How Soon Should The Bid Price Be Available?

Things are happening at the trustees’ sales these days.  The most interesting change is the greater number of interested people who attend.  It makes you wonder what attracts them now.  Why are more and more people now bidding at the trustees’ sales–while the number of properties going to the foreclosing lender also is increasing?  What attracts them? There is no question that the number of properties offered for sale is increasing almost weekly.  It seems obvious then that more and more people are unable to keep their properties in spite of the effort by the government to alleviate the financial burdens that have plagued so many for so long.  But yet, the sheer volume of available properties can’t be the magnet that draws those who attend the sales.  Each buyer there is seeking available properties at a discount–that is a property available at a price significantly under the market price when the property is offered by the foreclosing lender at price at or near the amount due on the loan. As you know, the non-judicial foreclosure process in California starts with the recording of the Notice of Default which alerts the delinquent owner that the lender has not been paid as promised on the Promissory Note and will take action unless a specified amount is paid within a certain date,  This is followed by the recording and publishing of the Notice of Trustee’s Sale which informs the defaulted owner that the property will be sold at a public auction on a specified date unless further action is taken by that owner to stop the foreclosure. The trustee, who handles the foreclosure for the foreclosing lender, follows a procedure outlined in California Civil Code 2924.  This requires the trustee to record and publish the amount due the lender at the trustee’s sale.  Those who bid successfully at the sale in cash or cashier’s checks must exceed the amount shown on the Notice of Trustee’s Sale and will ultimately received title to the property.  So far, there is nothing different here than has not been happening at such sales for many years–but wait, there’s more! Unpaid lenders have to evaluate their options carefully when borrowers become unable or unwilling to continue making payments on the loan as agreed on the signed Promissory Note and Deed of Trust.  First of all, let’s agree that the lender will take those steps that are in the best long-term interests of that lender.  If the lender is convinced that initiating the non-judicial foreclosure process is the next logical step, the trustee will begin the steps outlined above. We know that the lender is permitted to foreclose on the amount due on the foreclosing loan–including unpaid principal, interest, late charges, penalties, and trustee’s fees and costs.  The lender cannot require the delinquent owner to pay more than the amount due, however that lender has the option to offer the property at the trustee’s sale for less than the amount.  Once again, the lender can be expected to do what is best in that lender’s interest. Most institutional lenders have concluded that simply foreclosing on the delinquent borrower can be a risky process for the lender even under the best of circumstances.  As a matter of fact, such lenders usually have a “Loss Mitigator” in their REO department whose job it is to minimize the costs of foreclosure for the lender if and when such a step becomes necessary. I have heard that lending institutions estimate that the total costs of foreclosure to the lender approach $45,000 to $65,000 from the acquisition of the property when no third party bid is received at the trustee’s sale to the ultimate completed sale of the property to a qualified buyer.  (Is this an urban legend?) If that is a true figure, it is easy to see why such lenders do not warmly welcome the addition of another foreclosed property to their swelling inventory of REO properties. One obvious way for the lender to sidestep such costs is to lower the amount due that lender to an amount that becomes attractive to the third party bidders who attend the trustees’ sales.  When the local residential market of available properties escalates and more properties are dumped into that market, almost no one becomes the winner at a foreclosure.  Yet, it is possible to see that getting the property off its books has to be a realistic goal for many lenders.  It is obvious that some lenders have come to that decision and are deciding to take that catastrophic step with an unhappy shrug. Each bidder at the trustees’ sales will periodically check with the trustee of the foreclosing property to see what changes have been made in the interim that will affect the buyer’s interest in the purchase of the property.  In order to minimize the volume of interrogations received by the trustee on any one sale, the final bid amount at which the property will be offered by the trustee on behalf of the lender normally is not given until 24 hours prior to the sale–and sometimes at a time even closer to the actual published or postponed sale date and time.  It is obvious that a larger number of potential bidders will attend the sale of the property if the sales price is substantially lowered at as early a time before the sale as possible–and not just a day or an hour before the actual auction of the property. This being true, it makes good sense to conclude that the foreclosing lender (and therefore the defaulted owner) benefits from the early disclosure of a substantially discounted offering price at the trustee’s sale–thus giving time for the potential bidders to gather sufficient funds with which to bid most competitively.  If the final opening bid chosen by the lender is to be substantially less than the amount due that lender, an early release of that bid amount will encourage more bidders to participate, and a higher property bid will be realized by the lender.  Isn’t it time to require lenders to make that critical decision at least 24 hours or more before the actual sale–and to make that minimum bid amount available to the public as quickly as possible? By Warren Racine

Warren will be presenting at FEC

on March 25- come out to network,

meet Warren and learn more.