New wrinkle in courthouse foreclosure auctions

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Interesting story over at Calculated Risk about a possible trend in foreclosure auctions: In a few recent cases, banks are showing signs that they don’t want to take possession of foreclosed houses.

It’s a bit complicated. There are two kinds of foreclosure ‘auctions.’ The first, which usually take place on courthouse steps, are usually uneventful. Say the homeowner has defaulted on a $500,000 mortgage; the opening bid at the courthouse auction is set at $500,000, and usually nobody bids because the house is worth quite a bit less than $500,000. So the house goes back to the lender. (Calculated Risk has a nice short video of this process -- it lasts about 37 seconds, it’s a real courthouse auction, nobody bids).

The second kind of ‘auction’ is when an auction company, working with Realtors and banks, rounds up a bunch of foreclosed houses already repossessed by lenders, rents a hotel ballroom, advertises for a few weeks to build a crowd of bidders, and auctions them off one at a time to the highest bidder.

The Calculated Risk post -- actually a link to a post on Jim Klinge’s San Diego real estate blog -- is about a possible trend in courthouse auctions. CR reports that, in a few notable cases, banks have been setting the opening bids in courthouse auctions at less than the amount of the loan -- essentially inviting investors to buy foreclosed houses before the bank ever gets its hands on them.

As I say, not yet a trend, but something to watch.

--Peter Viles

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