Despite what the Chronicle’s most popular commenters seem to think, auctioning off a second mortgage on the courthouse steps isn’t unscrupulous, crooked, or criminal.
Bidding on a courthouse auction without understanding what’s actually being auctioned is, however, negligent, foolish and an outright failure in auction buying 101.
Winning bid on mortgage buys family heartache [SFGate]

Comments from Plugged-In Readers

  1. Posted by SF Comments

    Well said…Auctions are not for the faint of heart nor the casual buyer. It is their fault for thinking they could purchase a property at an auction without any real research or knowledge of what they were really buying.
    It takes a lot of calculated research to understand these sales and even with all of the information, it is still very risky.
    Would they be crying wolf if they actually purchased the first mortgage? Probably not…

  2. Posted by jason

    Despite what the Chronicle commenters say, it is not the evil banks that are destroying our economy and, for that matter, our country. It is the complete and utter lack of personal responsibility and accountability that has plagued our society in recent years. It’s so much easier to blame someone else than to just admit: “You know what? I f***ed up.” It’s not just in finance and mortgages and real estate. It has become the American way to not only EXPECT someone to GIVE you everything you’ve ever wanted, but to also be able to blame them when anything goes wrong.

  3. Posted by ex SF-er

    this example of one of the reasons why foreclosures are not typically considered “comps”.
    it has become difficult to exclude them from market analysis however, given the rising percentage of these types of loans across various local RE markets.
    you feel sorry for the family, but also it is clear that they didn’t know what they were doing.
    On a side note, this is especially unfortunate because one of the chief things that we need to do in our economy is get the high priced RE out of weak hands and into hands that can afford it (probably at lower prices). all of the effort to date has been to try to keep expensive RE in weak hands.
    we should streamline the foreclosure process to work through this extensive inventory

  4. Posted by ex SF-er

    it is not the evil banks that are destroying our economy and, for that matter, our country.
    I disagree. They have done much to destroy our economy and our country. In this particular case they are not culpable, but it does not exhonerate the countless other innovations that they’ve created that have helped to bring us to our knees. they are the ones that most pursued and achieved deregulation with the mantra that “the market knows best” and that they could self police. (all of course a bunch of BS).
    they have a higher level of culpability as the supposed experts in resource allocation. That’s why they earn millions and billions per year. they thus share more of the blame than do financially unsophisticated borrowers.
    this of course doesn’t remove all culpability from the masses. but to equate families like this to the bankers is absurd imo.

  5. Posted by SFer

    Jason: I agree with your statement that people need to own up to their mistakes instead of putting blame on the other party. They clearly did not do their due diligence and are not investment savvy. It sure does suck that they are out their purchase, but live-and-learn!

  6. Posted by Paul Hwang

    This is good example why you should go to a dentist instead of trying to pull your teeth yourself.

  7. Posted by A.T.

    Paul is exactly right. Find a good lawyer to help you through this legal process if you want to pursue it.

  8. Posted by BobN

    I’m surprised at the number of people defending impenetrability as a feature of modern business dealings. From the lack of transparency in this transaction to the utterly incomprehensible “innovative securities” that helped get us into the mess we’re in to credit-card agreements that are virtually indecipherable, there’s no NEED for the complexity. It serves a purpose, of course, but that purpose is certainly not the public good.

  9. Posted by geoff the realtor

    Find a good lawyer to help you through this legal process if you want to pursue it
    A lawyer would have been fine. Due dilligence in the form of title search and a small amount of legal research would have been sufficient. A call to a realtor to ask a favor to look into it would have also worked. Apparently they did none of these things.

  10. Posted by A.T.

    BobN, I’m with you as a general principle. But I don’t think that was the problem here:
    “‘It didn’t occur to me that a bank could auction off a worthless piece of paper,’ Roberta said. She looked up the property’s records at the courthouse. Since both loans were recorded at the same time and date, she mistakenly thought it was a single loan.”
    They were not tripped up by a complicated point. There were two loans recorded, and she just missed the significance of that.

  11. Posted by Brahma (incensed renter)

    I usually side with the little guy against the banksters but in this case, the sharks at the former Wachovia are just abiding by the law and not trying to a fast one on, in this case, unsophisticated wealthy people. That said, separating foolish people from their money in an efficient manner is what the so-called “free market” is really in operation to do.
    The Strands’ are fairly privileged and will walk away from this experience with very little financial damage (their house was paid off). The Strands’ daughter and her fiance will do just fine in life without having the assistance provided by the bank of Mom and Dad; saving for a down payment on your own and learning how to build your credit rating are worthwhile character-building experiences.

  12. Posted by geoff the realtor

    Not only are they probably not out 95K, as a confidential settlement was reached, but a call to a realtor could have easily yielded a title search which would have shed light on the situation. But obviously your point is only to hate, so hate away, hater.

  13. Posted by SFer

    geoff: You are 100% correct. This is a clear-cut case of the buyer not doing their due diligence and not exercising caveat emptor. What saddens me the most is reading the SFGate comments where everyone seems to think that the banks are the biggest crooks and the buyers are immune.
    The buyers failed to do their homework, and they got burned. Getting a title report is not difficult and could be done quickly and without much cost.

  14. Posted by Lori

    I also agree that the buyers did not do their due diligence. Title reports are easy to get. They thought they were getting something great but they forgot the old saying “If it sounds too good to be true …”
    Sorry no sympathy here either. Don’t bid if you haven’t done your research. Every property that I was interested in facilitiated a visit to City Hall to check the records.

  15. Posted by Wow

    Why does everyone think that they can make money in real estate? It is the only asset class where lame people actually believe that they can have a “SURE THING” investment without any prior experience. Before the crash everyone was buying investment properties with little or no experience or understanding of real estate value. Now people think that they can take advantage of banks and make money through short sales/ foreclosures/REOs.
    People hear about banks discounting notes at 40 50 60% on the news, and they think that they can make tons of money. What they don’t realize is that the only companies getting those discounts are investing millions if not billions of dollars to get those steep discounts. They are also buying the notes typically before the banks have invested money into the foreclosure process (expensive). Banks are happy to recapitalize and not deal with the lengthy and pricy foreclosure process. These sophisticated investors understand the process and value. Yet people think that real estate is easy and straight forward. They think that banks are just getting rid of properties, and that they can take advantage of them. Few of them understand why banks are giving discounts. They just are.
    These people registered on a website and found a property they thought was selling for 50% less than its value. They thought that they were smarter than the bank. They didn’t understand that you cant buy a property like this without checking title and making sure you are bidding on a 1st mortgage. Unbelievable. Now they are complaining and people feel bad for them?

  16. Posted by diemos

    ^I don’t.
    If you’re going to play with the big boys you need to know what you’re doing and bring your cup.

  17. Posted by R

    Wow, not to argue your point in general, but it seems these people were looking for a place for their kids to live.. not exactly trying to make money.

  18. Posted by BobN

    I think people are misreading the article. The confidential settlement is between the bank and the previous homeowner with the first mortgage.
    They were not tripped up by a complicated point. There were two loans recorded, and she just missed the significance of that.
    Sales on the courthouse steps, like many now complicated things in our society, go back a long way, to a time when one didn’t need a lawyer to figure out what was going on. Sure, the bank “followed the law” but whose lobbyists shaped that law? Why can’t the sale start with a straightforward statement like, “this is a sale of financial instrument, a second mortgage on the property at ….”?
    We’ve grown so accustomed to the complexity, we don’t even wonder why it’s there anymore.

  19. Posted by SFer

    I’m glad that we’re all in agreement that the buyers didn’t do their homework. The type of people that are venting on SFGate comments are probably the same type that would do the exact same thing (fail to research their purchase).

  20. Posted by Wow

    R, not to aruge your point but PAAALEASE. These people are now just trying to figure out an angle to screw the bank and save their a$$es. How many people do you know that search for a house for their kids on sites like REALTYTRAK?

  21. Posted by geoff the realtor

    think people are misreading the article. The confidential settlement is between the bank and the previous homeowner with the first mortgage.
    No.
    “The first mortgage was auctioned on July 22 for $298,000; there were no bidders and the property reverted to Wells.
    Wells and the family negotiated a confidential settlement and were finalizing details late last week.”
    It reverted to Wells and there is only one “family” in the piece.

  22. Posted by sfrenegade

    This article is poorly written because I don’t think the author understands foreclosure. When you foreclose based on a 2nd (junior) lien, you are foreclosing the whole property, but you are foreclosing subject to the 1st (senior) lien. The new purchaser will still own the property subject to the 1st lien.
    So if the family had offered to pay off the 1st mortgage, they could have kept the house. Yes, you do foreclose on the 2nd lien, but you don’t literally sell the 2nd mortgage. When the new buyers paid $97,606, what they were actually doing was saying that there was $97,606 left of equity in the house after the 1st mortgage (which is probably not the case).
    What’s interesting is that Wells Fargo/Wachovia didn’t need to foreclose on the 1st mortgage in this case since they owned both mortgages. If they foreclosed on the 2nd mortgage and then bought the property in foreclosure, the 1st mortgage would be extinguished under the merger doctrine (it would have merged into Wells’ ownership of the property).
    What’s also interesting is that California law forced Wells into this result. Wells was not allowed to foreclose on the 1st mortgage, and their sharp lawyer realized that they didn’t need to foreclose on the 1st mortgage under the merger doctrine in order to get the property back. What they didn’t expect was some chump to buy the house subject to the 1st mortgage.
    The banks have done many corrupt things, but this is not one.

  23. Posted by hangemhi

    they make a mistake and you fault them for trying to get out of it????? i’m not excusing stupidity here – but wouldn’t it be even dumber not to try to get out of this mess?
    and keep blaming the consumer if that makes you feel holier than thou. the laws are stacked in favor of the banks and lenders and even smart people get raked over the coals if you make any little mistake like missing a credit card paying and seeing your 8% rate go to 18% or worse. good for them for negotiating whatever they could after the fact.

  24. Posted by Wow

    “the laws are stacked in favor of the banks and lenders and even smart people get raked ….”
    First of all I dont know if you have any idea on what you are talking about. In the mortgage industry the laws are absolutely NOT stacked in favor of the banks. The constant new laws have made it SO difficult and such a lengthy process that many smaller mortgage banks no longer even originate loans on owner occupied homes (typically the safer mortgages). Before you cry about how BIG BAD BANKS take advantage of people you should educate yourself on what the laws actually are. I would start researching CA SB1137. That should give you a sample of what banks have to go through to foreclose on an owner occupied home loan that was originated during the boom.
    As far as credit cards this is a real estate site and that has nothing to do with this post. Furthermore I do fault the borrowers for trying to cut corners, and then go out of it.

  25. Posted by EH

    …[Wells’] sharp lawyer realized that they didn’t need to foreclose on the 1st mortgage under the merger doctrine in order to get the property back. What they didn’t expect was some chump to buy the house subject to the 1st mortgage.
    Forgive me if I just don’t know that they were forced into the auction itself in this way, but why was the 2nd mortgage up for auction at all like this? That is, why was it possible for the family to make this mistake, is there an existing purchaser who could have had a similar winning bid and not received this outcome?

  26. Posted by luc

    I have been to a few courthouse step sales and was never impressed enough by the prices to actually buy anything.
    It didn’t occur to me that the lending institution would or could offer up a 2nd. At least the auctioneer should bring up that fact.
    I thought I had done my homework and was savvy….just like the people in the article.
    Isn’t this rather like buying a house and finding the underlying land is not included.
    It might be legal, it still doesn’t smell right.

  27. Posted by luc

    I have been to a few courthouse step sales and was never impressed enough by the prices to actually buy anything.
    It didn’t occur to me that the lending institution would or could offer up a 2nd. At least the auctioneer should bring up that fact.
    I thought I had done my homework and was savvy….just like the people in the article.
    Isn’t this rather like buying a house and finding the underlying land is not included.
    It might be legal, it still doesn’t smell right.

  28. Posted by sfrenegade

    “why was the 2nd mortgage up for auction at all like this?”
    This is why I say that the SFGate article is badly written. You don’t sell mortgages in foreclosures; you sell property.
    When a second mortgage is foreclosed without the first mortgage being simultaneously foreclosed, the first mortgage is still active, and the property is taken subject to the first mortgage. People are confused by this now, but historically when mortgages were more likely to be transferable among owners, it was more common.
    This was completely an error by the buyer here. They bought the house with a 1st mortgage already on it. Let’s say the first mortgage was for $200K. They effectively bought the house for $297,606, because they assumed the $200K mortgage and paid an additional $97,606 to Wells for the 2nd mortgage.
    Foreclosing only a 2nd mortgage is highly unusual when the same bank owns both the 1st and 2nd mortgage. Usually when a 2nd mortgage is foreclosed, it’s a different bank. However, this was a very shrewd move by Wells’ attorney because Wells was legally prevented from foreclosing on the 1st mortgage, and foreclosing on the 2nd mortgage still achieved their goal of taking back the house. They got a bonus on top of achieving their goal when an uninformed buyer purchased the house instead.

  29. Posted by sfrenegade

    “it still doesn’t smell right.”
    That’s because you’re only thinking of it in this context where the new buyers were uninformed and made a fool of themselves. Let’s give a different factual scenario:
    House is worth $400K. First mortgage is $300K at 5% held by Bank A. Second mortgage is $50K held by Bank B. Owner defaults only on the second mortgage. Current market rate for a mortgage is 7%. Bank B forecloses.
    If you were a new buyer, you might actually want the property subject to the first mortgage because it’s interest rate is lower than the current market rate. You might be willing to pay $100K for the house and assume the first mortgage, effectively paying $400K. Then $50K goes to Bank B and $50K goes to the owner, and the new buyer gets a below market rate mortgage of $300K at 5% instead of $300K at 7%.

  30. Posted by luc

    OK, riddle me this then….why did WFC bid the property in at $298, when the 1st was for $200. Unless, they planned on settling or had already settled with the suckers.
    Selling the 2nd when you hold the 1st and plan on forclosing may be legal….it really ain’t right tho. It should be announced before the auction begins if that is the situation. It’s bad enough buying a pig in a poke and the house has been gutted of wiring and etc…but this takes the bisquit.

  31. Posted by eddy

    Somehow I read this article and it made perfect sense to me. I suspect many folks are just skimming and reading the comments. But the article is extremely clear, IMO. Any confusing bits are quotes from the family who obviously were / are confused; but the article is pretty clear to point out and set straight these confused statements.

  32. Posted by PaulG

    If I’m reading correctly, a well-informed bidder would have bid close to $0. $97,606 is not a round figure. It makes me think this was a competitive auction with multiple bidders. Maybe the low bidders were also amateurs or maybe they were professionals making the same mistake as the amateurs. Either way, they got off lucky.

  33. Posted by mike

    i’m surprised how many people didn’t read the article (or didn’t comprehend it) and jumped to the wrong conclusion.
    “She looked up the property’s records at the courthouse. Since both loans were recorded at the same time and date, she mistakenly thought it was a single loan.”
    there’s nothing complicated here as some suggested. the banks, as evil as they are, are in no way responsible in this case.
    she just made a dumb, expensive mistake because she couldn’t read the property records properly.
    it’s entirely her fault.

  34. Posted by eddy

    the article also said that the notice made it clear. failure to read. ironic how a failure to read the article is causing so many people to go on a tirade.
    There were a few things that seemed odd to me in the article. I didn’t get the need to post a 650k bond to prevent the forclosure? I also didn’t understand how the auction could have produced such a high number since they didn’t disclose the balance of the second loan (or the implied value the family thought the house was worth). Lost in all of this is how a home with $298k first, with a second that was probably 150 – 200k, now valued at $200k. Yikes.

  35. Posted by VancouverJones

    Yeah right; nice try.
    Can you build a bridge across the golden gate? “No problem…”
    How about developing some CDOs and MBSs? “Sure…”
    Could you also design and build an iPhone and a 20 story building? “Right away Sir”
    Is it too much to ask for full disclosure at an auction? “Uh…I don’t know. The technical feasabilty (sp) of that is being researched by our Due Dilligence department.”
    Bottom line: just another phony market inefficiency introduced to impede price discovery.

  36. Posted by jon

    Price got close to $100k because the under-bidder was WFC. I’m sure their bidder is savvy in the ways of Trustee Sales and sensed the bidding was slowing down and dumped the property on the people in the article.
    They were bidding, not to perfect the title, rather to run the price up on a worthless piece of paper.
    This is something that should be disclosed when all the boilerplate is being read at the start of the auction. Why not?

  37. Posted by shark

    I’m late to the game here, but want to throw in my two cents. I think there is some confusion here between “making” the loans and “owning” the loans. Most likely, one or both were packaged and sold off, and WFB is only the servicer. This would account for the 2nd being foreclosed before the first – actually a very rare event. And why isn’t RealtyTrac being called to task? You subscribe to their services and they don’t disclose that the auction is on a 2nd loan?

  38. Posted by sfrenegade

    People, the SFGate article didn’t understand the foreclosure process. Stop saying that people bought the second mortgage! 🙂 They bought the house and assumed the first mortgage.

  39. Posted by sfrenegade

    “Somehow I read this article and it made perfect sense to me. I suspect many folks are just skimming and reading the comments.”
    eddy is right here. A lot of the confusion here is because a lot of people here don’t understand the foreclosure process and didn’t read the article very carefully which explained what happened here, although using poor terminology and phrasing.

  40. Posted by Outsider

    Out of curiosity, since they “bought” the house and assumed the first mortgage, knowingly or not – is their credit also ruined by the fact that Wells Fargo foreclosed the property which is now under their name ?

  41. Posted by eddy

    ^^^and the failure to read continues….

  42. Posted by Salarywoman

    Well one thing is perfectly clear. No matter how much the unsuspecting buyers may have been at fault for not doing their homework, the piddling amount of money that Wells Fargo stands to gain by this is seriously overshadowed by the amount of goodwill it stands to lose.

  43. Posted by sfrenegade

    “the piddling amount of money that Wells Fargo stands to gain by this is seriously overshadowed by the amount of goodwill it stands to lose”
    I disagree. There aren’t that many places to get home loans any more, especially since many brokers are out of business, and many of the big providers from a few years ago are either bankrupt or got purchased by another bank. The banks are in a stronger bargaining position, and arguably our antitrust regulators should be doing more to foster competition in the financial industry rather than allowing oligopoly power. Furthermore, a few people who read a poorly written Chron article and didn’t understand it and then were incensed by it isn’t going to make a big difference.

  44. Posted by Salarywoman

    It’s not a matter of being incensed. It’s just another layer of sleaze accruing to Wells Fargo. And stupid. What’s their advertising budget? They could have gotten some priceless PR out of this incident. For peanuts.
    Furthermore, it’s not just who reads the article in the Chron. It’s who reads about it on a blog or hears about it in a conversation or sees it in a Twitter feed. These things spread much further than their original source.

  45. Posted by sfrenegade

    But they would have been leaving money on the table and possibly may have violated legal covenants if the loan was securitized.
    Many of the banks have done far worse, and haven’t faced serious PR battles because there are so few alternatives in this non-competitive market. Just do a Google search on how many times BofA has foreclosed on the wrong house.
    What they really should have done first is to try to enforce the 1st mortgage on the new buyers. Then, they could have at least argued that they didn’t pay.

  46. Posted by jon

    But, according to the article, the buyers contacted WFC about the original owners default on the 1st. WFC refused to talk with them as they were not on the loan.
    I believe that WFC knowingly sold the worthless 2nd, knowing full well that they were going to foreclose on the 1st.

  47. Posted by sfrenegade

    “I believe that WFC knowingly sold the worthless 2nd, knowing full well that they were going to foreclose on the 1st.”
    I disagree completely. I believe Wells Fargo knowingly foreclosed on the 2nd mortgage because a) they were legally prohibited from foreclosing both mortgages simultaneously by foreclosure moratoria, b) foreclosing on the 2nd alone while also owning the 1st meant that the 1st would be automatically extinguished under the merger doctrine, and c) they didn’t expect some chump to actually bid on a property with a senior mortgage at the foreclosure auction because the property was underwater.
    If Wells Fargo had purchased the property at the foreclosure auction like it was supposed to, the property would have become instant REO because the 1st mortgage would have been automatically extinguished.
    This is why the SFGate article is so poorly written — it was written by someone who knows nothing about foreclosure or its mechanics. ONCE AGAIN — YOU DO NOT SELL MORTGAGES AT A FORECLOSURE AUCTION; YOU SELL PROPERTIES.

  48. Posted by jon

    OK. I wonder what WFC settled for on the 2nd.
    There should’ve been a caveat at the start of the auction. There was no reason not to. There have been times when multiple properties were put on the block…..and one comes up and appears cheap. One you didn’t do your due diligence on or forgot. You bid and find out it was for a 2nd…..that’s not right….at all.

  49. Posted by sfrenegade

    It probably wouldn’t hurt to say “foreclosure on a junior lien” at the actual foreclosure sale, even though there is no legal requirement to do so according to the judge.
    However, in this case the buyer saw that there were two loans and ignored that fact. Folks, please read the article again.

  50. Posted by eddy

    …It probably wouldn’t hurt to say “foreclosure on a junior lien” at the actual foreclosure sale…
    If you read the article…. per Wells statements in court filings, it was very clearly spelled out. The buyers did very little research and the research they did was poorly performed.

  51. Posted by jon

    That’s what the WFC attorney says, what did you expect him to say?
    Bidder looked at the records and did see the two loans….both filed on the same day and presumed that to be a typo. Apparently the differing loan amounts are not in the records…strange that it isn’t?
    Yes, I have read the article… several times. As far as I’m concerned, this is a shoddy practice and there is absolutely no reason not to disclose that it was a junior lien. Why not?

  52. Posted by eddy

    Because the lawyers can most certainly produce the evidence.

  53. Posted by diemos

    Edumacate me, oh commentariat.
    Somewhere I had gotten the idea that when a second forecloses the first bids the amount of the first lien to eliminate the junior liens and maintain their interest.
    So WTF does it even mean to foreclose on a second with the first in place. Why wasn’t the first extinguished when Wells didn’t bid on it?

  54. Posted by sfrenegade

    diemos, I covered this:
    “When a second mortgage is foreclosed without the first mortgage being simultaneously foreclosed, the first mortgage is still active, and the property is taken subject to the first mortgage. People are confused by this now, but historically when mortgages were more likely to be transferable among owners, it was more common.”
    But you are wrong on bidding method. If you are buying at a foreclosure of a 2nd lien, and the 1st lien is $200K, and the fair market value of the house is $275K, you should bid $75K for the house, because you are taking it subject to the 1st lien.

  55. Posted by ReelEstateBait

    Remember this ? http://www.youtube.com/watch?v=kNqQx7sjoS8
    The “masses” are now expected to participate in real estate, equities, bonds, insurance, financial planning. And all on top of the day jobs. It’s a lot to ask.

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