| A foreclosure auction is designed to sell foreclosed | | | | that amount will get the property. If the final bid is, for |
| properties at whatever price someone is willing to pay. | | | | example, $250,000 the additional $50,000 is called |
| The final sale price could be considered "bargain | | | | "overage" and will be returned to the homeowner |
| basement" pricing in most cases, because the | | | | under most circumstances. |
| properties have to be purchased with cash in most | | | | Professional buyers who frequent the auctions daily |
| states, so the buyer pool is limited. The actual auctions | | | | have developed advanced techniques to beat out |
| are regulated by state law, but the individual county | | | | other bidders and to use "mortgage credits" as real |
| where the property is located actually dictates the | | | | money. Their most advanced technique for stopping |
| specifics of how the actual auction works. | | | | competitive bidders is to only bid in the incremental |
| As a rule-of-thumb, the property is offered to the | | | | amounts of say $100. This gets the competition very |
| highest bidder by a clerk of the court, a sheriff, or a | | | | hassled and they will often start jumping the |
| trustee. The auction is by "open outcry" so that | | | | incremental bids in large amounts ($5,000 - $10,000) to |
| everyone knows what bids are being made. Usually | | | | get the "pro" to stop bidding. The pro just keeps |
| there is a minimal incremental bid which can be $100 to | | | | coming back with an out cry of "plus $100". Eventually, |
| $1,000 or more. It is interesting to watch a novice get | | | | the newbie will quit bidding and the pro will take the |
| excited and bid in increments of $5,000 or even | | | | property for $100 over the last bid. If the newbie bids |
| $10,000 in his excitement to get a particular property. | | | | well past what the pro wanted to pay, the pro keeps |
| The pros who frequent the auctions target | | | | bidding and making the newbie go higher and higher, |
| unsuspecting "newbies" because they know the | | | | until the newbie quits because he comes to his senses |
| newbies have no rational bidding methods and the | | | | or doesn't have enough money. But it is not over yet |
| pros use their experience to bid up the properties the | | | | because the pro now reneges on his last bid and the |
| newbies are trying to buy. | | | | newbie gets the property at a grossly inflated price! |
| The auction or sale starts with the auctioneer asking | | | | Another advanced tactic the pros use is to buy the |
| for an opening bid. Someone will respond and in most | | | | worthless second mortgages for a few cents on the |
| cases it will be the bank that starts the foreclosure | | | | dollar. These liens are transferred to the pros at full |
| proceeding. The bank will usually start the bid for the | | | | face value so the pro will pay perhaps $500 for a |
| final judgment amount which is the outstanding loan | | | | $25,000 lien. Now the pro has a "bid credit" of $25,000. |
| balance, plus the foreclosure processing costs. Let's | | | | When the bidding starts the pro starts bidding to pull in |
| use an example of XYZ Bank who has a final | | | | newbies from the crowd and can continue bidding for |
| judgment amount of $200,000 including all costs and | | | | $25,000 without it costing him any money other than |
| expenses. Usually XYZ Bank would start with a bid of | | | | the $500 he paid for the second mortgage (lien). Here |
| $100, because the starting price is most often the final | | | | is where it really gets going - the pro keeps |
| judgment plus $100 as the first bid. Lower bids could | | | | aggressively bidding until the competitor, usually a |
| start the sale but generally XYZ Bank will always bid | | | | newbie, quits (i.e. $20,000) and the pro reneges on his |
| the amount owed plus $100 to cover the minimum bid. | | | | last bid. The newbie now owns the property at |
| In recent months, many banks have started the bid at | | | | $20,000 over the first mortgage amount due and the |
| less than the amount owed them. This is a fairly new | | | | pro has turned $500 into $20,000 with his only risk |
| strategy that is designed to overcome the issue of | | | | being his original $500. |
| doing short sales with investors and all the hassles that | | | | The pro uses "shill" bidders so if he has to renege he |
| go with them. For example, if the bank is willing to | | | | doesn't get barred from the future sales. There are |
| discount the loan to 80% of a recent Broker's Price | | | | many other tricks of the trade that the pros use, so if |
| Opinion (BPO), on a $200,000 balance due, they would | | | | you decide to buy a property at the foreclosure |
| start the bidding at $160,000. If there were no other | | | | auction you better beware of the hazards. Also find |
| bids, the bank would own the property anyway | | | | out ahead of time what additional costs the county |
| because they have a "credit" to bid up to $200,000 | | | | charges such as auctions fees, title transfer, document |
| because of the final judgment amount. If anyone bids | | | | stamps, etc. so you aren't surprised at how much |
| or the bidding gets heated, the bank will only get their | | | | money you need for the final purchase amount. Good |
| $200,000 reimbursed and the highest bidder above | | | | luck and good bidding! |