We all know there is a chance to pick up a bargain in a mortgagee sale situation (where a borrower has defaulted on repayments and the lender is repossessing the property and then looking to offload it), but who suffers?
If I ‘lowball’ a mortgagee sale, is the lender missing out on some funds (and their ongoing record profits), or does the previous owner (who is already in financial difficulty) take another hit?
Does anyone have actual knowledge (from the lending perspective) about who this affects? I don’t mind taking a few dollars off a lending institution, but I’m not looking to profit if another person has to suffer.
Stuart,
From what I’ve seen, the banks never miss out. That said I’ve just had a low ball offer rejected by a bank on a mortagee sale. My understanding is that the banks would have a very good understanding of the market place and would be aiming to recover their own funds plus make some potential profits. I also understand that there is legislation in place that requires banks to follow a certain steps to protect the unfortunate sole and to prevent a massive impact on the market place.
To all,
Is my understanding correct? I not I would gladly be corrected.
Cheers
Pete
Hi Stuart and Pete,
I believe that Pete is correct that the bank hardly ever loses. For a start they normally only have 80% of the house value mortgaged (anything above is handled by the MI).
But I am pretty sure that they cannot make a profit on the sale. In other words if they receive more money from the sale than was owed to them, they have to pass this money onto the MI, 2nd mortgagee or the previous owner.
It is also a bit harder these days to spot mortgagee sales, as they are not allowed to advertise them openly anymore. That said, the REA will often tell you the fact.
Ultimately the person that is already in the <edited> will get screwed further if the property sell below fair market value unless they are/have to declare bankruptcy.
Here’s another perspective for you. An old school friend of mine got paid compensation when she became 18 from a car accident when she was 8wks old. She bought a house in a cheap suburb in Brisbane. Her mortgage was only about $30,000. She got involved with wrong crowd and wasn’t brainy at all. The last time I saw her she had rented out every room, including the lounge room to her new druggy mates. The smell of dust in the house was making me feel ill and this lovely well maintained house she’d purchased a year earlier had turned into a dump. I heard stories for a while about stolen cars in the garage, garbage bags of syringes coming from the house while I was getting phone calls off my old friend begging for money so her house wouldn’t get repossesed. I never helped knowing it would go on drugs. After some time it did get repossed. – Maybe a year or so later. She contacted me some years later and told me of her initial $40000 she put in she ended up losing it all plus owed the bank about $5000. At that stage she had 3 kids, said she was off the drugs but the father of her last 2 kids was on speed…….. bit of a recipe for disater. It’s a sad story but if you were to buy her house, I wouldn’t be feeling guilty.
Further to the comments from Bridge bluff.
My understanding is that whenever LVR is > 80% (the most likely scenario for default) mortgage insurance is necessary. If a property is purchased for $200k, the loan would be more than $160k. If, after a short period of time a mortgagee sale occurs and the sale price is < $160k + cost then the FI gets all the money that is owed to them and the mortgage insurer sues the mortgagor for the rest.
As previously stated – the bank NEVER loses, but it has to accept a reasonable offer.
If a bank foreclosed, they will have a judgement on the owner for a certain amount. If they sell and their is money left over, this goes to the borrower. If there is a shortfall then they will go for further legal action to recover the extra amount (including costs), they may then be able to sell further property, garnish wages, or maybe even bankrupt if the amount is big enough.
Terryw
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Thanks to all of those that posted a reply. I suppose the answer is pretty straightforward. If you do participate in a mortgagee sale, you may be helping out the original owner; there is no way of knowing. There’s a fair chance that you are buying at round (and maybe slightly under) market value; only your research and local knowledge will tell. If you try to screw down the deal any further, there’s a very good change that the person getting screwed is the one who needs it the least.
Market value for a property is what it sells for…..
So if you purchase it for a price that you believe is great or is less than what someone once paid for it then, good for you and GOOD JOB.
BUT you are not screwing the presious owner because if you did not post the winning bid the bid below yours would have won!Glass half full? Glass half empty? No its half a glass.
[specool]
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