Banks accept 66% of debt value at foreclosure auctions

June 17th, 2009, 12:05 am · 8 Comments · posted by Mathew Padilla

Banks on average were willing to take a 34% discount against the first mortgage on an Orange County property at foreclosures auctions, known as trustee’s sales, last month, ForeclosureRadar.com reported yesterday.

Although the discount was up from 32% in April and 23% in May 2008, it has been mostly flat this year. The average discount shot up early last year as foreclosures mounted. During the housing boom, banks generally did not offer discounts.

Investors buy a small portion of homes auctioned at trustee’s sales in Orange County despite the hefty discount. There are several reasons:

Even with the discount, the bank may still be asking more than a property will fetch if an investor quickly resells it — especially including costs to prepare it for resale.
An investor may have to evict the former homeowner.
There could be property damage. Properties are sold “as is” at auctions.

To see my previous post on ForeclosureRadar showing a plateau in foreclosure filings, CLICK HERE.

And read about California’s 90-day foreclosure moratorium HERE.

In other news…

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OC Pro says:

June 17, 2009 at 6:22 am

Matt,

Correct me if I’m wrong, but isn’t accepting 76% of UPB a 24% discount, not a 34% discount?

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Mathew Padilla says:

June 17, 2009 at 8:08 am

Yes! Yikes, not only was my math off but my editor’s too. Headline corrected.

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prices_going_down_further says:

June 17, 2009 at 7:31 am

That’s 34% (acCelerating) from first mortgage.. and of course the second loan gone (100% loss).. that would make it

(34*100)/80 (ltv of first loan) = 42%

MORE TO GO!

OCAppraiser says:

June 17, 2009 at 9:32 am

I am seeing more and more of these trustee flips along the 5 corridor, between El Toro Rd all the way down to Crown Valley Pkwy. In Laguna Hills there have been at least 3 trustee sales of detached SFRS over the past 8 months. The trustee purchase prices were 310-350k, basic 3 bedroom, 2 bath sfrs.

Buyer fixes it up a bit, and are under contract weeks later for between 390-450k. Not bad for a month worth of work.

****one of the key ingredients I think leading to the sucess of these flips, is that FHA loans are available with very little down. FHA is the new subprime. And guess what kind of loans the buyers of these flips are taking out?? Yep, you guessed it, FHA loans.*****

By contrast, Trustee buyers are paying cash - and have access to reliable data.

Interstingly enough, inventory is low, which is why these trustee flips get sold so quickly.

Just a little tip for anyone who has 350k cash just laying around.

June 17, 2009 at 3:59 pm

If you have 350K cash laying around why not buy the NPN before the trustee sale for less than 66% of UPB? A lot more exit strategies and flexibility that way, plus more equity protection. Just my two cents and not my $350K … I’m not that blessed yet.

Mr Mortgage says:

June 18, 2009 at 7:32 am

who knows what that discount is from present property value — it varies wildly from county to county and servicer to servicer. But in aggregate in the state, it is about 20% below the present AVM value of the property. If you sign up for ForeclosureRadar.com you can track all of this.

fcprop says:

June 18, 2009 at 7:58 am

Trustee sales are the way to go, I have bought two of these for an investor. The investor had the cash and paid me to buy them at the auction. Both were flipped for $30k-$40k gains.

Mick Russom says:

June 20, 2009 at 9:46 am

Of course the captains of this fraud-housing-industry and being caught not putting all the houses they have to sell on the market, they board them up and put anti-freeze in the pipes and leak the inventory slowly to make the market appear much better than the FREE FALL its in.

Orange County Register