In Orlando, Florida, the Orlando Sentinel
ran a story on a common practice in Florida courthouse foreclosure sales that could be costing the state millions in uncollected fees. The practice involves the foreclosing lender's representative at the sale either announcing, or holding up a piece of paper with a dollar amount written on it, informing the public how high the lender is prepared to bid for a property being auctioned off.
Such a practice, while understandably is probably intended to speed up the auction process, has the (possibly illegal) effect of discouraging the public from bidding on a property unless they are prepared to open the bidding by at least matching the amount announced by the lender's rep. If there are no interested bidders, the lender takes ownership of the property for a nominal bid (like $100), which costs the state money, as explained in this excerpt from the story:
- Florida places a 70-cent levy on every $100 per real-estate transaction. That means a $200,000 house sold for $100 shorts the state about $1,400 in what's known as documentary-stamp taxes. Multiply that savings by dozens of homes for a big lender, and the savings add up quickly.
- Orange County Deputy Comptroller Jim Moye estimates the state could be missing out on as much as $6 million a year in doc stamps just from Orange [County], based on extrapolations he made from four days of bidding he and others observed recently at the courthouse at the request of the Orlando Sentinel.
- During an auction, representatives from banks and other lenders in Orange County often announce, or hold up a piece of paper to show other prospective buyers, the amount of the mortgage -- in other words, their top bid. That ends virtually all competition, meaning the lender's initial $100 offer wins without any competition in more than 90 percent of the auctions at the Orange County Courthouse.(1)
For more, Houses sold for just $100! But banks' deals short taxes (But those prices often are just a way to lower a lender's tax obligation).
(1) It's always been my understanding that any intentional conduct engaged in by anyone at a public auction conducted by a government official that operates to discourage the public from bidding, or otherwise artificially depresses the amounts being bid, is a criminal violation of some law. Given that the state of Florida is currently in need of more tax revenue to combat recent budget cuts, I suspect that they may take a closer look at the legality of this practice. Unlike public auctions of lender-owned foreclosed homes conducted by private, for-profit auction houses in which a minimum upset price is typically involved, property auctioned off at courthouse foreclosure sales are not owned by the foreclosing lender, and as far as I know, the court clerk conducting the sale has no legal authority to establish a minimum bid, or reject any bid, except as specifically set forth in the foreclosure judgment signed by the judge who ordered the sale.