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Message
Questions about Sheriff's Sale
Posted on 4/21/15 at 9:18 am
Posted on 4/21/15 at 9:18 am
I know there are a few on the MB that do this, so I'm hoping someone can answer a few questions for me.
Lets say there is a house that is scheduled to go to Sheriff's Sale. The writ on the house is 100K.
The appraisal assigned by the bank for the auction is 120K.
I understand that at most auctions, the bidding will start at 2/3 appraised value, which would be 80K (unless the auction is being held without appraisal).
Here are a few questions I have:
1. Why would the bank ever let the house go at auction without receiving 100K? I know it doesn't happen frequently, but I've seen it happen (I just bought one like this).
2. Why would the bank ever raise the bid above 120K? (Above the writ and the appraised value)
3. If there is another lien on the home (lets say 10K), and the bank pays 110K at the auction, does that difference (between writ and purchase price at auction) go to the secondary lienholder?
4. I've heard people say the banks negotiate with other lienholders prior to the auction, but I'm not sure I understand why. When the house is sold at auction (in LA) isn't the title immediately cleared of all other liens?
I'm trying to figure out the reasoning behind some of the bids I have seen from banks. I know it's not, but it seems very random.
Lets say there is a house that is scheduled to go to Sheriff's Sale. The writ on the house is 100K.
The appraisal assigned by the bank for the auction is 120K.
I understand that at most auctions, the bidding will start at 2/3 appraised value, which would be 80K (unless the auction is being held without appraisal).
Here are a few questions I have:
1. Why would the bank ever let the house go at auction without receiving 100K? I know it doesn't happen frequently, but I've seen it happen (I just bought one like this).
2. Why would the bank ever raise the bid above 120K? (Above the writ and the appraised value)
3. If there is another lien on the home (lets say 10K), and the bank pays 110K at the auction, does that difference (between writ and purchase price at auction) go to the secondary lienholder?
4. I've heard people say the banks negotiate with other lienholders prior to the auction, but I'm not sure I understand why. When the house is sold at auction (in LA) isn't the title immediately cleared of all other liens?
I'm trying to figure out the reasoning behind some of the bids I have seen from banks. I know it's not, but it seems very random.
This post was edited on 4/21/15 at 9:19 am
3
Posted on 4/21/15 at 10:19 am to blueboxer1119
If a loan has mortgage insurance, I would think the bank would be more likely to let the house go for less, if they will get reimbursed for a portion or all of their loss.
As far as clearing secondary liens, there is a legal process that has to occur, and it may be easier for the banks to offer a small settlement to avoid that process. Also, a bank in first position on the first house auctioned may be in second position on the third house auctioned, so, they all want to play nice with each other.
As far as clearing secondary liens, there is a legal process that has to occur, and it may be easier for the banks to offer a small settlement to avoid that process. Also, a bank in first position on the first house auctioned may be in second position on the third house auctioned, so, they all want to play nice with each other.
Posted on 4/21/15 at 10:44 am to LSUFanHouston
Do secondary leins not get taken off (lack of better word), as soon as the auction happens.
If I buy a house, the title is clear. Why would it be any different if a bank buys it rather than an investor?
If I buy a house, the title is clear. Why would it be any different if a bank buys it rather than an investor?
Posted on 4/21/15 at 11:52 am to blueboxer1119
quote:
If I buy a house, the title is clear. Why would it be any different if a bank buys it rather than an investor?
The title isn't clear because you bought the house. Hence, why there is an entire industry of title searches to make sure that there are no liens on the house.
Posted on 4/21/15 at 12:01 pm to LSUFanHouston
When you buy a house at Sheriff's Sale in LA, it comes with a clear title.
The same doesn't apply for a short sale, but Sheriff's Sale clears the title.
You do not need to do a title search prior to Sheriff's Sale.
The same doesn't apply for a short sale, but Sheriff's Sale clears the title.
You do not need to do a title search prior to Sheriff's Sale.
This post was edited on 4/21/15 at 12:04 pm
Posted on 4/21/15 at 5:42 pm to LSUFanHouston
quote:
The title isn't clear because you bought the house. Hence, why there is an entire industry of title searches to make sure that there are no liens on the house.
Sheriff's sale clears the title in LA. The secondary lien holders get shafted unless it auctions for more than the primary lien holder is owed then they get the difference. The secondary lien holders can go and bid the property up to try and cover their losses but they hardly ever do.
This post was edited on 4/21/15 at 9:16 pm
Posted on 4/21/15 at 5:49 pm to blueboxer1119
quote:
1. Why would the bank ever let the house go at auction without receiving 100K? I know it doesn't happen frequently, but I've seen it happen (I just bought one like this).
Lot's of reasons. If it is insured, the banks have no worries as they will get that back. I manage repo houses in 4 states for banks and they all get money back from HUD, USDA, FHA, etc for the work we do. Hell, they actually turn a profit on some of it but they won't say that.
Also, tax reasons.
I could go into a long-winded rant on how it all works but I won't.
quote:
2. Why would the bank ever raise the bid above 120K? (Above the writ and the appraised value)
They usually don't. They are there to cover their writ amount most of the time. Now, they do sometimes send a property to Sheriff sale more than once over the course of ownership so if I had to guess them sending it back again has something to do with why they will pay more for it.
Some of the properties I manage the banks have owned for 5+ years and have sent to SS twice already but are still holding them in their inventory so I am sure it has a lot to do with major legal issues.
quote:
3. If there is another lien on the home (lets say 10K), and the bank pays 110K at the auction, does that difference (between writ and purchase price at auction) go to the secondary lienholder?
Yes
quote:
4. I've heard people say the banks negotiate with other lienholders prior to the auction, but I'm not sure I understand why. When the house is sold at auction (in LA) isn't the title immediately cleared of all other liens?
Never heard this but I would guess to protect from future legal issues that may arise like Workmans liens.
This post was edited on 4/21/15 at 5:51 pm
Posted on 4/21/15 at 8:39 pm to LSUFanHouston
Just because there is a sheriff sale does not guarantee the the title is clear.
The clerk of court runs a mortgage certificate in the exact name of the debtor. Sometimes there may be a different spelling or clerical error that would still enable a judgment or lien to be enforceable against the property.
If so, you can try to have the mortgage certificate amended. However, this may bring up some Mennonite notice issues.
Also, certain claims may still be raised within a year of the sheriff sale. Procedural defects being a big one.
It is best to have any attorney run a title search on the property and get their opinion prior to the sheriff sale. The attorney can also check the suit record to verify proper notice was given to all proper parties.
The clerk of court runs a mortgage certificate in the exact name of the debtor. Sometimes there may be a different spelling or clerical error that would still enable a judgment or lien to be enforceable against the property.
If so, you can try to have the mortgage certificate amended. However, this may bring up some Mennonite notice issues.
Also, certain claims may still be raised within a year of the sheriff sale. Procedural defects being a big one.
It is best to have any attorney run a title search on the property and get their opinion prior to the sheriff sale. The attorney can also check the suit record to verify proper notice was given to all proper parties.
Posted on 4/21/15 at 9:30 pm to NEWBIE
Interesting topic.
Yes the junior lien holders get wiped off the title. IRS liens DO NOT.
I have at times seen the bank take much less than what is owed. They have holding costs, fixup costs, real estate fees, etc. if they do buy it at sale. So they decide to discount and cut their loses.
On the other hand, I have seen them add in all the back payments, penalties, attorney fees, etc. and bid much more than the mortgage balance.
The mention of mortgage insurance must come in to play as others have said. I have seen houses go for say $150,000 to the bank. Then show up on the MLS for FMV (fair market value) of $110,000 a few weeks later.
Sheriff sales are a crap shoot, but can be rewarding for those who are risk takers and know how to play the game! Patience is key.
Yes the junior lien holders get wiped off the title. IRS liens DO NOT.
I have at times seen the bank take much less than what is owed. They have holding costs, fixup costs, real estate fees, etc. if they do buy it at sale. So they decide to discount and cut their loses.
On the other hand, I have seen them add in all the back payments, penalties, attorney fees, etc. and bid much more than the mortgage balance.
The mention of mortgage insurance must come in to play as others have said. I have seen houses go for say $150,000 to the bank. Then show up on the MLS for FMV (fair market value) of $110,000 a few weeks later.
Sheriff sales are a crap shoot, but can be rewarding for those who are risk takers and know how to play the game! Patience is key.
Posted on 4/22/15 at 7:45 am to ItzMe1972
As far as IRS liens, I thought they have a 120 day redemption period in which they can essentially buy the property back from you for what you paid.
You would not be paid for improvements, etc.
I've been told this is extremely rare.
I was also told that many banks will hold onto these houses because they can have them listed as an asset in their books for the full market value, rather than sell for less than market value. I'm assuming this is to try to make quarterly reports as attractive as possible for shareholders.
Stout, let me give you a scenario that I saw recently and see if you can help me figure out the reasoning.
I went to auction last week to bid on a distressed property (house).
The bank appraisal was 151K.
The writ was 161k.
Fixed and updated, it was a 200k+ house Fwiw.
There were numerous other liens filed against the property.
Bidding went as follows:
Me:130k
BANK: 140K
ME: 141K
BANK: 150K
ME: 151
BANK: 160K
ME: 161K
BANK: 170K
Why in the world would the bank bid in 10K amounts is my first question (other than trying to show he's swinging a big stick),
*the total for other liens was over 20k Btw. My final bud was 161K Fwiw.
The bank could have walked away with the prop for 162k, but bid 170k instead.
Does that not put that bank on the hook for paying off 9k of other liens?
Why would they do that?
You would not be paid for improvements, etc.
I've been told this is extremely rare.
I was also told that many banks will hold onto these houses because they can have them listed as an asset in their books for the full market value, rather than sell for less than market value. I'm assuming this is to try to make quarterly reports as attractive as possible for shareholders.
Stout, let me give you a scenario that I saw recently and see if you can help me figure out the reasoning.
I went to auction last week to bid on a distressed property (house).
The bank appraisal was 151K.
The writ was 161k.
Fixed and updated, it was a 200k+ house Fwiw.
There were numerous other liens filed against the property.
Bidding went as follows:
Me:130k
BANK: 140K
ME: 141K
BANK: 150K
ME: 151
BANK: 160K
ME: 161K
BANK: 170K
Why in the world would the bank bid in 10K amounts is my first question (other than trying to show he's swinging a big stick),
*the total for other liens was over 20k Btw. My final bud was 161K Fwiw.
The bank could have walked away with the prop for 162k, but bid 170k instead.
Does that not put that bank on the hook for paying off 9k of other liens?
Why would they do that?
Posted on 4/22/15 at 9:00 am to blueboxer1119
1. It typically won't, but they have a good sense of the worth of the collateral and make a business decision if there's a cash bidder. $90k cash might be more palatable than $100k credit bid and then costs and hassle of liquidating it as REO. Plus, since they're foreclosing with appraisal, they still have the ability to pursue the borrower/guarantors for any deficiency.
2. They almost never do. In fact, they will almost never bid $1 more than their payoff. One thing to keep in mind is that the payoff (i.e. amount lender can credit bid) is often higher than the face amount of the writ due to additional interest, costs and atty fees between the time of the writ and the sale date. The writ is issued when the suit is filed and significant costs are incurred during the process that are also part of the debt. ETA: Based on your hypo above, it is very likely that while the "writ was $161k" the bank's payoff was higher, which allowed them to make a higher credit bid without any additional cash (other than sheriff's commission).
3. Any overage beyond the first mortgage will go to the second mortgage, then to the third, etc. and ultimately, if there's any equity, it will go to the owner.
4. Sometimes lienholders will talk. Fact is many of the lawyers handling these cases are the same crew that's always around, so they know each other pretty well. However, the only negotiations I can even fathom as making any sense might be a junior mortgagee negotiating to purchase the first position to protect its lien.
It's always about the dollars. Some banks have some very smart people figuring out what their optimum results are and working towards that. Other banks have some not so smart people trying to do the same thing. But when it's a foreclosure scenario, it's almost always recovery mode.
2. They almost never do. In fact, they will almost never bid $1 more than their payoff. One thing to keep in mind is that the payoff (i.e. amount lender can credit bid) is often higher than the face amount of the writ due to additional interest, costs and atty fees between the time of the writ and the sale date. The writ is issued when the suit is filed and significant costs are incurred during the process that are also part of the debt. ETA: Based on your hypo above, it is very likely that while the "writ was $161k" the bank's payoff was higher, which allowed them to make a higher credit bid without any additional cash (other than sheriff's commission).
3. Any overage beyond the first mortgage will go to the second mortgage, then to the third, etc. and ultimately, if there's any equity, it will go to the owner.
4. Sometimes lienholders will talk. Fact is many of the lawyers handling these cases are the same crew that's always around, so they know each other pretty well. However, the only negotiations I can even fathom as making any sense might be a junior mortgagee negotiating to purchase the first position to protect its lien.
quote:
reasoning behind some of the bids I have seen from banks.
It's always about the dollars. Some banks have some very smart people figuring out what their optimum results are and working towards that. Other banks have some not so smart people trying to do the same thing. But when it's a foreclosure scenario, it's almost always recovery mode.
This post was edited on 4/22/15 at 9:09 am
Posted on 4/22/15 at 10:15 am to blueboxer1119
quote:
Why in the world would the bank bid in 10K amounts is my first question (other than trying to show he's swinging a big stick),
Because they give the attorney a max amount to bid and he isn't going to nitpick about getting to that number. If he can push you up faster and get the bank to where it wants to be then that works too.
quote:
Does that not put that bank on the hook for paying off 9k of other liens?
Depends. There could be other fees that come out of that $170k like the Sheriff's fees and other legal fees. The writ amount doesn't always include all of the legal fees involved.
Also, you keep forgetting that the bank is not going to really lose money in most cases. Mortgage insurance and playing number games showing a loss when it technically isn't.
This post was edited on 4/22/15 at 10:17 am
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