patrick.net

My impression is that it is rare to find a good deal at the courthouse auction. Allow me to explain why:

I think the legal purpose of the courthouse auction is to protect the homeowner from the bank ripping them off:

The auction exists basically to establish whether there is anyone in the general public who is willing to pay more for the house than what the bank is owed.

Think of it as an assurance for the owner (the defaulting party) that the bank will not take the house and then turn around and sell it for MORE than what they are owed, while pocketing the profit.

Now, it is rare for a house to end up in foreclosure if it could already have been sold on the open market for more than what it is worth. In other words, houses that foreclose are worth less than what the owner owes most of the time.

At the courthouse auction, the bank (lender) will typically make an offer equal to the amount they are owed, in return for title to the house. Basically they are getting the title by paying themselves off.

If anyone offers MORE than the bank, the proceeds will be used to pay off the bank, the buyer gets the title and the original owner gets paid the difference between the purchase price and the loan.

Hence the question is: how often will the market value be higher than the outstanding loan balance? Not very often, apparently. Perhaps under some peculiar circumstances it can occur.

I see it every week. It's not like there's a lot of action going on there. I don't disagree with justme, seems reasonable, but basically what I see is it seems to be an insiders game. You don't actually see lots of bidding, just lots of standing around waiting. I guess I should actually listen in closely one of these days, might be illuminating.

I am a little more familiar with auctions for tax defaulted properties I have seen back east. These occur more often in depressed areas (I am talking about rural Michigan) where the taxes alone are more than someone wants to pay to keep the place, and so they just let it go. I know folks who vulture in on these but believe me, they are looking for a) decent properties that are b) almost free. One man's trash is another man's treasure.

Finally, in this area (Redwood City i.e. San Mateo County) there are in my opininion still no good 'deals' to be found. Sure, go bid on a complete dump and get it for $450,000. Yay!