Sheriff's Sale

[dooleysm]

In general, I think that bank's (not just the bank I've been trying to deal with, but the banking system in general) unwillingness to deal with their debtors is a big reason we're in this mess.

If the banks were to write down mortgage balances for everyone whose house is worth less than the outstanding mortgage balance, where would the write downs end?

If banks write down mortgages for customers who quit paying their mortgages, what are the customers who make their payments going to say? If anything, looks like they'd want to reward the customers who actually pay their bills.

I can't imagine that writing down upside down mortgages would have ended any worse than sending them all to foreclosure has. Since we're already in a mess, I would think the banks would be ready to try something different.

But we're getting close to politics with this tangent, so I'll end my comments there.

I see your point and I feel like my case is different. The bank knows that they aren't getting any more money out of the current owner. I know that the bank knows this and I told them as much. I asked them if they would be willing to negotiate a solution that would release the current owner from her obligation and transfer the deed to me, in exchange for some amount of money less than her current payoff. At the very least this would require the signature of the current mortgage holder. I completely understand that.

I am planning to contact the sheriff's office soon to find out the deal with sheriff's sales. If I buy am I guaranteed a free and clear title? I realize I won't get to see the inside of the trailer, and I really don't care. The price I am willing to pay is based on what the land is worth to me.

 

[2manyrocks]

Whether the title conveyed at a Sheriff's sale is a good title with any warranties of title depends on local Indiana law. Generally, a foreclosure sale results in a trustee's deed with no warranties. It is more akin to a quitclaim deed than anything else.

 

[dooleysm]

Here's a followup on this...

That property eventually went through the Sheriff's sale about a year ago. I tracked down a guy at the bank to talk to about this. He had a much different opinion on the value of the property than I did. My wife went to the sale and the guy from the bank started the bidding at $54,500. Nobody else bid on it.

I watched the property over the past year. I saw somebody there mowing it all year. I saw 1 tri-axle of rock come in and get dumped on the drive. I saw a 20-yard dumpster up there for a few days. That was about it.

Several weeks ago on a Thursday evening I noticed For Sale signs in the yard. I called the next morning and put in an offer. My offer was finally accepted and I am closing on the property at 4:15 this afternoon.

$25,000 for 2 acres with a 10 year old double-wide in terrible condition. It's on the higher end of what I wanted to pay, but I don't think I'll regret it.

 

[Joe H]

I went through something similar with Bank of America. It's amazing what they will go through to screw themselves and you too if it can be done instead of just taking the offer.
Glad you came out on top, Joe H

 

[2manyrocks]

The bank was trying to recoup what it had loaned, and when that didn't work, they sold it for what they could get. Plus, one has to wonder what shape the bank that sold it is in themselves.

If the bank has public stock, you could look up their financial statement and see if they have lost money for the past couple of years.

One bank I read about had their bad loans increase from 75 million in 2009 to 150 million in 2010. Not good for their stockholders.

 

[dooleysm]

It was a small local bank that held the note on this property. That is what made it more confusing to me when they wouldn't initially deal with me. There's nothing special about this area that somehow exempted us from the terrible housing market that's been going on for years now. It sure seemed obvious to me a year ago that a doublewide in terrible condition on 2 acres in the middle of nowhere was not worth $54,500. I would have thought a bank repo person would have been just as aware of this.

In the end though, I think it worked out for me. I just have to figure out what to do with this thing. I'm not sure if I can get any money out of the trailer or not. It still has an oven, water heater, and furnace in it. They might be worth a few bucks. Maybe copper wiring if I'm lucky. And presumably a steel frame under it. I'm not sure if anything else is worth anything for scrap.

 

[bdeboer]

If I understand it correctly the bank is trying to collect its "PMI". That is the mortgage insurance, and therefore the bank usually has a set amount they will go to at the sheriff's sale. As a result the dollar amount at the sheriffs sale usually has nothing to do with current value if the bank is purchasing it back.

The bank will buy back if it is in their best interest.

In this area if there are 15 properties at auction banks will buy 8 back, 6 will be withdrawn at the sale, and 1 will private sale.

 

[JohnBoyMD]

What the bank bids on a property depends on a number of factors, including how much they are owed and how much they believe the property is worth. Some of the decision is driven by the local laws that require certain bidding strategies for the bank in order to preserve their ability to pursue the previous owner for the deficiency balance (what's owed after they sell the property). In some places, the bank can bid $100 if nobody else bids on the property. This greatly reduces the transfer tax they have to pay. Other places don't allow this type of bid.

Liens will normally be wiped out by the foreclosure (with some exceptions); however, sometimes properties are sold subject to liens especially if the lender has a second mortgage they are foreclosing. Be sure to listen to the announcements by the auctioneer/sheriff before the property is sold. If you don't understand them or have questions, do yourself a favor and don't bid on the property. It could turn out ot be a very expensive lesson. It is always a good idea to get a title search before bidding on a property and so is requiring a warranty deed.

 

[2manyrocks]

Sometimes the bank is trying to avoid a write down of value on its books until they have earnings elsewhere to cover the write down. The smaller the bank, the more they seem focused on how the sale is going to affect their reserves for bad loans and their net income figures. You wouldn't think a bank would be that concerned over a $50K loan, but sometimes you have a loan officer trying to CYA after the fact for making an idiot loan in the first place. Then finally higher mgt figures out what they've actually got and tells the guy to cut it loose.

Usual procedure is for the bank to get the property back. Get an appraisal. Try to sell it. Not sell it. Finally adjust to reality and take what's offered. If a property was worth what was owed, you've got to figure the borrower would sell it in order to get their equity out. In a typical foreclosure before the current market meltdown, there was usually something amiss with the borrower's management or the property itself that the borrower couldn't sell it.

 

[Pops15]

It's not that the bank wouldn't work with you. They couldn't. Until they foreclose, they don't have a right to sell it. Then there are laws saying how they can sell it. If the bank was able to do what you wanted, the property would have been bought by a relative or friend of the banker for well below market value. Since the original borrower could still be on the hook for the difference between what the bank sells the property for and the amount of the mortgage there are laws governing how banks have to handle things. They handled it correctly.

For the bank to sell to you prior to them foreclosing, you, the owner, and the bank would have needed to negotiate a short sale....and technically the bank wouldn't be the seller.

 

[dmccarty]

Liens will normally be wiped out by the foreclosure (with some exceptions); however, sometimes properties are sold subject to liens especially if the lender has a second mortgage they are foreclosing.

This is real important. We knew of a property about to be sold at the court house. We talked to a couple of lawyers about the situation and their bottom line was to wait until the property had gone into foreclosure since the liens would be removed. If we became involved prior to foreclosure the liens would be ours....

In the end we just stayed away for a whole bunch of reasons.

Later,
Dan

 

[dooleysm]

I initially attempted to work out a short sale, the bank was not interested. What I was offering was to come to the Sherrif's sale and bid on the property for what it was worth, nothing more. The bank started the bidding at well over double what the property was worth, as evidenced by them selling it a year later for much closer to it's market value.

Had the bank taken me up on my offer they would have saved a year's worth of taxes, maintenance (that I know of, they paid someone to mow it all last season, they paid for a load of gravel, and they had a 20 yard dumpster there for a few days), insurance (presumably), interest (on the money they had tied up in the property), and realtors fee ($2100 according to the settlement sheet at closing). They may or may not have had reason(s) for playing it like they did.

I'm no real estate or financial wizard, but a simple reality check told me that the property could not be worth anywhere near $54,500.

 

[dmccarty]

...
I'm no real estate or financial wizard, but a simple reality check told me that the property could not be worth anywhere near $54,500.

But if they found a buyer then it was worth the price.

When we bought our land, we sold off three lots, roughly 15 acres to someone we know. They started to build a house and then decided to get divorced. The land and house came within days of being foreclosed. They found a buyer for the 10 acres just in time to stop foreclosure. The new buyers paid at least 2-3 times what the sellers paid a year previously. That sounds like the buyers got ripped off but they did not. We bought the land cheap and the price was still less than a lot on the property line.

The house was maybe 90% completed. I knew almost to a penny what had been spent to build the house. A buyer bought the house for more than it was "worth" and assumed quite a bit of risk in the process due to liens, mold, a bit of water damage, etc. We walked away from the house because of the risk and these other issues.

In the end the owner and the bank did not go to foreclosure but only by the skin of their teeth. It was just a matter of days.

Sometimes you win. Sometimes you loose. In this case the sellers and the bank did not take a huge loss. Maybe broke even or made a bit of money.

Later,
Dan

 

[Pops15]

I initially attempted to work out a short sale, the bank was not interested. What I was offering was to come to the Sherrif's sale and bid on the property for what it was worth, nothing more. The bank started the bidding at well over double what the property was worth, as evidenced by them selling it a year later for much closer to it's market value.

Had the bank taken me up on my offer they would have saved a year's worth of taxes, maintenance (that I know of, they paid someone to mow it all last season, they paid for a load of gravel, and they had a 20 yard dumpster there for a few days), insurance (presumably), interest (on the money they had tied up in the property), and realtors fee ($2100 according to the settlement sheet at closing). They may or may not have had reason(s) for playing it like they did.

I'm no real estate or financial wizard, but a simple reality check told me that the property could not be worth anywhere near $54,500.

The owner has to be a willing participant in a short sale. You said the owner wasn't willing to pay any more. Sometimes a short sale includes the owner paying some of the shortfall.

Also keep in mind that real estate prices dropped like a rock during that period.

Banks are very good at making decisions that benefit them.
They didn't really pay 54500. They just kept someone else from buying it for less than that at the Sherriff's sale. At worst they're just out the commission, a little interest and some maintenance costs.

I think you missed the point that they couldn't sell the property until they bought it at the sheriff sale. Even once they've foreclosed a property their hands can be tied by laws on how they dispose of the property.


JohnboyMD made some excellent points.

 

[2manyrocks]

Banks are very good at making decisions that benefit them.
They didn't really pay 54500. They just kept someone else from buying it for less than that at the Sherriff's sale. At worst they're just out the commission, a little interest and some maintenance costs.

The bank is entitled to credit bid what is owed on their loan. However, if the outstanding principal balance on the loan was $50,000 plus $4,500 in past due interest, then the bank was out $50,000 plus the commission, lost interest and maintenance costs netted against what they ended up selling the property for. So it's possible they actually lost $20-$25K on a $50k loan.

Dan's situation is bit unique in that he knew the problems with the property he was considering buying and apparently knew what dollars had been sunk into it. In most foreclosures, you don't know what the inside looks like until you've bought the thing. So not so many independent bidders are going to climb out on that limb unless they know about the interior or are getting the property cheap enough that there is enough cushion to deal with problems and still come out.

 

[Pops15]

The bank is entitled to credit bid what is owed on their loan. However, if the outstanding principal balance on the loan was $50,000 plus $4,500 in past due interest, then the bank was out $50,000 plus the commission, lost interest and maintenance costs netted against what they ended up selling the property for. So it's possible they actually lost $20-$25K on a $50k loan.

Dan's situation is bit unique in that he knew the problems with the property he was considering buying and apparently knew what dollars had been sunk into it. In most foreclosures, you don't know what the inside looks like until you've bought the thing. So not so many independent bidders are going to climb out on that limb unless they know about the interior or are getting the property cheap enough that there is enough cushion to deal with problems and still come out.

They probably did lose a chunk on the deal, but they didn't actually "pay" 54500 at the auction. They likely bid what they were owed. Basically traded paper to protect their investment as much as they could.

 

[Alan L.]

I have no expectation that she would sell the place for less than she has in it, I never asked her to do that because I knew she wouldn't accept that kind of offer. The way the economy is right now, many folks are facing having to sell properties for less than they have in them. Instead, most are going the same route as this lady, foreclosure.

My BIL works with her and asked her about the property for me. She told him what she owed on it, that she had been to the bank and told them she wasn't going to pay anything else on it, they froze her accounts, and that she would sell it to me for what she owes. My father went to the courthouse and looked up which bank she had her mortgage through and what amount her mortgage was. That is public information, available for anyone to see.

I believe that the 10 year old double wide, with significant shingle damage since last September, and completely neglected and abandoned for the past 6 months or so is not worth what she owes on it. Nowhere near that in fact. It's possible that it's worth more to someone else than it is to me, but probably not by much.

In general, I think that bank's (not just the bank I've been trying to deal with, but the banking system in general) unwillingness to deal with their debtors is a big reason we're in this mess. The bank is going to take a hit on this property, no two ways about it. I was offering to help them get this property off their books right now; as opposed to going through foreclosure, paying their lawyer, going to the sheriff's sale, paying a realtor, paying for fixes, and carrying this debt for the next X number of months. I feel like it was a bad decision on their part to not deal with me. I was bringing cash to the table and willing to make what I felt was an attractive offer to them.

If you feel like I've done something shady or underhanded, that's you opinion. I certainly don't feel that I have.

You can't buy a house from a lender. They don't own the house. They would have to foreclose first before they could sell it.

 

[two_bit_score]

The bank is entitled to credit bid what is owed on their loan. However, if the outstanding principal balance on the loan was $50,000 plus $4,500 in past due interest, then the bank was out $50,000 plus the commission, lost interest and maintenance costs netted against what they ended up selling the property for. So it's possible they actually lost $20-$25K on a $50k loan.

Dan's situation is bit unique in that he knew the problems with the property he was considering buying and apparently knew what dollars had been sunk into it. In most foreclosures, you don't know what the inside looks like until you've bought the thing. So not so many independent bidders are going to climb out on that limb unless they know about the interior or are getting the property cheap enough that there is enough cushion to deal with problems and still come out.

I think you are forgetting about the morgage insurance that the bank probably collected.

 

[greasemonkeyok]

two-bit-score has the correct answer. Banks won't do a short sell to a third party if they have credit insurance on the note because insurance will not pay the bank under those circumstances.

 

[2manyrocks]

Odds are there was no credit insurance.