It’s tougher to find a good deal at foreclosure auctions

By Bryan Gentry

Published: November 15, 2008

The first time Penny Sipple went to a foreclosure auction, she wasn’t looking for a house. She was just curious.

Then she watched a house sell for $20,000 at auction, about half its original mortgage.

“That was enough to get me hooked,” she said.

That was two years ago. Sipple, who currently rents in Nelson County, has saved money in hopes of snatching up a foreclosed property. She and her boyfriend Steve Roberts of Monroe have been attending foreclosure auctions this year.

They’ve found that many foreclosures aren’t the bargains they used to be.

“It’s like finding a needle in a haystack to find a good (foreclosure) deal in Lynchburg,” said Jimmy Marston, a local real estate agent with Harmony Homes.

Marston has been buying foreclosures, some as his own investment and some for clients, for about 10 years. He said banks are now asking for more at foreclosure auctions because people owe more on their homes than they used to.

“Seven or eight years ago, an investor could go to a foreclosure auction (for a house) that people had paid on for five years,” he said.

Now homeowners are losing their property after paying on it for less time, which means the banks have to sell it at a higher price to recover their investment. An examination of local land records for local foreclosed properties this year showed that the average time between the loan and the foreclosure was three years, nine months.

If loans made before 2000 are excluded, the average time drops to two years, eight months.

That means borrowers have paid off less principal before defaulting, and the size of the outstanding principal is a key factor when the mortgage holder sets a minimum bid at auction.

Out of 211 foreclosures in the Lynchburg area this year, about 180 properties that went to auction did not find a buyer and instead went back onto the mortgage holders’ books.

The auction — which usually is conducted outside the locality’s circuit court, often literally on the courthouse steps — is the last step in a binding contract that begins when a borrower signs the mortgage agreement.

The deed of trust signed by the borrower gives the lender the right to sell the home if the borrower defaults.

When a borrower misses a payment on the mortgage, the company that holds the mortgage charges a late fee and starts sending letters or making calls to the borrower.

If a deal isn’t worked out to catch up the payments, the home goes into foreclosure. The mortgage company hires a lawyer to auction the home to recoup its losses.

In early October, Sipple and Roberts went to the Amherst County Courthouse for such an auction.

“We’re hoping to find a little bit of a fixer-upper that I can live in and he can work on,” Sipple said. Roberts is a cabinetmaker.

A murder trial under way that day made for a busy courthouse, and the parking lot was full.

A handful of people were waiting outside, sitting around brick planters.

A few minutes after the auction was scheduled to start, a woman in a business suit approached the small crowd.

“Are you all here for the trustee sale?” asked Lisa Brook of Glasser & Glasser, a Norfolk-based law firm.

Brook announced a few rules: The first bid had to be at least $1 over the lender’s minimum bid. Then bids would be taken in $100 increments. The buyer needed to pay a cash or certified funds deposit of $5,500, or 10 percent of the sale price, whichever was lower, at the auction. The rest of the tab would need to be paid that day.

Roberts registered as a bidder, as did two others.

Then Brookread a legal notice regarding the sale and announced the opening bid of $51,249.

Roberts immediately turned and took a couple of steps away from Brook. The starting bid was about the amount he was willing to pay.

An older bidder placed a bid for $51,600.

A young real estate agent sat wearing a pair of shorts and an Izod polo shirt. He raised the bid to $51,800.

The bids went back and forth, with rarely more than five seconds or so in between.

Once the bid reached $56,800, the young bidder started pacing.

Finally, the older man got the house for $57,000.

“It was worth every bit of it,” Sipple said. The home was assessed at $80,000 on the county records, Roberts said.

They weren’t worried about losing that auction. “It’s part of the game,” Roberts said.