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California Foreclosure Auction News

Riverside, California

On a foggy Sunday morning last month, the parking lots around the convention center here were filling fast.

The volume of the traffic downtown was not unusual. What was unusual was that the men directing the traffic were in tuxedos.

The crowd — about 1,200 people looking for real estate bargains — was decidedly less formal, in jeans and Dockers, shorts and sandals. The casual dress code concealed the fact that many were serious buyers, collectively carrying millions of dollars into the hall in cash and cashier’s checks.

Some were investors, like Dendy and Rita Villegas of San Diego, who were looking to pick up an inexpensive house to rent out. Some were first-time buyers, like Rodolfo and Veronica Gonzalez of Fontana, who were hoping to save $200,000 or so off the asking price of a family home.

They converged on an event the likes of which Californians have not seen in a decade: a large-scale auction of foreclosed homes.

On this occasion in Riverside, two lenders put 100 properties on the block. By the end of the day, 93 had sold. Most of the properties were in fast-growing exurban and desert communities in Riverside and San Bernardino Counties east of Los Angeles.

The company that held the auction had been dormant for a decade. But in recent months, when mortgages started going bad and foreclosures multiplied, several lenders contacted the company’s officers and asked if they could get back into the business of auctioning properties. “We went into hibernation, and we’re back!” said Robert Friedman, the chairman of the Real Estate Disposition Corporation in Irvine.

The company sold more than 265 properties in San Diego, Los Angeles and Riverside during two weekends in May, and it is planning to hold auctions in Sacramento, Modesto, the Bay Area and Atlanta this summer.

Mr. Friedman described his trade as a “countercyclical business,” and he said that the banks unloading the properties preferred not to be identified.

In some cases, he said, the institutions sold the properties for less money than they were owed. “It’s not a happy occasion,” he said. “They’d rather take a little loss quickly, rather than waiting and seeing.”

However unhappy the occasion may have been for lenders, the auction company put on a high-spirited event. All that was missing was the preacher and the tent.

The men in tuxedos were not confined to the parking lots. They were also inside the convention center, answering questions and showing the way to the auction hall. Opposite the hall, a ballroom held 41 loan officers and 25 escrow officers. Before the bidding started, a jubilant soundtrack poured from the speakers.

During a brief seminar before the auction, Mr. Friedman gave the theme of the day. “Today’s the day,” he told the crowd, as staff members wheeled in extra chairs for hundreds of people standing in the back.

“The time to buy real estate is when the market is soft,” he said. “Today’s the day. Don’t regret not buying at this auction.”

Foreclosures have surged in Southern California in the last year, particularly in outlying areas. In seven counties, lending institutions foreclosed on 6,007 properties in the first quarter of 2007, up from 721 properties in the first quarter of 2006, according to DataQuick Information Systems, a research company based in San Diego.

In Riverside and San Bernardino Counties, lenders foreclosed on 255 homes in the first quarter of 2006. That number grew to 2,369 in the first quarter of 2007, according to DataQuick.

John Karevoll, an analyst at DataQuick, said the data show “pockets of distress” in outlying areas that experienced a lot of new building.

“The foreclosure numbers are a function of how many loans are made,” Mr. Karevoll said. “If you go to a new area, you have a higher percentage of people who bought in the last five years. You just have a higher percentage of people who get in trouble.”

The normal process for the auction of foreclosures in California can be complicated, and it tends to be a game played by professional investors. After completing legal default proceedings, banks typically auction properties on the steps of county courthouses. Buyers have no opportunity to inspect the properties and must pay in full, in cash. And the sellers do not have to guarantee that the title is clear of liens and mortgages.

The recent real estate auction in Riverside eliminated many of those problems. The company presented every property for public inspection for three days, and it guaranteed title insurance as well. In addition, the company arranged for a lender to finance the deals, so that buyers did not have to pay cash for the full price.

Buyers paid the auction company a fee of 5 percent of the sale price for the first house, and 15 percent of the sale price on additional houses.

“It’s a pretty safe way to do this,” said Hasnain Khaku, a Realtor from Anaheim Hills who was outbid on six houses at the auction. “I’ve been telling my clients for two years to sell as fast as they can, or to keep cash on hand for opportunities like these.”

Dendy and Rita Villegas drove two hours from San Diego with their 7-month-old daughter for the chance to bid on a house in Murrieta, about 80 miles southeast of downtown Los Angeles. They are real estate agents, and Mr. Villegas is also a home inspector. He said that the house they wanted looked better than the other bank-owned houses on its street, but that it needed a lot of work. The walls were dirty, the floor was damaged and the pool equipment wasn’t working.

When the property came up for bidding, Mr. Villegas was quick to raise his card. He was prepared to go as high as $300,000.

Within seconds, the auctioneer, at a blood-boiling pace, ran the price up to $350,000. Ultimately, the four-bedroom, 1,828-square-foot house went for $400,000 to another bidder. The auction catalog said it had been previously valued at $425,000.

Throughout the bidding, the loudspeakers shrieked at rock-concert levels. The young men in tuxedos — called “ring men” by the auction company — ran up and down the aisles, spotting bidders.

At pauses in the bidding, the auctioneer would shout encouragement. “What the heck?” he would say. “It’s only money!”

The Gonzalez family of Fontana had hoped to get a good price on a three-bedroom house in Cathedral City, near Palm Springs. Nine months pregnant, with two toddlers in tow, Veronica Gonzalez, 24, was prepared to go as high as $250,000 for the house, which had previously been valued at $389,000. She flashed her card to open the bidding at $179,000 and quickly saw the price soar past the family’s limit. The winning bid was for $280,000.

“It wasn’t worth that much,” said her husband, Rodolfo, 25. He said the house had holes in the walls and broken windows. The floor needed refinishing and the backyard needed work.

Of course, not everyone went away disappointed. Judy Sutter, a retiree who recently sold her house in San Diego, submitted the winning bid for a four-bedroom, 2,506-square-foot house in Menifee, not far from Murrieta. Her bid, for $325,000, came in nearly $100,000 less than the house’s previous value.

Ms. Sutter was satisfied. “This is move-in ready,” she said. “It looks like no one has ever lived in this house. This works for me.”

Even so, the concern among many bidders at the event was that even if the properties sold for 20 or 30 percent less than their value at the peak of the market, the price might still be too high.

Jim and Betty Botley of Chino attended the event with their Realtor, Maurice Merchant. They were looking to spend what Ms. Botley defined as “$300,000, and that’s it.”

The house they wanted went for an auction price of $550,000. The Botleys thought that it would have needed $50,000 to $100,000 for renovation. After the repairs, auction fee and closing costs, they couldn’t see how anyone got a deal.

“We learned a lot today,” Mr. Botley said. “You can probably buy them cheaper on the market than buying here.”

For more information on California foreclosures and related news, please visit our California Foreclosure News home page.