Upset Price vs. Debt Amount - What Ratio to target?

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@David WeintraubHere are some possible explanations: 1. Some counties make life difficult for the mortgagees and impose various restrictions that I think are silly. One such practice includes not allowing mortgagees to start the bids at the upset price. There were some other silly restrictions that I can't remember off the top of my head. 2. It may have to do with "poundage" --- the amount that the sheriff's offices receives based on the sale price of the property. 3. It may also have to do with how the banks handle bidding instructions. Some times the attorneys are told to start their bid at a certain price and stop at a certain price. Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it as legal advice. Always consult with your attorney before you rely on the above information.

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In some PA counties I've noticed the attorney/rep bid the upset price, but then a bidder counters with $100, which is then countered by the attorney/rep for $10,000, and then back and forth, usually below the upset price.What is the purpose of this exercise? Hasn't the upset price been decided? Would there ever be a scenario where the attorney/rep stops bidding?

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Thanks for the detailed answers Chris. I guess it just comes with the territory that you will not know in many cases until the sheriff sale actually starts whether a target property is viable given the upset price. As happened yesterday I knew 3 upsets the day before and didn't find out the other two until the property was announced at the sale. I am targeting a small geographic area so it is doable for me to research all properties within that area each month. Probably would be smart for me to add spreadsheet columns for Total Survivable Liens, Max Bid, Est. Market Value, and Upset Price. This way I could quickly in the heat of the sale make informed bids.

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@Ben Quereau1. Counties use that term slightly differently, but it basically means the amount that you would need to pay before the mortgagee stops bidding against you. So let's say the upset price is $100,000. You will need to bid at least $100,001 (or whatever is the minimum bid amount is) for you to get the property. Otherwise the mortgagee will continue to bid. Because of this, some counties just now start the bid at the upset price. 2. I suppose you can try to look at the mortgage amount since that's typically the bulk of the upset price. But to get the best information, you need to talk to the foreclosure attorney. For Fannie and Freddie loans, Fannie and Freddie tell the mortgagee what to bid. For portfolio loans, each mortgagee has a different formula. The attorney will receive this information at some point.Note that in PA, most mortgagees don't have incentive to use a high upset price just because of the fair-market value. For example, let's say that a property is worth $1 million but the mortgage amount is only $100,000. The mortgagee doesn't necessary have any incentive to set upset price much higher than the $100,000, since the rest of the money doesn't go to the mortgagee. That's not always the case in other states. 3. No idea. I would personally assume that you would need to do extensive rehab, find the upset amount, and leave some room to account for unexpected expenses. 4. Freddie and Fannie dictate the prices for their loans. For other loans, it depends on the situation. But again, the mortgagee doesn't have any real incentive to set the upset price drastically higher than where it needs to be.I can't remember what foreclosure practice is in Chester County off the top of my head, but many counties basically allow you to: (1) make the initial deposit on the day of; and (2) pay the balance within a certain period of time. But yes, as a general rule, you should have some pool of money available when trying to buy stuff at a sheriff's sale. 5. I don't have any charts specifically dedicated to foreclosures. But if I were you, I would try to figure out what the upset price would need to be for you to bid. That way if the upset bid is surprisingly low, you know what you will have to bid up to. Whatever you do, be generous with your repair budget. While I wasn't a foreclosure specialist, I've handled a decent amount of foreclosures over the years. The amount of damage that a tenant can do within a short time is truly astonishing. I recall one case where the property was in an "okay" condition before the sale. Between the sale and the writ of possession, the tenants totally destroyed the inside including the utility fixtures. For most lenders, it really doesn't matter since what's a low six-figure loss when you have billions in assets? For an average investor, it could be a total disaster. Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it as legal advice. Always consult with your attorney before you rely on the above information.

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Thanks Dan for the response. Hopefully some others might chime in also.

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Each state and sometimes each county has different rules and customs. I can speak relating to sheriff sales in Indiana. In some counties, the people administering the sale will give the bank bid when asked. In other counties, they will not. I have had very little success in getting attorneys to cooperate in providing information (although in a few cases they have been helpful.)The strategy for how the bank determines its bid is one of the mysteries of the universe. Sometimes there is a mortgage insurance provider to guide or direct them in a number. Sometimes it is based on a BPO valuation. Sometimes it is based upon the amount owed.You might find out more helpful information from the people at the sheriff department than all those books, because they deal with it every day and are familiar with local regulations and procedures. Be extra nice to them.