Foreclosure Auctions Belie Hopes

November 26th, 2007

Foreclosures are rising – rising by millions right across the country. This means increasing auction sales. Many are hopeful and sometimes sure about clinching a bargain deal. But the reality is different. In California 12,336 foreclosed units were up for sale in courthouses. Of these 97% returned unsold to the lender. In Santa Clara County out of 237 houses only seven found new owners.

Why is this so? Bidding and buying at courthouse auctions are risky and involve immediate cash investment often to the tune of $1 million. For instance in Santa Clara there is few for sale that is less than $300,000.

Foreclosures continue to rise. In Santa Clara County this year there are 4,000 more than the usual figure. Figures speak for themselves. In October 2006 there were 287 default notices and 140 auctions. But the number has more than doubled this year with 630 notices and 465 auctions. The flow of foreclosures leading to auctions remains continuous with rising waves.

It is interesting to note that many new comers are coming to the auction game to bid. So far it had been the same faces again and again. This has been the tendency in the last six months. The winning bidder enters a new planet where experience as regards market conditions, buying, selling and nosing out tax and other encumbrances on the title is a must to survive and surface. Before bidding the potential buyer is not allowed to inspect the property in question. Usually it is occupied and the occupants are in a belligerent destructive mood. The onus is on the auction buyer to evict them. The damages done to the house may often be gross and irreparable. One real estate agent gives a 100% unconditional guarantee that something or the other is bound to be wrong with the house. With the market fluctuating daily the risk is great in auction investment. The buyer calculates that the investment must be at least 30% below the market price to make it worthwhile. On the other hand banks are understandably reluctant to sell off the unit for a price less than the loaned amount due.

Nevertheless if one can poke and probe around there are deals to be made. For instance some houses have only one loan on it. Banks too are climbing down unable to cope with rising number of idle foreclosed houses on their hands.

Via

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