what do lenders base the opening discount bid on

When lenders discount the published bid at the day of the auction to the opening bid. What do they base the opening discount bid on the sq. ft or estimated value? Do you know what the average opening bid is for Suntrust MTG Inc in Simi Valley, CA ( 1st $417K and 2nd $350K)? This property has a first and second with the same lender is that a good thing or bad?
The published bid is $426,692
Est. Value $553,218
Sq. Feet 4,257

I often ask myself the same question. I have read that legally, the price asked by the lender must be based on the amount due on the loan being foreclosed on (I can’t remember where I read this). It said it could not take into consideration such things as foreclosure cost expenses. However, I’ve seen a whole bunch (hundreds?) of opening bids (in lower priced Kansas) and many are all over the map in relation to what may be due on the original loan amount.

One of my basic research pieces of data is the date and amount of the loan from the foreclosed Deed of Trust. I am looking at some of my sale notes right now and I see one for tomorrow that has a 2002 130K loan being foreclosed on and the opening bid is 248K! This is a senior loan with no juniors on record. There’s one coming up tomorrow that has a 2005 172K senior loan, no juniors, with an opening bid of $92,600. (It also has 3K in delinquent taxes, is occupied, and doesn’t look that great so I’m not interested in this slow sales market). My most recent purchase was a property with a 2007 90K loan that I got at the open for 51K. I was outbid recently on a 2007 130K senior loan property with an open of 73K. There’s one today with a 2008 126k senior loan, no juniors, with an open of 149K. I could go on and on with examples of unexplainable high and low opening bids. I have to think that when an open is irrationally low that the lender is willing to take a big loss (with the help of taxpayers?) just to unload the property. Even if the lender benefits from any original mortgage insurance, that doesn’t explain the low amount. As for ridiculous high opening bids, they make no sense even if expenses could be included in the amount. Like you, I’ve wondered if a property also has a junior loan with the same lender, that that may increase the open amount. I quess we need some insider (a banker) to answer this question.

(I just found out that this website is targeted to California trustee sales and my comments are based on my experience in Kansas/Missouri).

Lorenzo - thanks for your comments, despite the fact that there are often state differences your observations do apply in CA, as well as some of our other states. AZ is a bit different because opening bids have to be published in advance.

CC - Lorenzo is right, we often find little rhyme or reason, but it can be worth watching because you will find that some lenders are more aggressive than others. For SunTrust specifically I’d recommend doing a search for SunTrust foreclosures in your area using ForeclosureRadar.com and then comparing the published bids to the opening and winning bids.

The lender for the property I am interested in is Suntrust 1800 Tapo Canyon Rd. Simi Valley CA. For example, when I did a search suntrust came up but with 3 different addresses. Do i need to find suntrust with the same exact address as above in order to compare the published, opening and winning bids or that doesn’t matter?

I am a licensed real estate broker in California that specializes in short sales, foreclosures and real estate investing. In California, the opening bid is called a “credit bid” which is what is owed on the loan including fees. However, some properties, the lenders will allow a “discount bid” that has nothing to do with what is owed. I personally don’t know how they are able to do this or what type of loans or properties in California that this can apply too. I am assuming it is 2nd lien holders or properties that have no junior liens.

Satar - keep in mind that the trustee is selling the property, not the lender, and that the lender has to bid pretty much like everyone else, with two exceptions: a) the lender always gets to place the first bid, and b) they are allowed to “credit bid” up to the amount they are owed (in other words they aren’t required to show up with a check). They can, however, place their opening credit bid for any amount they want, up to the amount they are owed. By discounting the bid from the amount they are owed they increase the likelihood the property sells, and they also decrease the amount they paid for the property in the event they “win” the bid. Obviously decreasing the amount they pay, increases the amount they lose on the loan, so it seems like a wash - but perhaps not after tax implications are considered. Any lender can discount. Doesn’t have to be a junior lien.