Foreclosure Sale - How do they work?

[QueBota]

This may not be the right forum, apologies in advance if that is the case.

Saw this in the paper last weekend and I was shocked, it is the property across and just down the road from me. Nice enough fellow, I believe he was using his property as an ATM (cash out or multiple cash out refinances ) during the rapid rise in property values. I speak to him several times a week and he never indicated he was having any problems, we may have been able to help him out. The property in our area doubled during the boom time and has come down about 25% off peak.

I will include the notice that was in the local paper for reference, it is a little long but covers the information.

My question is in the above title, how do these things work. My neighbor and I may want to step in an attempt to purchase, property is in move in condition, hate to see this forced sale negatively impact our lives.

Thanks,
Dave

Bierman, Geesing & Ward, LLC 4520 East West Highway, Suite 200 Bethesda, MD 20814 (301) 961-6555 SUBSTITUTE TRUSTEES' SALE OF IMPROVED REAL PROPERTY nnn CCCCC CC. CCCCCCC, MD nnnnn Under a power of sale contained in a certain Deed of Trust from Cccccccc C. Cccccccccc dated December 18, 2006 and recorded in Liber nnnnn, Folio nnn among the Land Records of Anne Arundel Co., MD, with an original principal balance of $522,500.00 and an original interest rate of 8.900% default having occurred under the terms thereof, the Sub. Trustees will sell at public auction at the Circuit Court for Anne Arundel Co., at the Court House Door, 7 Church Circle, Annapolis, on FEBRUARY 10, 2009 AT 9:48 A.M. ALL THAT FEE-SIMPLE LOT OF GROUND, together with the buildings and improvements thereon situated in Anne Arundel Co., MD and more fully described in the aforesaid Deed of Trust. The property, which is improved by a dwelling, will be sold in an "as is" condition and subject to conditions, restrictions and agreements of record affecting the same, if any, and with no warranty of any kind. Terms of Sale: A deposit of $55,000 in cash, cashier's check or certified check required at time of sale. Balance of the purchase price, together with interest on the unpaid purchase money at the current rate contained in the Deed of Trust Note from the date of sale to the date funds are received by the Trustees, payable in cash within ten days of final ratification of the sale by the Circuit Court. There will be no abatement of interest due from the purchaser in the event additional funds are tendered before settlement or if settlement is delayed for any reason. TIME IS OF THE ESSENCE FOR THE PURCHASER. Adjustment of current year real property taxes will be made as of the date of sale and thereafter assumed by the purchaser. All past due property taxes paid by the purchaser. All other public charges or assessments, including water/sewer charges, ground rent, whether incurred prior to or after the sale, and all other costs incidental to settlement to be paid by the purchaser. All condo/HOA dues will be adjusted to the date of sale. All transfer taxes and settlement expenses shall be paid by the Purchaser. Purchaser is responsible for obtaining physical possession of the property, and assumes risk of loss or damage to the property from the date of sale. If ratification or settlement is delayed for any reason there shall be no abatement of interest. The sale is subject to post-sale audit of the status of the loan with the loan servicer including, but not limited to, determination of whether the borrower entered into any repayment agreement, reinstated or paid off the loan prior to the sale. In any such event, this sale shall be null and void, and the Purchaser's sole remedy, in law or equity, shall be the return of the deposit without interest. If Purchaser fails to settle within ten days of ratification, he agrees to pay, attorneys' fees in the amount of $750.00, plus costs, if the Trustees have moved to resell the property. Purchaser waives personal service of any paper filed in connection with such a motion on himself and/or any principal or corporate designee, and expressly agrees to accept service of any such paper by regular mail directed to the address provided by said bidder at the time of the sale. If Purchaser defaults under these terms, deposit shall be forfeited. The Trustees may then resell the property at the risk and cost of the defaulting purchaser. The defaulted purchaser shall not be entitled to any surplus proceeds resulting from said resale even if such surplus results from improvements to the property by said defaulted purchaser. If Trustees are unable to convey either insurable or marketable title, or if the sale is not ratified by the Circuit Court for any reason, the Purchaser's sole remedy, at law or equity, is the return of the deposit without interest. Purchaser agrees to pay $295.00 at settlement to the Seller's attorney for review of the settlement documents and an additional fee of $295.00 for review of any motion which may be subsequently filed with the Court to substitute a purchaser herein. PLEASE CONSULT Alex Cooper auctioneers FOR STATUS OF UPCOMING SALES Howard N. Bierman, Jacob Geesing, Carrie M. Ward, Substitute Trustees LICENSE NOS. A00004, A00176, A00177, A00193, A00227, A00234, A00297, A00307, A00338 313720 2/06 0000313720-01

 

[Jimbrown]

If it has been turned over to the auction company there may be nothing you can do except bid on it. However, like all things in life all is not always true. You can contact the auction company and ask about pre purchase or try and fined the original lien holder and try to but it from if they still have the option to withdraw it from auction. For any of that to happen you are going to have to offer close to full value of the property else they will let it go to auction and hope for better. Another possibility is to contact the owner and see if he has any options to stop the auction and then try to work out some sort of deal. Time is of the essance in this.

 

[wjoerob]

In this area (central Indiana), a sale like this has to go through a Sheriff's sale. There is usually a "limbo" period where neither the bank nor the owner knows who really owns it or has the right to sell it, then it finally goes up for Sheriff's sale. When that happens, anyone can go in and bid on a property at the sale. BUT the original owner has the right to redeem the property (buy it back) if it's only up for the back taxes, by paying the amount due and any penalties within one year, I believe. If they do that, and you file the right paperwork, you can get your money back. This may not be how it works with an auction sale held by the mortgage holder.

 

[studor]

Not familiar with MD law but looks like a straigtforward foreclosure. Property is now up for auction, winning bidder of the auction has the property. In some places the borrower could probably go to the mortgage holder and pay off the remaining mortgage and stop the foreclosure procedure but usually only the borrower can do it. As long as the auction goes ahead (and it most likely will ) the mortgage holder will take the proceeds and refund any surplus (if there is some) to the borrower or other debt holders. Not sure how much the property is worth now or how much is left on the mortgage but usually the banks try and avoid calling default unless the value of the property is near or below the value of the mortgage or it is clear that they will never be repaid by the party oweing them money. There may be secondary debts on the property as well. Half a million mortgage calls for some sizable payments to pay off --- was it a NINJA loan?

 

[CurlyDave]

original principal balance of $522,500.00 and an original interest rate of 8.900%

That is a very high interest rate. The borrower may well have been in deep trouble when he took out this loan.

Before you take any action here, especially if your neighbor is also involved, get your intentions clear.

Buy and resell for profit?

Buy and hold property for your own use?

Buy and rent out, possibly to original owner?

Help original owner in some way?

Ask a local lawyer what happens to second, third, etc. trust deeds? Find out of there are any.

Many times a bank will do a "short sale" which is to sell the property for less than the mortgage balance and write off the rest. Even if they won't, it seems to me that a guy with ~$130k could get a new conforming loan at $417k (the max for conforming in many areas) with interest in the 5% range. If they will do a short sale even less cash is required. But the problem is that you have now taken on a lot of debt.

 

[QueBota]

I imagine we would try to buy and rent, if the sales price was reasonable the monthly costs should almost equal the rental income. When/if the market improves the property should be able to sold at a modest profit. I guess we are trying to gain some control over what could become a bad situation. However you never know, the people that obtain the house via auction may be the worlds greatest neighbors. The gentleman that lives there now is retired and is not really a good neighbor/friend but he doesn't make any trouble either, like most of us here, very quiet and mind your own business but always willing to help anyone in need.

According to the tax records I could research online he bought the place in 1995 for 181K. I imagine the cash out refi's pushed the balance up to over 500K. He is probably having a hard time making the payment (taxes alone are close to 4K per year) and with the current drop in property values doesn't see the sense in making what must be at least a $2,500 payment every month on property that currently has a market value in the low 400K area (he is upside down in a big way).

I called the auction company, not very helpful. They told me to come out and bid on the property, I believe there is a reserve. The bank may be willing to short sell, take a little hair cut, but they don't appear willing to take a beating at this time.

We had two similar properties in the area sell in less than a couple of months for close to asking price. There aren't a lot of homes in this area and even in the current market they tend to sell if priced reasonably.

Not sure what to do, I guess like everyone else I never thought I would see this happen in my area. A new owner, who is a bad neighbor, could make life difficult for the rest of us. We share an access road and although we are somewhat rural, it is still a bit of a neighborhood/community.

Thanks Guys,
Dave

 

[studor]

Most places the auctioneer must tell you if there is a reserve. The bank will lose under any reasonable scenario and you can't help your neighbour any more (unless you are extemely wealthy and generous --in which case PM me ) If it goes cheap and you can afford it great - otherwise wait and meet your new neighbour -- they won't be deadbeats the way things are now!

 

[QueBota]

Just got a call back from the auction co. They will announce the reserve price at the beginning of the auction, that will be the price at which the auction begins.

If there is a no sale at the auction the bank will turn the house over to a broker/real estate co and the house will be listed on the MLIS system. No chance of buying directly from the bank unless you attend and win the auction.

This particular bank doesn't have a "bank owned" real estate department with which you can bargain. I know a few folks who have purchased properties directly from banks at what I considered to be very good prices. The bank wanted to get rid of the property and were willing to write down the loss to get it off the books.

If the owner or his agent appears at any time prior to the beginning of the auction with the necessary funds to bring the account current, the auction will be canceled. Even if we had known of his problems, I doubt my next door neighbor or myself, or even both of us together could/would have made the current owner up to date. He has to be at least 50K behind and has at least a -100K equity position in his place.

I believe he has not been paying his mortgage for a while and just living there until the bitter end. He probably figured why make payments on something he was going to loose eventually. I would have never guessed anything was wrong, everything appeared "normal".

Thanks,
Dave

 

[schmism]

If there is a no sale at the auction the bank will turn the house over to a broker/real estate co and the house will be listed on the MLIS system. No chance of buying directly from the bank unless you attend and win the auction.

This particular bank doesn't have a "bank owned" real estate department with which you can bargain. I know a few folks who have purchased properties directly from banks at what I considered to be very good prices. The bank wanted to get rid of the property and were willing to write down the loss to get it off the books.

That is highly unlikely.

There are 2 ways the bank can "bid" the property. Either ballance of the loan on the property or the apprised value. usually the selling price (or reserve) is going to be the lower of the 2 values.

Generally speaking all the bank wants is its money back. But in todays world if the apprised value is less than the loan amount, then they generally write off the diffrence.

If the property doesnt sell at apprised value at the auction, Its been my experience its unlikely to sell at that price +7-10% on MLS.

If the bank doesnt sell it then they have to sit on it and wait till the value goes back up. In todays market this will take time. Durring that time the bank has to pay extremely high insurance on the vacant house and interest on its own loan. Therefor most banks dont sit on them. its not out of the question for them to sit on them for a few months, but the idea that they can sell it for more on MLS than at auction (today) isnt likely.

If it doesnt sell, I foresee having a second auction in the future with a lower reserve price.

 

[studor]

I agree with Schism -- the reserve should be relatively low -- and if they don't get it then some loans officer will be in deeper do-do than he/she is now. Some friends of mine just put in an offer and got (after 3 weeks of putzing around with the bank) a vacation property that the bank had 750 in for 400. Cash is king.
If you are serious about bidding make sure you know what the closing costs will be.

 

[2manyrocks]

It appears to be a judicial foreclosure sale. Some of the state laws regarding foreclosures sales are really quirky, and I strongly recommend that you speak with an independent lawyer who knows the Maryland foreclosure process well before you do anything. You can find one by calling a local lender and asking who they use for their foreclosure sales. You'd be well advised to buy title insurance even if you have for it out of your own pocket in case there are title issues that have been missed in the foreclosure search.

 

[dmccarty]

Go talk to a lawyer familiar with your state's foreclosure laws.

We thought about going after a property that was going to be foreclosed and talked with a couple of lawyers which was very interesting. In the end the owner kept it out of foreclosure but only by a matter of days.

Also check for liens at the courthouse. Is the bank they only one with a lien on the place? Are there others? What does that mean to you if you buy.

Later,
Dan

 

[sunspot]

The property I live on was split into 2 parcels and I was at the backside. The folks at the front defaulted on the loan and I did some courthouse research. I went to the local bank that held the loan and they were eager to help me.

I prearranged a loan deal from the same bank and on the day of the sale, my wife and I were on the courthouse steps. The bank bid the balance of the defaulted loan and I bid $1 more.

The original price on the house was 78k and after the pigs living in it for a number of years, it appraised for 37k and I got it for 33k.

Over the last few years, my wife and I have gutted the whole house, slowly to be rebuilt after I retire later this year.

 

[QueBota]

Thanks for all the input guys, I got called to work this AM and couldn't make the auction. My neighbor who was interested in participating with me (he is a county sheriff in another county) had to work overtime and couldn't make the auction either.

I am trying to find out the results of the auction. From what I understand, most foreclosure properties don't sale at auction because the price is usually set too high. The bank tries to collect the balance of the mortgage owed, which in this case I believe is at least 100K more than the current market value.

I will post if I learn anything more. I would imagine it was turned over to a local broker or agent to try to sale.

Thanks,
Dave

 

[2manyrocks]

Depends on your laws in Maryland which I haven't a clue about. They really do vary from state to state. I understand one state has an "upset" bid procedure where even if the lender has made a bid at the courthouse steps, the court can set that bid aside and take the next higher bid if that bid is made before the court confirms the sale. Maybe this lender went ahead and bid the full amount of the debt or maybe it didn't. Without knowing your local laws and what happened, you just don't know. If you are seriously interested, you're going to have to jump on this and find out what your local law is and find out if the "sale" is final or subject to another upset bid.

I am in a nonjudicial foreclosure state where the court doesn't have to confirm a sale. Here, the sale is final when the highest bid is taken. The highest bidder gets a deed following the sale and then is free to resell it.

In a judicial foreclosure state, the court has to approve the sale and the execution of the deed. It ain't necessarily done until the court says its done. Hence. you need to check to see if the sale is done or if there is an upset bid procedure before the court confirms the sale. Or if you don't have time to fool with this one, then go to another sale and ask how they do things (but don't bid unless you know exactly what you're doing.)

 

[CurlyDave]

...go to another sale and ask how they do things (but don't bid unless you know exactly what you're doing.)...

Excellent advice.

About two years ago someone in the neighborhood died and they held an estate sale. He had two JD tractors, and a good buddy wanted one, but couldn't be there, so I agreed to go and bid for him.

The auction had a schedule, and tractors were to be sold in the afternoon. I don't have a lot of experience with auctions, so I went in the morning and watched for a couple of hours to see how things were done.

Then, I bought a couple of small things that I sort of wanted, but had no compelling urgency on, just to be sure I had the procedure right. When the better tractor came up, I got a book value $16k tractor for $12k.

 

[QueBota]

The auction was canceled yesterday AM. Can't seem to find out any more info from the attorneys that were handling the foreclosure as trustees or the auction company.

The gal at the auction company was the most friendly and willing to talk. She said the she sees a lot of cancellations the morning of the auction.

Either the owner declared bankruptcy and is protected by the court, something was determined to be wrong with the paperwork and the auction had to be postponed or the owner brought the account up to date with the lender(s). There is also the option of a private sale and settlement of the amount owed the mortgage company prior to the commencement of the auction.

My neighbor, the county sheriff from the adjoining county, is going to use his "influence" to try to find out what happened.

The gal at the auction company told me to keep an eye on the paper and watch for the next series of notices. Evidently in MD, the trustee must post notice of foreclosure in the "local" paper three consecutive weeks before the auction/foreclosure can take place to make it "legal".

Thanks,
Dave

 

[rox]

We just had to foreclose on a guy who stopped paying us. To find a good foreclosure attorney I used the internet and looked at sheriff's sales and looked at the noticed and wrote down the names of the attorneys who worked for banks doing foreclosures. Pretty soon there was a pattern of the same few attorneys names showing p again and again. I called around until I found one I liked. You really want an attorney who des this day in and day out. The little bit of money you are going to spend on an attorney to advise you and check into this is going to be money well spent.

 

[mjarrels]

I'm a old Bruce Williams fan... Unless you really know what you are doing... stay away! Your belt buckle and pants will drop before you know what is happining!

mark

 

[2manyrocks]

Either the owner declared bankruptcy and is protected by the court, something was determined to be wrong with the paperwork and the auction had to be postponed or the owner brought the account up to date with the lender(s). There is also the option of a private sale and settlement of the amount owed the mortgage company prior to the commencement of the auction.

My neighbor, the county sheriff from the adjoining county, is going to use his "influence" to try to find out what happened.

It's a judicial sale and they'll have to file something with the court to explain why they didn't go through with the sale.