Reader Jay saw that auction.com is now conducting trustee sales, and wanted the scoop.
It’s not surprising that lenders bloated with properties would be attracted to the allure of ballroom auctions. They seem like a great idea – let’s gather around a bunch of novice buyers in a big room and create a frenzy.
But the format is the same as buying at the court house steps, where you have to pay all-cash only, and no title insurance. At least at the regular REDC ballroom auctions they let you finance the sale, and close 30 days later with title insurance – which opens the door for the amateurs.
Most of the all-cash repo buyers are pros. They aren’t going to be persuaded by the usual REDC antics of guys in tuxedos running around like monkeys to distract you from the common thread – that they have shill bidders. From their FAQs:
Q. What is the difference between a Credit Bid and the Opening Bid?
A. Under the law, the beneficiary under the deed of trust may place a bid or bids (directly or through Auctioneer) during the auction called a “credit bid”. Such credit bids can be made up to the total amount due the beneficiary, including the Trustee’s fees and expenses. The “Opening Bid” is an initial credit bid to be placed at the auction, but does not represent the maximum credit bid that may be placed on behalf of the beneficiary.
While it is legal to do this at the court house steps, lenders typically are too busy/disorganized to attend the bidding, let alone manipulate it. But shill bidding is standard practice at all REDC auctions, so I would think it’ll be attempted at these auction.com trustee sales too. But will the pros go for it?
You know my policy – I don’t believe anything I hear, and only half of what I see. So I checked it out for myself. At the last REDC auction I attended about two years ago, I stood in the front corner and looked back at the audience – that way I would only hear the auctioneer’s bids, while looking for the actual bidders. It is a farce – most auction prices were run up without corresponding bidders in the audience making the bids.
But I do give them credit – they tell you that they are doing this in the fine print, if you read and understand it. But most amateurs are too excited over “getting a bank deal” to realize what is being done to them.
If you’d like to check it out for yourself, here is the link to the first attempt – the lenders threw them nine garbage properties for starters:
http://www.auction.com/event/Southern-CA.php?auctionID=E-002&chkVenue=2223
P.S. The auction company REDC purchased the website “auction.com” for $1,000,000 to use as their entry into regular residential sales. But like with their ballroom auctions, they put the 5% commission on the buyer. How is it working? According to the MLS, they have closed one sale this year, a 2br condo in Allied Gardens that they listed for $99,000 – it closed for $64,000.
I paticipated in one of REDC online auctions in the Seattle area only to find I had not `won` the auction. I had `won` the right to submit my bid – after I deposited $5,000. The property is still in their listing almost a year later.
And Jim hits the nail directly on the head again. The problem with these types of auction WORLDWIDE is the dreaded “shill bidder” and they exist wherever the auction is not without reserve!
It’s funny that the seller/auctioneer can collude with shill bidders to push up prices.
But it’s illegal for buyers to collude to push down prices.
Thanks for posting your take on this for me Jim.
The main thing I like about REDC/Auction.com’s trustee auction is that the opening bid is published weeks ahead! I saw that part about the shill bidders but like you said, the banks rarely bother do this at courthouse trustee auctions. Why would the REDC auctions be any different?
The rentals I’m looking to pick up are in San Bernardino County, and many of the ones listed there are good properties in good neighborhoods (for the area). Starting bids are about a 20-40% discount off comps, and no buyer premium.
I’m tempted to show up with a max price just like I do at trustee auctions and be determined not to let the auction circus influence me.
A fool and his money are soon parted.
Of course, this should be illegal, and I won’t be surprised to see lawsuits or class-actions based on this deceptive business practice with RICO (Racketeer Influenced and Corruption Organizations Act).
If there is a consumer protection agency that guards parents against lead-contaminated children’s toys, they should protect consumers against shill bidding.
They’re just begging for a legal intervention. BEGGING.
Trustee sale auctions are different than their REO auctions and their operation of these events must comply with CA civil code which they do.
If they can get homes which don’t cancel out and have lower starting bids they will be successful…because the court house ones are hard to hear and are a total insiders game.
These trustee sales are absolute auctions…no subject to lender approval