Great article that explains the foreclosure process in Colorado, primarily the auction side of the whole process.
On any given Thursday, you can find John Dilday at the foreclosure auction in downtown Denver looking for his next deal.Known as “the godfather” among his cronies at the weekly auctions, Dilday has been buying properties at foreclosure sales for the past 20 years. Used to be, he’d buy the house, fix it up and sell it. These days, he flips many of the roughly 100 houses he buys each year to other investors.
“I look at it as I want to turn my money,” said Dilday, who sells about 60 percent of the homes he buys to investors. “As a fix-and-flip, it takes a lot longer to get it on the market.”
Since Bank of America put a nationwide moratorium on foreclosures earlier this month due to concerns about improperly handled paperwork, the number of properties put up for auction by public trustees has declined significantly. Investors such as Dilday say that has made it more difficult to compete for what already had become a dwindling number of homes.
A potential bidder enters the public trustee’s office at the Wellington Webb building in Denver before an auction. (Andy Cross | The Denver Post )
Bank of America has since resumed foreclosures in the 23 states where a judge is required to approve them. Foreclosures in Colorado are expected to resume next month. Other lenders halted foreclosures in 23 states, but not Colorado.
Though the concern about whether banks foreclosed too quickly and without proper paperwork has reduced the number of properties available at auction, both buyers and public trustees who oversee foreclosure auctions say they’re not worried about additional fallout.
Jefferson County Public Trustee Margaret Chapman is confident that buyers at her auctions should have no problems with the paperwork on properties sold there.
“They (Bank of America officials) are following Colorado statutes,” Chapman said. “We make sure anything we get from their foreclosure attorney follows the statute. If they are found in violation, we refer it to the bar association.”
The moratorium, coupled with the tendency of banks to roll foreclosures set for auctionto future sales for reasons they don’t reveal, means the state’s public trustees will have a backlog of properties to work through.
“As the properties get postponed, it prolongs the recovery of the real estate market,” said Ryan Lantz, managing director of Claremont Information Systems and a former regular on the auction circuit.
Even so, the delays could have the effect of propping up home values for the short term, Lantz said.
Last year, 7,386 foreclosed properties were offered at auctions held between Jan. 1 and Oct. 27 across 10 Front Range counties. Of those, 1,127 were sold to third parties, with the remainder going back to the bank, according to a Claremont analysis of public-trustee data.
So far this year, 12,172 properties have been offered at the public-trustee auctions in the 10 counties, with 1,525 selling to a third party.
“In the beginning of this year, there was an absolute fever at the auctions,” Lantz said. “The statistics are driven by lots of activity in the first and second quarter this year.”
Since then, the number of homes available at auction has dipped, and fewer people are showing up to bid.
“Six months ago, there were more than 130 people in that room,” said Sindee Wagner, chief deputy public trustee in Denver. “We had several properties being bid on by 15, 20 and 30 people. Over the last six months, it’s kind of tapered off.”
Still, the regulars continue to show, and Wagner knows them all. She spends about 15 minutes before each auction joking with the crowd — these days an audience of about 20, mainly male bidders — and making sure any newcomers know the rules, which she strictly enforces.
Banks set minimum bid
Despite the good-humored banter, Wagner runs a tight ship, requiring those who want to bid to submit the proper paperwork by 9:45 a.m. for the 10 a.m. auction.
Properties that potentially will go to auction are posted online. In order for it to get to auction, there must be interest from a third-party bidder. Otherwise, it goes back to the bank.
Deputy Public Trustee Tenaj Tannenbaum, who serves as the auctioneer, tracks bids on the properties on a spreadsheet projected onto a large screen and calls for bids from those who have said they are interested in a property.
The winning bidder approaches a table where Wagner sits to fill out paperwork and turn in a check.
Regulars at the auctions say the recent drop in attendance and bids is due, in large part, to banks — which are required to set the minimum bid — not being willing to take much less than what they are owed on a property.
The higher minimums, Dilday said, don’t allow enough room for an investor to profit from selling the house.
When Dilday flips a house to another investor, his profit ranges from $5,000 to $15,000. He makes up to $20,000 more than that if he fixes the house up and sells it to an occupant.
It’s not just what the bank bids that determines how much an investor will spend on a property.
Dilday starts with how much he thinks he can get for a house if it’s fixed up, then subtracts other expenses, including broker commissions, back taxes, insurance, title insurance, unpaid utilities and holding costs.
Investors also take into account liens and potential damage to rooftops on homes in neighborhoods that have been hit by hailstorms.
“This one has an IRS tax lien,” investor John Zakhem said of a recent auction purchase. “Now we have to decide whether it’s worthwhile to pay it off.”
Bidders at public-trustee auctions bring cashier’s checks for the full amount they intend to spend.
“I do those calculations 50 times a week,” Dilday said. “This comes natural, and I can do it off the top of my head.”
That’s a big plus. Investors often have less than 24 hours to determine what they can bid on a property — and more often than not, they’re not able to see beyond its exterior.
Though many people perceive the investors buying foreclosed properties as vultures preying on homeowners who have fallen on tough times, those in the industry say they are helping to turn the real estate market around.
“Most of the homes we buy are abandoned properties,” said Patrick Chomyn of 4RentDenver.com, who owns more than 40 single-family homes and manages about 180 for other investors. “We are taking huge risks. I have been involved with a meth house and two mold houses. We are employing people to fix these houses, turn abandoned drug dens into beautiful homes for the buyer and making these ugly neighborhoods more beautiful, one house at a time.”
Read more: Foreclosure buyers competing for fewer homes at auction – The Denver Post http://www.denverpost.com/business/ci_16474745#ixzz142iE5Y3e
