Commentary: Why aren't foreclosure sales regulated?

Good morning. Guest commentary today from Leo Nordine, a realtor who specializes in selling bank-owned, foreclosed houses. It's all yours, Leo:

Why aren't foreclosure sales regulated?
By Leo Nordine

In the early 1990s I tracked every foreclosure in south L.A. County, soliciting every REO listing I could get. I quickly found that some of the smaller "companies" conducting the trustee sales were crooks. Unfortunately, nothing's changed. They'll hold the auction for a Long Beach property in Lancaster, for instance, as far away as possible, but only after postponing the sale several times. But after the initial sale date, no one knows when the sale is scheduled because the trustee never answers the phone. The eventual buyer is always the foreclosing note holder, usually one who has bought the note at discount. They acquire the property under market because they have no competition.

Then there are the semi-legitimate trustees that at least answer the phone, but play the same game, not giving any information about their sales. These "trustees" are also active real estate investors, often silent partners of the foreclosing note holders. Also, lenders who hire honest trustees often get shortchanged. The buyers at the auctions all know each other. Instead of bidding against each other, they'll often partner up to keep the price down.  Two, three, four, even five or six partners on one property. One of them will be the official buyer, whose name shows up on the trustee’s deed, and the rest will be silent.

I could give more examples, but you get the idea. The problem is that anyone can conduct a trustee sale, with no license required, and no regulation. It's the Wild West, and there's a lot of cowboys. I've explained this to the D.R.E., the Corporations Commissioner, and the California Attorney General’s office.  All were indifferent.  If mortgage brokers have to have a real estate license, why not trustee sale companies? This should have been done decades ago. The D.R.E. should do this to protect the public and institutional lenders, as well as improve the reputation of the real estate industry.

Thanks, Leo.
Thoughts? Comments? Email story tips to lalandblog@yahoo.com
Photo Credit: AP

Comments

[ace]

"The D.R.E. should do this to protect the public and institutional lenders, as well as improve the reputation of the real estate industry."

is that possible.....why would these people want to change a good thing ..

absolutely pathetic that such greed exists in our world.

[Jeff Lebowski]

I'm an attorney, and I absolutely agree. I can't think of any legitimate public policy reason for keeping the system the way it is, and can think of a dozen public policies being violated by the current system.

[Cary]

I am a past client of Leo's (5 years ago) and I have to say that I have not come across a more honest agent/broker. I am happy to see that Peter has found him to be as honest as I have.

[Jim Keller]

Just what we need ... more red tape!

Rather than trying to throw more government at the problem, wouldn't it make more sense to form a non-profit organization (or get one of the many existing non-profit organizations) to publish "best practices" guidelines, and then endorse those trustees who agree to abide by them? This way, owners of REO properties would know which trustees will get them the most for the property, and buyers will know which sales will be conducted in an open and honest manner. And, it costs me, the taxpayer, nothing and (unlike government) may actually be effective.

[Toby]

Rather than trying to throw more government at the problem, wouldn't it make more sense to form a non-profit organization (or get one of the many existing non-profit organizations) to publish "best practices" guidelines, and then endorse those trustees who agree to abide by them?

Posted by: Jim Keller

That's like non-binding arbitration, usually, it's just a big waste of time.

I do think there should be some regulation like a bonded third party that has to follow a certain guide line of practice. Transparency rules would be a must.

Sure you create a regulated market, but it would be private. Most likely it would just be a new revenue stream in a newly formed subsidiary of an already established Auction house/company.

But still, it would create jobs.

[sunsetbeachguy]

I am shocked at appalled at the dirty dealing that trustees and vulture investors have set up.

Actually, I am not. After reading most of the RE blogs, it isn't shocking at all.

The WHOLE RE industry will get to enjoy much tighter regulation as this monumental bubble unwinds.

It will penalize the good actors along with the bad actors but all regulations do and it is in the political/regulatory rulebook.

[San Diego]

Why should the government step in? It's up the the lenders to make sure that they work with reputable trustees. I don't care if Countrywide doesn't get top dollar for their REPO's. It's up to them to figure out how to do that, not us.

[Roger dodger]

When does a foreclosed property go to auction? From a recent LA Times article (Apr 30, 2007, pg. A.1) on auctions at the Norwalk courthouse: "State law requires these properties to be sold at public auction, which in theory puts everyone on an equal footing." I guess there are some laws, but I'm not familiar with them and the article didn't quite explain beyond this line: "If the homeowner fails to pay up in 90 days, the trustee -- usually the title company -- sets a date for a public auction."

I read regularly that a big mortgage co, like Countrywide, has hundreds of REO properties. Thus, in 90 days, do all those properties go to auction? How does a home transition from REO to auction block?

[lefty]

you need to speak to law makers, not regulators. good luck.