Mortgagee Auctions



From: Glenn M

Does anybody know any papers/magazines/newsletters etc. that I can source information on up and coming Bank foreclosures or Council foreclosures (i.e. due to Rates/Taxes not being paid)?


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Reply: 1
From: Peter Martin


Not sure if this fits your criteria, but ...

Every Thursday the Sheriff's Office in Melbourne auctions seized real estate. The properties to be auctioned are advertised once only - in the Legal Notices classifieds of various papers (the Age & the Aus I think) 5 weeks before they are to be auctioned.

It's a very interesting process and is definitely a way of picking up bargains if you understand how it works.

For those in Melbourne, I recommend going to one of these auctions to see how they operate. They're held at the Sheriff's Offices in South Oakleigh each Thursday at 2:30 pm. Some weeks there are no properties for auction and often they are withdrawn at the last minute, so it's always worth ringing them before you go.

What makes the auctions interesting is that the Sheriff is only auctioning the owner's interest. For example, if a property is worth $500,000 and the owner has debts on it of $490,000, you could potentially buy it by bidding $10,000. You then have the choice of paying out the debt or trying to onsell.

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Reply: 1.1
From: Paul Zagoridis

Whoosh! blam!

Deserted silence as the hoardes of the Somersoft IP forum regulars descend on Melbourne.

Very interesting post that - I like the idea.

(This post will confuse ppl who get this forum by email. It was originally posted to the wrong topic)
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Reply: 1.1.1
From: Dave :)

ahhh, thanks Paul. Now I know what you're on about. For a second there
I thought I was starting to go all loopy....ok, loopier.

Great post Peter - very useful info.


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Reply: 1.2
From: Michael G


I did some searching NSW a while back about this. They don't seem as easy in NSW as it is in Vic.

There they pass it too realty agents to auction.

The info I believe is in a document called the Goverment Gazette.

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Reply: 1.3
From: Apprentice Millionaire


>It's a very interesting process and is definitely a way of picking up bargains if
>you understand how it works.

Understanding how it works is what I am after.

>What makes the auctions interesting is that the Sheriff is only auctioning the
>owner's interest. For example, if a property is worth $500,000 and the owner
>has debts on it of $490,000, you could potentially buy it by bidding $10,000. You then
>have the choice of paying out the debt or trying to onsell.

So if I understand well, I would be buying the property (for a very small sum) *and* the debt?

Apprentice Millionaire
(aka Jacques)
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Reply: 1.4
From: Owen .

I did a bit of a search for something similar in Sydney (couldn't find anything) but I came across a report produced by St George bank. It had a whole lot of tables in it to do with Loan Defaults and Foreclosures. The stats were from 1998/99 (sorry, I didn't save the URL). The figures were snap shots of specific months and one example I remember was in Dec 1998 they had a total of 175,000 home loans drawn down. Out of those only 0.04% per annum were foreclosed on. The other stats were similar growing in total through 98/99 but always with around 0.03%-0.04% foreclosure rate per annum.

This is about 70 properties per year.

Now I guess if this is extrapolated for the number of customers the other banks and lending institutes have then the number of foreclosures becomes reasonably large. Unfortunately, in NSW at least, it seems that these are just sold off through normal real estate agents.

Therefore, if you want to find out where they are, get friendly with some agents who may tell you when they come up. So if there is, say, 600 foreclosures in Sydney per year from the big 5 banks and you are friendly enough with 6 agents from the, say, 3000 agencies in Sydney (0.2% of them) then you may have access to, say, 1.2 foreclosure properties per year - if they happen to be in the area of the agents you know.

Let me know how you get on.

PS - I have no idea how many agencies there are in Sydney and the other figures (except those from the St George report) are pretty loose too. Just my 2.2c worth.
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Reply: 1.4.1
From: Sergey Golovin

Is Sherrif's Office called Civic Compliance this days or something?

Serge G.
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Reply: 1.5
From: Apprentice Millionaire

I am still trying to understand how those Sheriff's auctions really work (i.e. am I buying the debt as well as the property?).

However, I have found an interesting point: one must be very careful with most of these auctions, as one might only be buying a share of the property. Here is an example:
"Sale by the Sheriff
All the estate and interest (if any) of John Citizen of 1 Main Street, Melbourne, as shown on Certificate of Title as John Peter Citizen, joint proprietor with Jane Mary Citizen of an estate in fee simple in the land described on Certificate of Title Volume 1234 Folio 123 upon which is erected a house known as 1 Main Street, Melbourne."

In this case, if I was bidding, I would be bidding only for John's share, not the whole house!

So beware. And as Peter wrote, most of these auctions are withdrawn at the last minute. The ad reads: "(unless process be stayed or satisfied)".

Apprentice Millionaire
(aka Jacques)
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From: Peter Martin

Well, I'm feeling very full of myself at the moment. I'm pretty much a novice at property investing and have been reading this and other forums thinking I'll never accumulate as much knowledge as seems to be shared among a lot of you. But I've managed to throw in something it looks like a lot of you have never heard of!

Here's my story about auctions and the Sheriff's Office. It's long but I think you'll find it interesting ...

I first found out about it after I was the underbidder at a "normal" auction last year. We were disappointed not to buy the house (it was to be our home). A few months later, a friend who is a real estate agent (but not the agent who auctioned the house) rang and told me that settlement had not gone through on the house because the vendor could not get clear title. As well as having a large mortgage, she also had a sale and seize order over the house as a result of a civil action she had lost. To be able to settle, she had to be able to satisfy both secured debts.

The figures were:
Price at auction: 485,000
Mortgage: 450,000
Sale and seize warrant: 50,000 (but they were willing to take 25,000)

At this point you might be thinking: 450 + 25 = 475 so why couldn't she settle. The answer is that the greedy ol' real estate agents were holding the deposit and wouldn't release it without taking their cut. There were two separate agencies involved and between them they wanted over 20,000! And they wouldn't negotiate.

The holders of the sale and seizure warrant could see they were going to be the big losers. The bank wouldn't negotiate as long as the mortgage was below the purchase price and the agents had the whip hand because they were holding the deposit. So the warrant holders did what they were entitled to - they put the property in the hands of the Sheriff for auction. By doing this they were effectively saying "sell the house and we will take whatever proceeds you get as satisfaction of the warrant." By doing this they re-shuffled the queue of people trying to get money out of the vendor, putting themselves ahead of the real estate agents. I hope you're still with me!

Meanwhile, the people who bought the house at auction had got sick of all the mucking around and rescinded the contract. They decided to wash their hands of the whole affair (I think they may also be suing the vendor).

The vendor's mortgage was going up by almost 3,000 a month. By the time it got to the Sheriff, the mortgage was up to nearly 465,000.

So, when we got the call from our friend we decided we'd have another crack at the house. At that stage the Sheriff's Auction had been advertised (they advertise once only, 5 weeks before the auction) and there were two weeks to go. I attended the Sheriff's Auctions for the next two weeks to try to get my mind around how they work. The thing that struck me was that although I was going along to prepare myself for the auction of one specific house, almost everyone else there looked like they were after investment bargains. The crowd in attendance was virtually identical every week I went.

Anyway, how does the auction work?

The key concept is that the Sheriff is only auctioning the owner's equity in the property.

When the auctioneer starts the auction he will list all the known outstanding encumbrances on the property, including mortgages, rates and water. You need to have an idea in your head of what the property's value is.

You subtract all the encumbrances from your valuation to give you an estimate of the owner's equity.

In our example, the figures looked like this:

Mortgage: 465,000
Warrant: 50,000
Rates etc: 3,500

giving a total debt of 518,500. The property's last "public" valuation was the 485,000 it achieved at auction but we had it valued at 540,000.

The outcome of the auction was that we bought it for 10,000. The 10,000 eradicated the warrant, we paid out the remaining debt and finished up with a total purchase price of 478,500 - compared to the 485,000 it originally went for. Not a significant saving but a bloody good result as far as I'm concerned.

This scenario is not a particularly appealing one for an investor because the owner had no equity in the property. However, properties appear to come up where the owner does have a reasonable equity and these can be very good investment propositions.

Imagine if the owner had an equity of 100,000 and you bought the property from the Sheriff for 40,000! You're 60,000 in front straight away.

The main things to note about all this are:
1. You need to have a good idea in your mind as to what the value of the property is. This is not always easy to do because they're not open for inspection and the owner may not allow you to do a valuation.
2. The Sheriff only takes cash, bank cheque or solicitor's trust cheque. In our case we thought we'd be up for at least 10,000 and were prepared to go to 20,000. I took along one 10,000 bank cheque, one 5,000 bank cheque and 5,000 in cash to cover all possibilities. As it turned out, I only needed the 10,000 cheque.

Sorry for going on so long. Hope you found it interesting. The phone number of the Sheriff's office is (03) 9564-5314. There is a young guy called Shane who conducts the auctions and he's quite happy to answer questions.

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Reply: 1.5.1
From: Peter Martin

Apprentice Millionaire,

You're quite right. Most of the properties that came up at the auctions I went to were only for half shares. These were always passed in with no bidding at all.

Shane at the Sheriff's Office told me the most common scenario is: Mr & Mrs Citizen own a house jointly. Mr Citizen is self-employed. His business goes bust and he has to hand over his share of the house.

I would think this is a scenario that most investors would not want to get involved in.

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Reply: 1.5.2
From: GoAnna !

You may also want to check out for properties being sold for a number of reasons including deceased estates. also has a very small amount of mortgagee auctions listed from time to time. Just select mortgagee as type of sale.

These are for Melbourne.

GoAnna !
(aka Anna before she got real)
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From: The Wife


You're a star!!!

I'm sure people on this forum will be VERY appreciative of you're posting, well done. I appreciated it also. Thankyou for sharing.

~Life is a daring adventure, or nothing at all~
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From: Glenn M

I'm with the TheWife on this one...Thanks very much for your contribution Peter.

I must admit, the reason for the original post was due to a number of books in the United States talking frequently about the profits to be made in Bank Foreclosures. However, most Australian Investment books are strangely quiet on this topic.
I thought for a while we really are the lucky know, everyone paying their bills on time..banks never re-possessing properties.

Thanks again,

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From: Felicity W.

You probably also have to consider scale when it comes to foreclosures. Australia is a tiny tiny market compared to the USA. Naturally that means that foreclosures are much less common here. I know I've listened to John Burley's tape series on foreclosures and nearly fell over when I heard how many of these can happen at a time in some US states. That scale of opportunity doesn't exist here - and perhaps because of that, Aus books won't mention it in case the author loses a good source of cheap deals! Or am I being a little cynical here? hehehe Perhaps it's just not worth mentioning because there aren't enough to go around regardless.
Keep smiling
Felicity :cool:
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