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| Fast talker: Auctioneer Pat Harvill helped run a real estate auction Jan. 20 in Dearborn, Mich., where more than 300 foreclosed homes from
the Detroit area were put up for bid. Jim West/ZUMA Press/NEWSCOM |
Let the home auction bidder beware
A foreclosure auction can be a golden opportunity – or a minefield for the unwary.
from the July 30, 2007 edition
Page 2 of 3
Options to buy don't end with foreclosure auction
"Banks have a duty to bid as much as they are owed" on an outstanding mortgage, says Ryan Slack, chief executive of PropertyShark.com, an online real estate research company in New York City. "But investors don't want to buy a property unless it's [priced] at a discount," he adds.
Indeed, at a July 13 foreclosure auction at the Queens County, N.Y., Supreme Court building, only four of the 18 properties auctioned that day attracted any bids from the public. The rest, observers said, ended up in the hands of their mortgage lender.
But the ability to obtain troubled properties doesn't end there: Some time after the lender takes title to foreclosed properties, a new selling phase typically begins. That's when banks try to shed unwanted properties – typically by selling them through a real estate agent or by offering them at a second auction.
These post-foreclosure auctions are attractive to lenders, experts say, because they can unload their mounting stocks of properties on a specific date.
Thus, "you're seeing [post-foreclosure auctions] of 20 to 30 properties at a time, held at conference centers or hotels," says Rick Sharga, marketing vice president at RealtyTrac Inc., a real estate information company in Irvine, Calif. "In the past, [such lenders] didn't have enough inventory" to hold such events.
For example, the Real Estate Disposition Corp. (REDC), a real estate auction company in Irvine, held three post-foreclosure auctions for almost 300 properties in May. These auctions, taking place in San Diego, Los Angeles, and Riverside, Calif., drew some 4,000 people, all told, reports Michael Schack, senior vice president at REDC.
To critics, such mega-auctions are bad news for buyers, who often end up paying market or above-market prices for properties. But to Mr. Schack, these events don't necessarily spark excessive bidding wars.
As some close observers note, many attendees at both foreclosure and post-foreclosure auctions are onlookers with no plans to bid. And to Schack, those who do bid often have a strategy: "They set a top price in their mind before bidding. They don't want to go overboard on that, because they are there to get a deal."
Proponents of post-foreclosure auctions see them as safer venues for bidders than the foreclosure auctions that preceded them. That's because you're buying from a lender at a post-foreclosure auction. (At a foreclosure auction, you're buying from the official who conducts the auction.)
Auctioneer Tommy Williams, chairman and cofounder of Williams & Williams, a real estate auction company in Tulsa, Okla., lists several other advantages: Buyers get a clean, unencumbered title; they are given the opportunity to inspect the property before the auction; and they partake in a bidding set by market forces and competition rather than one in which the value of the property is based upon the size of the outstanding mortgage.
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