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Hudson & Marshall, of Dallas, auctioned 74 houses on behalf of lenders who had been unable to sell them through typical listings. Several winning bidders who spoke with The Californian said they hadn't yet received final approval from the lenders that own the houses.
Carolyn Tidmus, a local real estate agent who had three listings on the block, said she suspects many of the sellers will end up rejecting the winning bids, which were typically $100,000 to $200,000 less than the amounts they had to write off as bad loans and significantly lower than she had expected.
"It was very depressing," Tidmus said.
A Hudson & Marshall executive estimated that sellers will approve 75 percent of the offers from the auction, compared to 90 percent in most of the auctions it runs.
The ballroom Nov. 6 was packed with more than 400 people, but some said they had come only for the spectacle or to gauge the market. Several houses drew bids from just three or four buyers.
That's not usually how it plays out, said Bill Nazur, a Corona real estate investor and the author of "Finding Foreclosures." Houses typically sell at auctions for about 5 to 10 percent less than what comparable houses bring on the open market. Subtract out the auctioneer's 5 percent fee and a buyer ends up saving little or nothing, Nazur said.
"It's great marketing," Nazur said. "It's a whole lot of flash, but not a lot of substance.
"But the sheer numbers of people in attendance at recent auctions have been reassuring, Nazur said, because it shows a certain degree of interest among buyers, and particularly local buyers, even if some of them have held off on bidding.
Delores Conway, director of USC's Lusk Center for Real Estate, said the auctions also give would-be buyers a great chance to check out homes beforehand and then to get a sense of what others are willing to pay for them.
A small handful of recent auctions in Southern California have included properties in Southwest Riverside County, but the one earlier this month was the first to be held locally. Several real estate experts interviewed last week said it would be only a slight exaggeration to call it the tip of an iceberg.
At the end of last month, some 4,000 mortgages in Southwest County were in default, according to foreclosureradar.com, a database that covers California. Real estate experts say the vast majority of those houses will be seized by financial institutions, which are beginning to slash prices and turn to auction houses in an effort to convert real estate back into money, their core business. About 500 are due to be seized by the end of this month, according to the database.
Economists, investors and real estate agents blame the foreclosure wave on speculative buying, on a range of newfangled loans and on monthly payments that started off low but rose swiftly after a year or two. Many buyers moved in with no down payments, counting on rising prices to create the equity that would allow them to refinance into a safer loan after a couple of years.
But that market evaporated over the course of 2005. Prices, economists warned, had grown much faster than homeowners' incomes.
Lou Klein, who bought his Temecula home in 1995, was one of many who had sat pat in their own houses while watching the run-up from 2000 to 2005 with amazement.
"It just went crazy," Klein said. "I think it went a little too out of whack."
Klein left the auction here with two winning bids, including a $240,000 bid on an 1,800-square-foot house near Murrieta Glen Arbor Park. A woman bought the house in October 2005, borrowing for the entire $420,000 price.
The lender seized the house in July, listed it for a month at $345,000, and cut the price to $328,000 at the end of August before giving Hudson & Marshall a crack at it.
Klein said he plans to keep his house in Temecula and rent out both of the houses he scored at the auction, if indeed the owners sign off on the deals.
For several people, last week's auction was a chance to move downmarket. Nelson Sales and Lyn Cunningham, a local mortgage broker and real estate agent, were hoping to snag their client a house for $200,000 to $250,000. The client owed $550,000 on a house in Wildomar that probably wouldn't sell for more than $450,000, Sales said. The client had fallen behind on some of his bills, but hadn't defaulted on the mortgage, Sales said. He was hoping to convince the lender to accept less than the outstanding balance.
"I don't want his home to be up there," Sales said, gesturing toward the podium, where only the numbers were intelligible amid the auctioneer's rapid-fire twangy patter.
Sales and Cunningham were outbid on all three houses they targeted, Sales said. The search continues this week, Sales said.
Al Rivera had recently sold his own house in Wildomar and is using the $130,000-plus in equity to make down payments on two or three less expensive houses. With new monthly mortgage payments of just $600, Rivera figured he can easily come out ahead as a landlord. Rivera walked away with a winning $131,000 bid on a three-bedroom house near the California Golf & Art Country Club in Sun City. It last sold for $290,000 in June 2004.
"I thought 131 (thousand dollars) was a good deal," Rivera said after the auction. "It's completely a buyer's market."
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