Lost my listing at the foreclosure auction

I had a good listing, a house in Honolulu with separate entries and kitchens. This property was going into foreclosure and we were trying to get an offer acceptable to the bank.

Our first round resulted in a best offer of $550,000. We submitted it to the bank and their response was "no". The owners had purchased the home for approximately $800,000 in early 2007 with zero down financing. The bank wasn't willing to take such a big loss.

With continued effort we brought in several other offers. The best was around $675,000. We went to the bank and they said they would put it through their normal 30-45 day review period. Meanwhile, we continued advertising the house. We received other offers but this looked like it would be the highest.

After 30 days or so, the bank called me and said they need a loan preapproval letter TODAY. The next scheduled auction was the following day. After waiting 30 days, the demanded loan preapproval without prior notice. This was disturbing. We contacted the lender. Apparently, the prospective buyer was in escrow to sell another property and the funds from that sale were needed for loan preapproval. The lender was playing it safe and said they could not issue the loan preapproval on such short notice. I contacted the bank and they said okay, the house would be auctioned tomorrow.

I was concerned but not worried. Having gone through these procedures in the past, I expected the auction to be postponed. This time I was wrong. The auction was held as scheduled. Due to poor advertisement by the bank, there was only one bidder.

The bidding started and the sole bidder won the property for $530,000! I asked myself, why did the bank turn down multiple offers in the $550,000+ range and not give the buyer a chance with an offer in the neighborhood of $675,000? I don't know but I was certainly unhappy.

Within days, the auction winner contacted me. He knew me because he had submitted a bid early on. I learned some interesting things from him.

- He did not know the house would be auctioned that day. He had just been going to the auction and waiting to see if the house would be put on the block. That shows how poor a job the bank did of providing public notice of the sale. They shot themselves in the foot and probably could have gotten more money at the auction.

- The auction winner had problems with his lender. As I understand it, his lender would not fund the loan because of issues with title. The property was still deeded to the people who were foreclosed upon, but it was sold by the bank. The auction winner ended up borrowing money from his associates to pay the full purchase price.

- He told me he wasn't "in love" with the house and was still willing to sell it to the buyers that were in escrow.

I spoke with the agent representing the buyer and she said the buyer still wanted the house. However, when the buyer found out what the auction winner paid for the house, she wanted a big discount on the price. The auction winner said "no". He had to put up cash and would sell it for a little less than what we had been in escrow for. The buyer was distraught, felt ripped off and gave up on the deal. The auction winner rented out the property.

Lessons learned:

1) You CAN get a deal at a foreclosure auction.

2) If you don't have cash or cannot borrow cash quickly, forget about it.

3) Banks are unreasonable in short sales. Get used to it.

Aloha, Mike

Selling homes in Honolulu