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KAI RYSSDAL: The Commerce Department releases new home sales figures tomorrow. But today, a Treasury Department official gave a slap on the wrist to the lenders that finance those sales.
John Dugan’s the Comptroller of the Currency. That makes him the chief bank regulator in this country. Dugan said today mortgage lenders aren’t verifying the incomes of the people they’re lending too. He said too often, banks rely on what borrowers claim they make, rather than checking to make sure the numbers add up.
When those numbers don’t make sense, borrowers can’t pay their loans, and their homes wind up back with the lenders. Those lenders want to get their money out as soon as possible, and one way to do that is at auction. We sent Marketplace’s Jane Lindholm to check out the bidding.
JANE LINDHOLM: If you’ve ever been to a cattle auction, you’d be well prepared for a housing auction. Except instead if discussing hoof quality and bloodline, it’s all about square-footage, bathrooms and garages.
HOUSE AUCTIONEER: All right, number 34 in the brochure folks. This is at 39859 Chippewa Circle in Murieta. It’s a four-bedroom, two-and-a-half bath. It’s $219,000 starting bid. Here we go: 219, 250, 219, 250 . . .
At the Riverside Convention Center an hour outside of Los Angeles, about a thousand people with brochures and paddles sit in folding chairs as the bidding starts. On a big screen is a picture of a two-story house with a market value of $420,000
Two minutes later . . .
HOUSE AUCTIONEER: Last call for 300,000, 290 now 3. Anyone else at $300,000? And I haaaaaaaaave sold that $290,000 subject to confirmation.
The 98 houses at this auction have gone through foreclosure and are being sold by the lenders who now hold the titles. Auctions like this are happening more frequently these days as the number of foreclosures is rising.
DataQuick is a real estate information services company. It says 37,000 foreclosures were completed last month nationwide. That’s more than double last year’s figures. Places like Nevada, Florida, Michigan, and California are especially hard-hit.
Rob Friedman is the chairman of Real Estate Disposition Corporation. His company runs housing auctions, and he says business is booming.
ROB FRIEDMAN: Basically, this is a counter-cyclical real estate business that when the market is down is when we’re busy. Fortunately or unfortunately, we envision a lot more business in the next year, year and a half.
That looks like a safe bet. There was a surge in home loans right around two years ago. And now that the real estate market is softening, many homeowners are defaulting.
But big lending institutions are worried about depreciation, maintenance costs, and vandalism. So Friedman says they’re willing to sell these homes the quick and dirty way: at auction.
FRIEDMAN: You know, the guys don’t want these properties back, I can assure you that. They’re willing to give a value today — they don’t want the properties back.
Savvy bargain-hunters can get quite a deal. At this auction, Regina Lane had the winning bid on a three-bedroom house near Palm Springs.
It was valued at $399,000. She got it for 260,000.
REGINA LANE: It’s exciting. I just can’t wait to get into it, because I haven’t seen it. That’s the scary part.
Michelle Williams Court says Lane should be scared. She’s the director of litigation at Bet Tzedek Legal Services in Los Angeles. She deals exclusively with foreclosure issues.
MICHELLE WILLIAMS COURT: Most individuals who are purchasing properties at these sales don’t know the history of the property that they’re purchasing. So they could be not only purchasing a home, but purchasing a lawsuit as well.
Williams Court says buyers at auctions risk losing their houses down the line if the former homeowners sue to get their homes back — and win.
She says the whole process is just too rushed. The auctioneers partner with lenders and escrow agents, who set up shop right at the auction. Buyers can get a loan within an hour, and keys to their new houses within a week.
COURT: I think it streamlines things, but I think it streamlines things in a dangerous way. It also has the effect of preventing someone who’s purchasing a home from really thinking about the consequences of what they’re doing.
Rob Friedman, who runs the auctions, says buyers can — and should — prepare.
FRIEDMAN: The key to being successful at an auction — and the key to getting a good value for your family — is to come prepared. Do your homework.
He says as long as buyers inspect the property, know what the house is worth and what they’re willing to spend before they bid, auctions are a great way to get a good house cheap. And a little due diligence on the part of a buyer can prevent that home from going back up on the block.
In Riverside, Calif., I’m Jane Lindholm for Marketplace.
Bidders on foreclosed homes at an auction at the Riverside Convention Center in Riverside, Calif.
Regina Lane, right, and friend start escrow proceedings with agent Wendy Bircher after Lane entered the winning bid on a house near Palm Springs, Calif.