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Foreclosure auction draws no bidders

February 11, 2009|By HEATHER KEELS

How to avoid foreclosure

HAGERSTOWN -- Up for auction: Two-story house assessed last year at $302,090.

Minimum bid: $444,000.

Any takers?

The answer Wednesday was a resounding no. Out of 14 foreclosed-upon homes up for their requisite auction on the steps of the Washington County Courthouse, not one received a single bid, and those present said it was pretty clear why.

"There's really no money to be made on these houses," auctioneer Mike Donofrio of Alex Cooper Auctioneers said. "Most are being sold for more than they're worth."

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Foreclosure auctions historically have been a popular way for investors to get a good deal on homes that banks are eager to get off their hands, Donofrio said. Investors would fix up the homes, then resell them for profit. At a typical auction a few years ago, if seven foreclosure properties were up for sale, five would sell, he said.

When a foreclosed-upon home does not sell at auction, ownership goes back to the bank, which then attempts to sell it on the real estate market.

At Wednesday's auction, the small group of investors took notes silently, sometimes shaking their heads at the asking prices.

For eight of the 14 foreclosure properties up for auction Wednesday, the minimum bid set by the lender was higher than the original mortgage amount. For seven, the minimum bid was also higher than the latest assessed value of the home.

Some investors at Wednesday's auction speculated banks are unwilling to take a loss on defaulted mortgages as long as there is hope of receiving government bailout funds.

"They don't want to get rid of these homes," said Maureen Sasse of Hagerstown, an investor who said she thought banks were relying on the Troubled Asset Relief Program (TARP) to get out from under bad loans.

Kathleen Murphy, President and CEO of the Maryland Bankers Association, said that's not the case.

TARP was created to move bad assets off the books of investment banks, but it now focuses primarily on injecting capital into healthy banks, Murphy said. Whether or not banks participate, it is still in their best interest to get rid of foreclosure properties quickly, she said.

Murphy said a number of factors could explain why some minimum bid requests were higher than assessment values and mortgage amounts. When setting auction prices, lenders usually have the home privately appraised rather than relying on state assessments, she said. The prices also reflect the total amount owed on the mortgage, which in some cases is higher than the amount borrowed because of interest that has accrued, she said.

In Maryland, a lender is not entitled to any more at a foreclosure sale than the total debt owed on the property, Murphy said.

On mortgages covered by mortgage insurance, the insurance company tells the lender what the minimum bid needs to be, Murphy said. On Veterans Affairs loans, the VA tells the lender what it needs to be, she said.

A lack of bids could reflect a general climate of hesitance on the part of buyers, who believe housing prices have not hit bottom, Murphy said.

Hagerstown investor Jim Fahey said there are plenty of people willing to bid if banks were more realistic in their pricing.

"They over-loaned, they gave too much money to these houses, then the bubble burst and the house is not worth that, and the banks are still in denial," Fahey said.

Barbara Spielman, a housing adviser with the Hagerstown Home Store, which provides free counseling on home ownership, said when selling foreclosure properties, banks are looking to recoup their losses.

"What they're trying to do is they're trying to get out with little to no cost to them," Spielman said. "At the courthouse steps, they're fighting for every dime that they can get."

If the minimum at the auction is too high, the bank will soon find out when the house goes on the real estate market, she said.

That doesn't mean the person who defaulted on their mortgage is off the hook.

"They lose it either way," Spielman said. "It just gives them a little bit more time to try to get their finances together to try to find another place to go."

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