How to make deal with bank after sheriff's sale?

[Ian G.]

There was a sheriff's sale recently where the bank bid the price it was owed. I don't understand that, but anyway I assume that they'll want to sell it now, right?

How can I contact them to make a deal to take this thing off their hands before they make it more complicated and expensive, like a Foreclosure sale or going through Auction.com which are no-go's for me.

[Randall Alan]

Quote from @Ian G.:

> They are well aware they can profit off the resale of the unit.

I see your point but in this case there's no way the unit is worth what the minimum bid was.

> They already have a well worn path where they will use their preferred realtor to list the property and someone will buy it off the open market.

I see your point. Makes sense.

> The bank bids what it is owed, because they want to recover the money they are owed and not lose money.

This statement does not make sense. If they are bidding X, then they would be paying X to themselves, so they'd make 0 (minus fees) so they'd just end up with the house. But in this case, it's a house that's not worth what was owed on it. It would make more sense for them to bid what it is worth, and then if anyone bid any more they'd have a profit.

But maybe this process happened mechanically, so they didn't know that?

Anyway, it raises another question in this case, which is that - if they actually did *bid* then how they were able to place a bid without physically being there, but that's a topic for another thread I have open if you happen to know the answer.

> They will retake possession of the unit and put it on the market themselves and not only recover the money owed, but also make a profit- but for themselves.

Right, except in this case they won't. The price was higher than the assessed value, and that was high considering the condition of the property. But again, maybe the bank didn't bother to investigate and just went by rote and will lose money? Does that seem likely?

@Ian G.

I think you miss the point that the auction process is really a single process to handle multiple people’s interest.  The bank is just one player.  The original owner of the house is another party with an interest in the house as well and has rights in this process too - even though they are losing their house.

The bank’s bid is not a bid they have to pay to themselves.  It is the amount of money they are owed in order to be made whole, and anyone bidding that amount or more than that can take the property (off the hands of the bank), which makes the bank whole  

Ultimately the auction is a tool to determine the highest value of the property that day.  The borrower has already agreed in the loan documents that the bank gets the property back if the borrower defaults on their loan they took out for the property.  The property is the asset securing their loan.

But say for instance someone quit paying when there was $100,000 left owing on a $500,000 loan and the house is worth $750,000 now (just to create a set of conditions to illustrate different outcomes.) 

The bank would say,  “We’re owed $100,000 and that would be their minimum bid.  Investors bidding are going to say, hey, I’ll bid $600,000 for the property, put $50,000 into it to fix it up and net $100,000 selling it at $750,000.  If the bid closed at $600,000 / the bank only gets $100,000, the original owner of the house can petition the court for the excess $500,000 and original owner would receive that from the court barring any complications. Why? Because the $500,000 is equity in the property the original owner is entitled to.

In an upside down scenario (say the bank loaned $100,000 and the house is now worth $50,000) due to deflation, the auction still serves to prove this point to the courts, and the original home owner.  No one will bid the $100,000 owed.  The homeowner now has no gain to realize (so they are now out of the picture).  The bank now receives the asset in their name (and no, they didn’t have to pay the  $100,000 to the court) - it’s just what they were owed, and in lieu they receive the $50,000 property.  In essence the bank has to absorb the $50,000 loss on their books.  They will list the property on the open market and recover what they can to minimize their loss.  

The bank is allowed to set a lower bid if they so choose… but they run the risk of not knowing if they could have received more, right?  How do you know the winning bidder wouldn’t have paid $100,000 for the property and only had to pay $80,000 (if the bank had set a lower minimum bid and the 2nd interested bidder quit at $79,000.  So the safest approach is to set it for what they are owed.  The value is set by what someone is willing to pay… not by what an investor thinks it’s worth.  For instance, maybe that house is the last piece of land holding up a developer from making a 10 million dollar deal go through… suddenly it’s not about the value of the house that sits on the land… they are going to tear it down.  You just don’t know everyone’s motivation, but the auction is there to sort it out for all the interested parties.

Keep in mind the bank likely received lots of interest / loan payments before the person defaulted… so they are always out less money than it appears.

By the way… the original owner can also bid on the property at any time as well, and if they win the property they in essence get out of part of what they owed to the bank if the bank had set a lower price.  So say they would have owed $100,000 and the bank said they only wanted  $60,000 but it was only worth $50,000.  The original owner could pay  $60,000, keep the house, and they avoided  $40,000 they originally owed the bank.  A bit far fetched, but possible. (Maybe they won the lottery the day before and liked their house… or a benefactor stepped in and felt sorry for them).

Hope it helps

Randy