Understanding foreclosure auctions better

[Jim L.]

What is the difference between estimated credit bid and judgement amount?  I thought judgment amount was amount owed on house including any fees/taxes, etc.  Are banks really going to take a large loss on a property just to get it off their books? Or are most properties auction reserve levels pretty close to judgement amount?  

[Marty Boardman]

Quote from @John Slater:

Yes, estimated credit bid is what we call opening bid.  Doesn't have to be the same amount as that what is owed, although normally it is..  I've started to notice in california that some lenders have an opening bid less than that which they posted a a month before the auction, and in some cases significantly less.  Most of the time I see lenders looking for the amount which is owed, but sometimes what I see doesn't seem to make sense.

This is called a "drop bid". The lender does this because they want to entice third-parties to bid and if they don't "drop" the amount owed they'll end up with the asset. This happened a lot where I'm at in Arizona after the housing market crashed. I actually bought about 20 properties in Wisconsin at Sheriff's sales the past two years that were drop bids.

It's smart to do your homework on the properties that appear to be underwater prior to the auction (title check, comps). If the bank does a "drop bid" the day before the auction, or the day of, you'll be prepared. A lot of investors don't know that banks do this and miss out.