Article by Roger Schlueter, MBA
The Bank Foreclosure Sale usually takes place on the County Courthouse Steps. The Event should be witnessed by everyone that is in business and borrows money for Real Estate. In the State of Missouri we have a Deed of Trust that is filed in the county records which serves as the banks lien or mortgage for the property. Before the bank files for Foreclosure, the bank usually gives the borrower every opportunity to come current on the loan or to pay off the loan. The loan will usually be at least ninety days delinquent before the bank will foreclose. The paying off the loan usually entails finding a friendly Buyer that can purchase the property for the Borrower. If there is no progress on making the loan current or paying off the Mortgage then the bank Forecloses on the property.
The Act of Foreclosure usually entails giving notice though a widely circulated newspaper publication in that county or city. This notice is given by the trustee of the Bank and is notice that the property will be Auctioned off on the Courthouse Steps on a future date and time of day. Notice given is usually between thirty and sixty days.
The bank does not want to own the property which entails buying the property from the Trustee and paying off the loan and any fees which will be accumulating. The bank is usually open to sell the property for the amount owed by the borrower plus fees either to the borrower or someone else and may entertain selling the property short, meaning taking less that owed to the bank to payoff the loan.
The Day of the Sale at the Courthouse the Trustee and any interested parties will meet at a designated spot outside the courthouse. The Trustee (usually an attorney) will read the foreclosure notice and then start the bidding process. Anyone can bid but they must have an amount to put up if they win the bid, usually 10% and then they must deliver the remaining, later in the day, in documented Good Funds. The process is public and everyone bidding provides their name to the trustee handling the bidding process.
Example: This example is a real foreclosure but the names have been omitted to protect the Bank and Borrower. This loan was a SBA 504 Loan so the bank had a first mortgage and the SBA had a second mortgage. The lenders in this loan thought there was equity in the real estate because the borrower had paid down on the property for ten years. The borrower would have sold the property but with the Real Estate Market being very poor (July 2011), they could not find a buyer, (the borrower did not even list the property). The SBA thought the property was worth up to $600,000. The borrower owed the bank approximately $220,000 (including all fees) and the SBA was owned approximately $190,000.
The time of the Sale was twelve noon and the SBA was at the North East Corner of the Courthouse with a Government Treasury Check for the highest amount that they would eventually bid. The bank that had the loan was a small local bank and had a branch within sight about three blocks away. The Trustee and two bankers came walking from the bank branch and were at the Courthouse at five to ten minutes till noon. The trustee asked everyone if they were a bidder and the only bidders were the Bank Employees and the SBA.
The bidding stated at $25,000 and escalated from there to $100,000 and then to $125,000. The bidding kept going higher until the SBA reached their top amount of $350,000. The increments by this time were in smaller amounts and the bank employees bid $351,000. The SBA did not counter this amount and the bank employees had bought the Building for $351,000. That $351,000 will be divided to pay the bank their $220,000 and the remainder will be given to the SBA in the amount of $131,000.
Your never really know who is bidding for whom at these things until the Trustee asks for final information. The bank revealed at that time that they were bidding for a Corporation with a different name. The SBA representatives figured that the corporation was a bank entity set up to handle property that the bank owned. A curious individual at the sale decided to check with the Secretary or State to see who the Corporation was. It seems the Corporation was managed by one individual that was president and the only board member, he was the President, Chairman and Owner of the bank. The bank usually bids for itself but they could bid for another entity. You really do not know who is bidding for who until the final bid and then they must say who the entity was that bought the building.
Please also see my website at www.schlueterfinancial.com for contact information and additional information.