Desperately needed answer from real estate gods - Posted by Race

Posted by GBinTX on April 25, 2002 at 13:54:43:

As Michael pointed out, this would apply AT the auction. After the auction the excess funds, if any would presumably belong to the lender.


Desperately needed answer from real estate gods - Posted by Race

Posted by Race on April 25, 2002 at 07:54:32:

I have been looking at different real estate websites and I am trying to find the answer to this question.


Lender takes back a property at auction and is owed $62k from owner, property is listed with real estate agent, property is sold for $99k. Is the lender authorized to keep the $37k in excess funds? If not, what happens to the funds?

thank you


Re: profits to the Owner/Seller - Posted by NJdave

Posted by NJdave on April 25, 2002 at 14:32:12:

If the foreclosing mortgagee takes title via a legally conducted, forced public sale, then, lists the REO For Sale with a real estate broker…

The owner and seller of the REO (former mortgagee) would be entitled to the proceeds from the Sale… irrespective of what had been owed on the foreclosed mortgage… and is under no duty to return any proceeds to the former owner.

Re: Desperately needed answer - Posted by GBinTX

Posted by GBinTX on April 25, 2002 at 13:43:55:

In your scenario, the $37K in excess funds would go to the former owner. Here is why:

Race buys a home in sunny California for $300k, 10% down the way the normies do it. Property appreciates rapidly as sometimes happens and after three years, Race’s home is worth $400k. However the balance on the mortgage is only 262K (this is just an estimate, don’t grab your calculator). Wouldn’t it be comforting to know that the lender couldn’t try something tricky to force foreclosure (such as losing a couple of payments) just so they could grab the money over and above what they are owed?
Again: Any funds over what is owed to the primary lienholder will go to pay junior lienholders. Any funds remaining after all liens are paid belongs to the former owner.
The “not an attorney” disclaimer goes right here.

Glynn Bransom

Re: - Posted by eric-fl

Posted by eric-fl on April 25, 2002 at 11:17:26:

Most loans are “insured”, which means that the bank re-coups all or a portion of that 62k anyway. So, it’s not like there’s $37k in equity, per se. Once the property is sold at auction, the indebtedness is wiped out no matter who buys it, because the loan has been foreclosed on. This is why, when banks buy back properties, it’s usually for $100. Normally, if there is $37k in real equity, then someone else will pick it up at auction besides the bank. It’s usually the reverse - $99k is owed on the property, and it’s only worth $62k, LOL. This can happen both by overfinancing, as well as additional liens. Usually, the mortgage is the LAST thing people stop payments on, they’ve normally had financial trouble for a while before that.

To answer your question in specific though, I don’t know. I suppose it would go on the books as profit, although I’m sure too much of that would certainly raise the eyebrows of regulators. The entire process of foreclosure and REO by lenders is very heavily regulated to prevent exploitation. This scenario is probably addressed within those regulations in specific, if you care enough to do the research into them.

Definitely not a “god”… - Posted by Michael in Phoenix

Posted by Michael in Phoenix on April 25, 2002 at 10:35:21:

…but it is my understanding that once the lender takes back the property after bidding what is owed them at the sheriff’s sale, they own the property and can sell it for whatever profit they think they can make.

But, if someone outbids the lender at the sheriff sale, assuming that lender is in first position, the amount of the bid that exceeds what the lender is owed is disbursed to the secondary and tertiary lien holders, if any exist. If no other liens are in existence on the property, the former homeowner gets the money.

This is my understanding, and I am certainly open to correction.


yes, the are the owner (NT) - Posted by David Krulac

Posted by David Krulac on April 25, 2002 at 08:12:46: