Another foreclosure record was set in November as 1,336 properties were offered to the highest bidder on the courthouse steps in Merced, Modesto and Stockton.
Now here's the real surprise: Only 17 of them sold, despite lenders offering deeply discounted prices.
Every weekday, starting about noon, auctioneers seek buyers for foreclosed properties of all shapes and sizes. But more times than not, no one bids.
That's because foreclosed homes typically have unpaid mortgage debt far in excess of their current value. When no bidder is willing to pay off that debt, lenders usually get stuck owning the homes.
That happened 411 times in Stanislaus County last month, sticking lenders with more than $139 million in unpaid mortgages, according to ForeclosureRadar, which tracks mortgage defaults.
Of the 419 Stanislaus County homes that went to foreclosure auctions in November, only eight attracted bidders.
Those who do bid are getting increasingly sweet deals, however, as lenders have begun slashing the prices they're willing to accept for foreclosed homes. To lure potential buyers, lenders have begun accepting starting bids far below the outstanding debt on foreclosed properties.
"Investors at auctions typically will buy at a 30 percent discount to market," explained Sean O'Toole, who owns ForeclosureRadar. "So lenders are trying to give as much of a discount as possible to entice investors to buy."
On Friday, O'Toole said, a foreclosed five-bedroom Modesto home on Hemstead Avenue went up for auction with a starting bid of $301,500, even though the lender was owed $537,000 from a delinquent mortgage.
But that $235,500 discount apparently wasn't enough. O'Toole said no one bid, so the lender now owns the house.
Lenders get more desperate
O'Toole said the size of these discounts continues to grow as lenders get more and more desperate to unload properties.
Early in 2007, O'Toole said, discounts were offered on about one-third of the homes in foreclosure auctions statewide, and those discounts averaged about $9,000. By November, he said, two-thirds of the state's homes in foreclosure auctions were discounted, with discounts averaging $48,000.
Many of the foreclosed houses in Stanislaus, San Joaquin and Merced counties, however, are being discounted by $100,000 or more, O'Toole said.
Dave Rhodes of Oakdale recently took advantage of one such deal. Two weeks ago, he bid $1 over the starting price for a 1,356-square-foot home on Poppy Patch Drive in Modesto. He was the only bidder and bought the house for $163,181, even though the lender had been owed about $264,000.
"I'm not a big spender. I'm a bottom feeder," said Rhodes, who has been a regular at Modesto's foreclosure auctions for more than a year. He researches many of the homes being foreclosed, but rarely bids at auctions. His last purchase was in January, when he bought a fixer-upper in Empire.
Hundreds receive no bids
Discounted starting bids "have become more and more prevalent the last three months" in Modesto, Rhodes said. That's why he comes prepared to bid on great deals.
Before potential buyers are allowed to bid, they must show the auctioneer a cashier's check for the full amount they're willing to bid. Rhodes said he had a cashier's check for $185,000 with him the day he bought the Poppy Patch home, so he could have gone higher had someone bid against him and he wanted to keep bidding.
Competitive bidding is rare, however, even with discounted starting prices.
Example: An Oakdale home on Ranger Street sold new in 2006 for $610,000. It went into default with an outstanding loan balance of $530,892. Last month at the foreclosure auction, the starting price was $395,000. No one bid.
Also last month, a Manteca home on South Sonora Avenue that had an outstanding loan balance of $487,956 was offered for a starting bid of $331,500. No one bid.
And in Merced, a home on West 22nd Street with an outstanding mortgage of $279,785 was offered at $153,000. No one bid.
"There are literally hundreds of examples in these counties," O'Toole said about discounted properties going unpurchased. "They ... represent good opportunities for folks to buy properties directly from the bank at a deep discount."
Lenders don't want the houses
In San Joaquin County last month, for instance, 664 foreclosed homes went to auction, but only eight were sold to bidders. Lenders took back 656 houses with unpaid debts of more than $245 million.
In Merced County last month, 253 homes went to auction, with only one receiving bids and being sold. Lenders took back the rest with unpaid debts of nearly $88.4 million.
Statewide, 12,282 properties went to foreclosure auctions, but only 321 were sold to bidders. Lenders took back the rest, which had unpaid debts of nearly $4.8 billion.
Those lender-owned foreclosed houses then typically are listed for sale with real estate agents or are privately auctioned off. Either way, lenders end up paying assorted commissions and fees to sell the property. While waiting for deals to close, the lenders must maintain the homes and pay taxes, insurance and assorted other ownership costs.
"They don't want to hang onto those homes, mow those laws and pay those Realtor fees," said Rhodes, explaining why lenders are willing to give foreclosure auction bidders such good deals.
Bee staff writer J.N. Sbranti can be reached at email@example.com or 578-2196.