Starting bid price in a Trustee Sale auction

[Lang Le]

Who establish the starting bid price  (minimum bid)  in a Trustee Sale auction ? Is this price relate to the mortgage balance ? 

I see a case where the mortgage balance is 350K and the starting bid price is 200K. What happen if someone win the bid at 201K? Will the bank accept to loose almost 150K ?

Thanks

[Brian Burke]

There is no standard, "rule of thumb" or ratio that dictates starting bids at trustees sales. Every lender sets their own opening bid, and it ranges from a full credit bid all the way down to a small percentage of the unpaid balance. They also decide whether to bid against third parties to some amount up to the unpaid balance. Sometimes they do, sometimes they don't. I've bought properties for as low as around 20% of the unpaid balance, but that doesn't mean 20% of market value.

Lenders are like any other seller. They have to decide whether they want to take the property back or let go of it, and they price accordingly. It's not always as crazy as it sounds...think about a loan that was sold to another lender at a fraction of the note amount, even if the new lender sells it for a substantial discount at the trustees sale, they could still make a profit on their loan. In other cases, lenders choose whether to lose money at the trustees sale, or lose money when selling it REO. If the loan is upside down, they will take the loss one way or the other.