Reality sets in for bidders looking for foreclosure auction bargains
Colleen Proctor arrived Wednesday at the year’s final Mesa County foreclosure auction looking for a deal.
Like many before her, she left empty-handed.
Just 24 of the 361 foreclosed homes brought to auction in Mesa County this year sold at auction, according to the Mesa County Public Trustee’s Office. In 2008, 111 Mesa County homes made it to auction.
Some prospective bidders show up at auctions expecting to bid down a lender’s price for a home and pay less than they would on a home purchased through a real estate agent. But that’s not how it works. Public Trustee Paul Brown said the lender sets a bid two days before a foreclosed home is auctioned and won’t accept a bid unless it’s $1 above that amount.
The bid often is created by adding the outstanding balance on the home, interest on back payments, and attorney and public trustee fees for the lender. With many homes carrying outstanding balances only a few thousand dollars below, and sometimes above, the original price of the home, Brown isn’t surprised sales were stuck at two dozen in 2009.
“These properties aren’t worth what the lender was asking. That’s what it boils down to,” Brown said.
If lenders don’t get the prices they want after a year of attempts to sell at auction, properties are taken off the auction block. Brown said lenders often end up selling for less through an agent or taking a lower offer after the auction from someone who watched the bidding process.
“I would say the lenders almost always lose money when they foreclose,” Brown said.
Banks’ inventories are filling fast with homes that can’t be sold out of foreclosure before auction.
So, why do lenders bother with the pricey foreclosure process? Sometimes the chance of a sale beats the alternative, according to an October National Consumer Law Center report titled, “Why servicers foreclose when they should modify and other puzzles of servicer behavior.” Report author Diane E. Thompson wrote that processes such as modifying loans can cost a lender money, whereas a foreclosure sale at auction, no matter how seldom it happens, can save or make money for the lender.
A recent MortgageLoan.com article, though, shows not every bank is eager to add to its pile of foreclosed properties. The article says some banks have taken foreclosed homes off the auction list at the last second and left homeowners in foreclosure purgatory.
At Wednesday’s auction at the Mesa County Public Trustee’s office, Proctor said she felt bad for homeowners who lose their homes to foreclosure. But she and her husband had purchased properties for low prices at tax auctions in Mesa and Rio Blanco counties and wanted to see what foreclosure auctions had to offer. The Whitewater couple planned to rent out a foreclosed home if they made a successful bid Wednesday.
“If there’s an opportunity to make some bucks, we’ll bid,” Proctor said.
But after perusing the sale prices for six homes, ranging from $32,590 to $324,706, they and five other people in the room remained silent during the bidding process. All six homes went back to lenders without a single offer.