A day at the Phoenix Area Trustee's Sale

I've just now found the time to write this post after visiting the Trustee's Sale last Wednesday. I had not been there in a very long time and wanted to share the experience with anyone who might be interested. For those have have not attended an auction, allow me to act as your private guide to the inside workings of the auction.

I arranged to meet John Ray at the Trustee's Sale to catch up with the state of the business. John and his partner, Lou Amoroso, form one of the 3 or 4 really big foreclosure businesses I have mentioned throughout my posts. They conduct a majority of the information processing and financing segments of their business through the following three web sites ( one, two, three ) to provide the latest and most updated information to their customers. I am grateful to John, who helped me secure my auction properties throughout the last few years.

Here are some of the things John told me that day:

• 60-100 properties are currently going back to the banks as REO's each day
• He recently placed a $3.5 million bid with a large bank for 29 of it's REO properties (he said the bank is convinced the portfolio is worth 5 million); he's hoping the bank will soon be in the right frame of mind to accept his bid
• He has made some excellent buys with "specified bids" (see below for definition)
• He expanded his borrowing power by working with Active Financial Group, who he says has a $50,000,000 line of credit.

So here is the tour:

This Trustee's Sale starts at 2:00 pm. The three people sitting down represent three different Trustee Companies. You must sign in with each of these three people before the start of the  auction. You must also show them your $10,000 bank check to qualify. If you intend to win 3 bids you will need three checks. The three companies are Trustee Services of Arizona, Priority Posting, and Trustee's Assistance Corp. Each company handles the auction details for their own set of trustees. Each session starts with all three auctioneers reading their lists of postponed or canceled auctions. That's what they are doing in this picture. Where it gets a little tricky is that they do this simultaneously. It's easier if you are there for one property, but these expert buyers are sometimes following a dozen or more properties. John and Lou work together to insure each opportunity is tracked.

It's now 2:30 pm and the actual bidding is taking place. For more information on bid pricing read this. Mike (seated) is conducting the auction for his trustees. John and Lou are checking and taking detailed notes. They "drive" all the properties in advance so they are well prepared. This day is no different than most because over 65 properties went back to the lender. Too many of the properties are over-mortgaged for these savvy investors. They bid to get a property for within 65-75% of it's current market value (subjective).  Generally speaking, if you win a bid from these investors it's probably because you think it has a higher resale value than they do. You might definitely assign a higher value to a property if you plan to live in it.

The gentleman holding the book was there because of a vested interest. He wanted to see what the house next door to his home sold for at the Trustee's Sale. He took enough interest in his neighborhood and property values to find out for himself. He was dismayed to learn it sold for $189,000 when others in his subdivision were listed in the mid-high $200,000 range.

The most interesting deal of the day went in a "specified" bid. A specified bid can change on the day of the auction. A bid normally starts as a "total" bid and is the accumulation of the mortgage note, accrued interest, penalties, and fees. A specified bid reflects the dollar amount the lender is willing to accept to dump the property. John said there are usually 2-3 specified bids per-week.

This particular property in Paradise Valley had a total bid price of $700,000 at the start of the day. Right before the start of the auction the lender put the specified price at $460,000. Lou and John wanted the property at that price but had one problem: they had not "driven" it. Lou stayed in the bidding against another professional competitor until $498,000 (at $100 and $500 increments). They were not going to "chance" the condition of the property. John had some wonderful success with another specified bid a short time ago. The total bid was $1.2 million and he bought it for the specified price of $500,000.

The day ended about 3:15 and John and Lou bought some more property. The auction can be pretty exciting, though accurate information is everything. Professionals know property values, scout and assess individual properties (very time consuming), are experienced at estimating remodel costs, have professional crews do the work, and know how to market properties.

Comments

[Kevin]

Thanks, Ron. I always wondered what the auction was like. 60-100 properties turning to REO per-day! No wonder the number of homes for sale remains high. Who will buy a resale from Mr. and Mrs. home seller if the supply of REO homes stays that high.

[Ron the Foreclosure Expert]

Kevin,
I think the same way you do. I'm working with 4 buyers and 3 of 4 want nothing but foreclosure properties because they are $30-$70K less than typical resales. But buyer be aware: check my posts at Current Foreclosures 4 $ale

[Phoenix Trustee's Sales]

2010 first quarter numbers of homes reverting back to lenders is a lot higher than 60-100 properties... typically only about 25-50 properties during the week out of 500 or so on the block are actually being bought by 3rd parties.

This is a great insight into the day to day going ons at the trustee sale... thanks for the resource.

The real problem remains the surplus in inventory... the reality is we don't know the real number of foreclosed properties or bank owned properties because lenders are actually holding on to properties til values increase.

Shadow inventory...

and i thought banks and lenders didn't want to be in the real estate game... laughable.