right about the highest bid being the winning bid, I would be interested in the county tax colllector, investors, etc. joining a class action lawsuit against this.
Sorry I should have said Assessor’s office. At the very least, I wouldn’t be surprised if the bank is benefitting by getting to write off more losses than they would’ve had and higher profit on resale when they do sell the property for it’s actual value. Seems fishy.