The Morning Report
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LENDER FORECLOSED: PUBLIC HOME AUCTION blare the newspaper ads, and the television spots, and the radio commercials, proclaiming the intent of an Irvine-based company to sell bank-owned homes at an auction this weekend.
Ninety-eight homes will be on the block at the Convention Center this Saturday, said Real Estate Disposition Corporation principal Rob Friedman. The company’s website allows interested bidders to register beforehand, but they can also register in person before the event at 8 a.m. The auction starts at 10 a.m., and the company will try to get through about 25 properties per hour, Friedman estimated.
I chatted with Friedman yesterday afternoon. REDC, he said, has been in the lender-foreclosed home auction business since 1990. Business was good from 1990 to 1996, but they’ve been in a “holding pattern” until about six months ago, while homes appreciated like crazy over the decade following 1996 and foreclosure rates crept at a negligible pace.
The auction here in San Diego (including some Imperial County properties) and subsequent auctions in L.A. and Riverside will include more than 300 properties. This is the company’s first major auction in this housing downturn.
Friedman, like many of the real estate pros I’ve spoken to recently, said he hasn’t yet seen the market fall as far as it did last decade. Then, foreclosures often resulted in bargain-basement prices, halving neighboring homes’ values.
“If it’s gonna be like that, I haven’t seen it yet,” he said. “This downturn is not going to be nearly as deep as that one. That’s the vibe I’m getting.”
Lenders are more interested, and have a greater ability now, to sell the homes for closer to what they’d go for under regular market conditions, he said.
The blogosphere is abuzz about this auction, and the consensus is: If you’re going to try to bid on something, read the fine print before you go.
For example, the homes in one newspaper ad are listed by type of property, number of bedrooms and bathrooms, and square footage. Then there’s a column stating what the home was “previously valued to” and what its starting bid will be at the auction, sometimes less than half as much.
But a quick look at the terms and conditions on the REDC site reveals:
All Properties have a Reserve Price, meaning the Seller of each Property has established an unpublished, minimum selling price. The starting bid is not the Reserve Price. In order to become the Winning Bidder for a Property, a Bidder must meet or exceed the Reserve Price and have the highest bid.
The auctioneer is entitled to bid on behalf of the lender up to the reserve price. And if you’re successful in your bid, a 5 percent auctioneer fee is tacked on to your purchase price. Buyers secure their bid with a cashier’s check for at least $5,000.
Friedman said he’s confident some people will get some pretty good deals tomorrow.
“While there may be a reserve, we’re looking at a lot of motivated sellers (the banks),” he said. “They’re pretty much ready to sell … below what the market price is, substantially below. These guys are motivated, non-emotional sellers.”
And REDC has an agreement with a lender to provide some “really good financing” at the event, Friedman said. I was really curious about that, because of all of the craziness surrounding the “really good financing” some people used to get into some of these homes in the first place.
What a catch-22 it would be, I said, if the lender foreclosed on one of these homes because a homeowner couldn’t make the payments on a risky loan, and then a bidder got into the home using a loan with teaser rates that could land them in trouble in a couple of years.
But Friedman said that type of loans, with low introductory rates and a bunch of hidden conditions, wouldn’t be the kind offered tomorrow.
Anybody planning to go? I’d love to hear about your experience, or your thoughts about the foreclosure climate we’re entering. Click on my name to shoot me an e-mail.