Auction for Ladera Ranch: A foreclosure bidding war with a twist

What really happens at foreclosure auctions? I've posted an latimes.com video and a photo gallery that take you inside the foreclosure auction staged last week by DoveBid and Catalist Homes at the Fairplex in Pomona.

We focused on the bidding for the Orange County house at left: 3 Magnolia Drive in Ladera Ranch, probably the nicest house of the 75 homes that went up for auction. Four bedrooms, 3 bathrooms, it sold for $1.2 million in 2005, but in this market was put up for auction with a scheduled opening bid of just $429,000. Because the opening bid was so low, there was a spirited bidding war for the home.

I'd like to think the video is worth watching for the surprise ending -- which itself is an education in how foreclosure auctions work. Those of you who can't wait can click below and I'll explain what happened.

Here's what happened: The winning bid for this home came in at $705,000. Remember, the bidder agrees to pay an additional 5% premium to the auction companies. So the total bid was $740,000 -- a 38% discount from the peak sales price of $1.2 million. However, the bank or lender that owns the home reserves the right to reject the high bid as too low, and that is what happened here.

Thoughts? Comments? E-mail story tips to peter.viles@latimes.com.
Photo Credit: Don Kelsen, L.A. Times

Comments

[MyLessThanPrimeBeef]

Here is another interesting auction for your vultures.

'Flying Saucer House' to be auctioned in Tennessee.

http://www.foxnews.com/story/0,2933,337790,00.html

All you nostalgic aliens, don't miss the opportunity!! Opening bid: $100,000, which is cheap if you have a lot of UAE dirham.

[mbob]

...reminds me of the term "show trial" that usually is used with the words "North Korea" or "Red China" or "Kremlin."

These are not legitimate auctions, just test runs.

[ArmyVet]

Interesting situation. Who authorized the auction? Was this an auction of a property the bank previously foreclosed on, or a property being auctioned as an alternative to foreclosure? The way the article is written it was, n essence, the auction is a conditional sale of the property.

If the bank did not already take title, such as in a prior foreclosure sale, this "auction" did not result in a sale, so, the homeowner in default still owns the house and gets to reside there, and the lender has to restart the entire foreclosure procedure. Thus, the clock starts all over, and there is no assurance that the next auction sales pdrice will come in as high as this one.

If the bank already owns the house, then I think the bank owes the auction company for its time and services.

[Cometcollector]

That, my friends, is one bloated McMansion. Is this what the American Dream has come to? No thanks, I'm much happier in my 1,100 s.f. central city location with things to do, no HOA fees, and no vapid Republican SUV swingers next door.

[Jeffrey Allen Miller NY]

Great clip - thanks. So, that wonderful family lost it for $705k? Shame... the greedy banks just can't learn their lessons for the mess they in fact helped cause. Same is happening here in NY although prices are much less than in LA area. I too have lost three homes simply due to greedy Bear Stearn's idea that they could get more money... Ha. Well, look what happened to them. They deserved what they got. Hope same thing happens to that home's bank.

[Carrie]

We've been to a lot of auctions, REDC, Hudson & Marshall, National Home, and Williams. I have to say it is perplexing. We have no idea why people are bidding so high on properties that in many cases, need major amounts of work. We fully understand the terms and conditions, but not why the banks are holding our for higher prices, it ain't gonna happen. I would think the banks would realize this by the sheer number of these homes that come back in auction after auction. Are the banks getting a tax break by holding these on their books for years?

[rickstar1]

I wanna know who payed $1.2 million dollars for this cookie-cutter style home in the first place? And what's the big fuss with Ladera Ranch? It's just another O.C. development that probably used to be called La Pueblo or Los Stupidos (like El Toro became "Lake Forest"). A bunch of over priced tract homes amidst urban sprawl. I think I'll start packing my bags for Colorado!

[TrojanDLA]

REOs and auctions are an ugly business. Just remember this: the bank sold the foreclosure at a loss of around 70% market value to investors who then turn around and attempt to flip it for a profit of up to 90% current market value.

The auction is the investors' (asset manager, servicing company, etc.) opportunity to unload the property for a profit as long as it sells for the strike price that allows them to make a profit. If they bought that property at 70% FMV, good look ever convincing them to sell for anything less than 85% FMV. That's the nature of this game folks.

And yes I work closely with the investors who buy this REO in bulk as well as the people who sell it. It's a gamble that there are suckers out there willing to pay a "discount" for this stuff. If anybody has $300 million lying around, I can get you California real estate in bulk for 65%-70% of its current market value, then we can flip it for an average 15% return in 6 months. It's a safe game when you look at the numbers: 25-35% of all sales today are foreclosure sales - see? Somebody is buying, let's hope it's not you.

[jag]

I miss lefty. I haven't seen any comments from him. Does anybody know where he is? Maybe, he's on the streets telling people to buy now....specially in Metro L.A.

[IToldu2CashOut]

Yeah something is very fishy with them not taking that offer.

To the people who lost the auction, I would say that one day a few years from now you will look back and say it was one of the best things to ever happen to you. Try the more traditional route.

Plenty of much better deals out there right now. I've seen houses in Dana point with ocean views that won't sell for 750k right now. The smart money isn't buying anything, but waiting for better prices. Good luck.

[Jim]

Was this one of the auctions where AUCTION HOUSE STAFF DRIVE THE BIDS UP?

They claim it is clearly described in the auction material that the company may bid on behalf of the property owner. I won't waste a minute until these auctions are NOT subject to reserves and the auction company can't bid against the public.

[Ned Kelly]

Now the bank is holding him to his bid at auction while it trys to hold an auction after the auction - If I were him I would put a clause in the contract that unless the vendor accepts the offer within the next 30 minutes then the contract will lapse and go back and offer the bank 10% less.

[Enlightenment]

Ha Ha

[NoWayinLA]

What a scam. If the bank has a minimum amount they'll accept for the house, that's what an opening bid is for.

All these banks are really doing is educating the public to stay away from these auctions. That's going to come back to bite them someday when they finally get serious about moving inventory.

The sad thing is, the video gives the impression that the "winning" bidder is wrestling over whether to increase his bid. I sure hope he doesn't. That's a knife he doesn't need to catch.

[Ann]

We having been attending estate auctions, antique auctions, art auctions and all sorts of aurctions for 30 years. I use Ebay a LOT.

Auction with a reserve? An undisclosed reserve?

Nope, I'm not going to play.

Start the opening bid at the minimum acceptable.

Otherwise you are wasting my time.

Don't worry. They will figure it out when the lenders get desperate. Undisclosed reserves are solely the province of inexperienced sellers. Those who jsut want to get the deal done know better.

Real estate auctions have not been widely used over the years - more typical in an estate situation than anything else. To say the real estate indusrty is inexperienced with the concept is an understatement. (And foreclosure auctions are not the same thing.)

[gotforeclosure]

Undisclosed Reserves are fair game. Nobody is forcing any bidder to attend. You can wait for absolute auctions. they will come. Meanwhile banks aren't in the business of predicting the future. If the high bid comes in below a certain percentage of their Broker Price Opinion they're rejecting it.

Having said that, bank owned MLS (and auction) inventory is going to rise dramtically over the course of this year. - Check out my blog for some solid numbers on that (click on my "posted by" name).

And therefore I don't think that "bulk purchases" are a safe bet at this time. - You may very well be the one holding the bag on these.

Move-in buyers on the other hand can buy their dream homes at a good discount now. Save on loan interest, and in 10 years nobody will call you stupid anyway.

[Steve]

Chumps line up for this waste. You are for better off just making low offers in the market place. These auctions nver are effective and always favor the lender.

[tag heuer]

"You want to avoid this nightmare that the lender puts you through, move to CO."

Thanks Steve, but what am I going to do in Colorado ?! Get a job in the cattle industry ? work for a bank ? Then maybe eat at at Applebee's on Friday nights ? NO THANKS. I prefer to live in a world class city and work in my chosen field.

[phil]

Word to the wise: Don't participate in reserve auctions. Wait for absolute auctions.

[Susiebeach]

OK Folks...here's the truth...Ladera Ranch is a fantastic place to live...we have 6,000 homes here priced between320k and 6mil , 330 are for sale with around 100 of those distressed sellers. Does that scare you? Not me...I would rather live in a gorgeous community and pay $3,000 per year and $200 in association than live in a place where our children cannot attend the neighborhood schools and cannot walk to the parks or to school...I know both sides, I have a step child that has commuted to school because the tony Marina del Ray neighborhood that she lives in only has ghetto schools so the price tag for private is $16k and she is not learning what these kids are learning...as far as being sorry for paying a price on a home, those of us that did not buy beyond our means are quite happy to make these low interest, fully amortized payments. Make no mistake, OC is doing just fine. Sounds like sour grapes to me.

[mike]

American Home Mortgage closed escrow on this home last week for $840,000 (per County Tax Assessor Data) and there were numerous follow on offers post auction as well. I guess they look pretty smart right about now