Loans Answers

Foreclosure auction postings

Question: I’ve read a bunch about Foreclosures and foreclosure auctions, and I’d like to attend some auctions and assess the properties, and see how the players are playing.

However, I’m in the Seattle area and for the life of me I can’t find any notifications about the properties or the auctions in our newspapers or at the county web site. In fact, the county web site has this information in an area where they are discussing Tax-related auctions:

“…King County does not have information regarding foreclosures by mortgage or other lenders…”

I looked up our state laws on foreclosures (RCWs – the Revised Code of Washington), and it appears to me that the county sheriff is supposed to auction “real property” just like any other property (at the door of the courthouse preferably on Fridays), but the above makes it look as if the lender gets to hold their own auction?

Does any of this make sense to any of you? . I am curious how exactly the foreclosure sales work, and whether the lender has an option of avoiding such a sale altogether. … Now, if Joe does not get his payments, I understand that he can apply to the appropriate court for a foreclosure. When foreclosure is granted does he *have* to have the sale? Does the lender (mortgagee) have the option to simply repossess the property and to keep it, or is it possible for either the debtor or the court (or the second mortgagee, if any) to force the lender to hold a sale?

Answer: In the past there was great abuse of the foreclosure system, and all jurisdictions have laws and procedures that try to protect the mortgagor (borrower) from fraud and collusion. Some places (California comes to mind) have particular laws against deficiency judgments. In the past, a lender would sometimes sell the property as quietly as possible to an insider, co-conspirator, colleague, associate, etc. Indeed, that still happens, and I have seen news articles of real estate agents in the UK (who are not licensed) who prey on the elderly, appraising at low values and selling to an associate. Formal courthouse sales are an attempt to avoid “rings” and other scams. The kind of publicity that foreclosure sales get on the Web helps to protect mortgagors. On the other hand, if your house is in Kleena Kleene or somewhere else where the market is thin, publicity may not help — you need time to sell the property.

Really, from the standpoint of the debtor, the problem is psychological: few debtors face up to the inevitability of loss of the home to work with the lender and sell the property. There are also shady sub-prime lenders (especially in the USA) who solicit loan business from people who have no mortgages and may not even need the money but are naove and perhaps illiterate, and who cannot pay the high interest rates out of social security (state pension), etc.

Such houses may have a narrow market, and the lender may be the only buyer at the auction, and may bid the value of the loan and get the property on the cheap. That only works with turnover in lieu of foreclosure, voluntarily by the debtor. With a proper foreclosure, if the property is “under water” and the yield from the sale is inadequate to cover more than the first mortgage, subsequent liens are voided. Property tax liens and mechanics’ liens may take priority over a first mortgage; the status of other liens depends upon (1) date and (2) terms of the contract. A purchase money lien may be a second mortgage, for example (the seller may take back a second mortgage to facilitate a sale, or his/her mortgage could be a first mortgage). There are other issues: deficiency judgment (for which a court proceeding would be needed), insolvency and possible bankruptcy of the debtor; insurability of title: a title transferred by court order is clear title; a quitclaim deed or a contractual seizure is not and cannot be insured or sold. The reason for recording (rather than trying to avoid transfer tax) is that only a recorded title is good against third parties without notice. You could wind up with a lien for the prior owner’s subsequent unpaid income taxes or other debts!

There is something called a “confession of judgment note” which (although it may be abused by some lenders and is banned in some places) avoids a trial on the merits at foreclosure. There is also a concept of “rent to buy” and various other leases and escrowed deeds and corporate titles and trusts all designed to avoid formal foreclosures. They are banned or at least controlled in some places. Florida land has always been a wild, untamed market where land speculators thrived, and some of these scams helped those predators avoid normal debtor protection laws. The debtor can also bid, normally through a relative or friend who provides the money. The reasons why a formal sale is necessary are given above.

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