We receive several inquiries almost daily about what it’s like to attend a local foreclosure home auction. It’s hard to answer because each county varies in terms of organization, competition and atmosphere.
To provide some sort of context we decided to send one of our staff members to the Palm Beach County Courthouse located in West Palm Beach, Florida, to sit-in on one of two weekly foreclosure auctions (Tuesday and Thursday.)
Here is her report:
It’s Thursday, November 8, 2006, and I’m headed for the second of two weekly foreclosure auctions at the Palm Beach County Courthouse. These real estate auctions take place each Tuesday and Thursday at 10 p.m. ET in a dining hall that is converted into a large meeting space.
The crowd of about 30 is mostly made up of professional-looking people. I’m told that these are representatives for the banks who are in attendance to buy back their foreclosed properties. Once a bank buys back a foreclosure property it becomes Real Estate Owned (REO).
There are other attendees at a table in the corner who are talking business and pouring over reams of data prior to the sale. Clearly, these are the investors who are hoping to score a great real estate deal with a low bid.
Prior to finding a seat, I notice a list of properties posted on the wall. These are the listings that will go “on the block” this morning. Rather than stand there and ogle I purchase a newspaper right there for $2 that has all of the listings for today’s auction and the rest of the month published.
This way I can take it to my seat and quickly study some of the deals before the action starts. There are more than 30 properties on the docket this morning.
I think to myself, “That’s a lot,” considering this happens twice per week. “And I’m just in Palm Beach County. This happens in all counties throughout the United States!”
At about 9:50 a.m. representatives from the Clerk’s office begin to set up for the auction. The emcee makes an announcement that anyone who is interested participating must register to bid and become certified prior to the start of the auction.
This legitimizes the auction and ensures that a bidder is not outbid by a person who can’t afford to purchase a foreclosure at auction.
In fact, bidders are required to pay 5 percent of the bid price right away and the balance no later than 4 p.m. that SAME DAY! For example, if an offer is accepted for $100,000 the bidder is required to pay $5,000 immediately and the balance ($95,000) at least six hours later.
Here are the actual instructions:
“To make a purchase buyers must have 5 percent of the bid amount at the time of the sale. Remaining balance must be paid by 4 p.m. the same day. Cash or a Florida cashier’s check payable to the Clerk of the Court. Other costs of the sale will be collected at that time. Additional costs and fees may be added to some final judgments listed. Some sales are are subject to cancellation by order of the court.”
Where do people get this kind of money? We’ll talk about that in an upcoming post. For now we just want to focus on the process.
At about 9:59 a.m. a police officer in the room reminds everyone that cell phones are not allowed. Before she can even finish her sentence the phone of an investor begins to ring loud.
He thinks it’s amusing … she doesn’t.
The sale is about to begin and the emcee rattles off some last minute instructions. Her tone is robotic — you can tell she’s done this way too many times.
She begins by calling out the case number for the first property on the list. This is how banks, attorney’s and investors identify these listings — it’s not by the addresses. The Clerk representative then calls the names of the Plaintiff and the Defendant.
In the first case it was: Bank of New York vs. Luis Dominguez.
A representative from the bank then approached the podium with a stack of papers and blank checks. The Clerk representative then announced that there was an opening bid of $100 from the bank representative. She asked if there were any other bids:
“$100 going once, $100 going twice, $100 going three times … SOLD for $100 to the Bank of New York.”
Out of the 30 properties this happened about 27 times — various bank representatives just buying back their homes. Why? Because these banks doled out the loans for these properties. And if they didn’t buy them back they’d lose a massive amount of money.
Imagine lending a homeowner $300,000 and he or she defaults on that loan in just two years. That’s a lot of money on the table that a lender will not walk away from. The goal is to get the “Final Judgment” value for a property.
That’s basically all the money that has gone into a particular property. On the Dominguez house the “Final Judgment” was $242,000. The bank would want a bidder to bid up close to that amount for it to be sold to someone other than the bank representative.
Of course, banks don’t always require that bidders meet the “Final Judgment” value. Some will stop bidding on a property if the amount reaches a predetermined figure. For example, in the Dominguez house the bank might be willing to accept $230,000 at auction (or lower). That’s because in the long-run it will cost them more money to market and sell the homes.
Always remember: Banks are not Realtors. They handle money … not real estate. The quicker a home is off their books the better the situation — even if its at a minimal loss.
Back to the auction.
Midway through the sale an investor finally shouted out a bid on a property. It was for an outstanding condominium association fee on a property in Lake Worth, FL. He and the bank representative for that property went back and forth until the bank representative was apparently satisfied at the $5,000 mark.
The investor walked up and plunked down $250 cash (his 5 percent deposit) and it was his — pending payment in full and the 10-day confirmation of a certified sale (no home auction purchase is ever official until after at least 10 days.)
There was another minor incident between two investors toward the end of the auction. These two apparently knew one another and seemed annoyed that a bidding war was in full swing. It didn’t seem like the first time this had happened. Once the winning bid was announced the losing bidder asked the winning bidder to talk on the side about what had just happened.
It was a professional disagreement — one that apparently happens all the time at foreclosure auctions. In fact, Sheriff Sales can be very intimidating for new investors. Just for the short time that I was there you could tell who were the “regulars” and seemed like they had an expectation of entitlement.
Our REO Director, in fact, when I can back to the office told me about a group of “regulars” who would often collude on the bidding if a new investor was interested in the property. The goal was to make the new investor bid too high so that when it came time to resell the property that he or she would be in the red.
These are the kinds of things to watch out for during a Sheriff Sale. In addition to all the other research that goes into it such as ensuring that a title is “clean,” it’s important to be aware of the other bidders in the room and their intentions.
All in all the experience was eye-opening. I’ve heard horror stories and read about the “lemons” that people purchase and end up losing their shirts. Based on what I saw purchasing a home at a foreclosure auctions requires a great deal of homework prior to submitting a bid. There’s strategy, whispering and sorts of other things going on simultaneously.
It’s a rather nerve-racking experience … and I wasn’t even bidding!
The best advice I can give is to find out the date and time of the next public foreclosure auction in your local area and sit in on it. You might want to do this a few times, in fact, to get comfortable with the process before actually getting your feet wet.