Trustee Sales (Sheriff Sales) and property values

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I'd like to give you an example how the numbers can be cooked. I attended a trustee sale the other day.

Subject property is a mansion in Saratoga. Worth maybe between $2 or $3mm, I didn't care to check since it's not my niche.
First loan had a $1.8mm balance.

Now you expect that the auction starting bid would be $1.8mm, right?
Usually yes, but not necessarily.
In order to get the bidding started, the trustee authorized a lower opening bid.
In this case $600k.

Can you now get a $2mm house for $600k? Yes, you bet. (If you would be the only bidder - unlikely.)

In this case, there was something unusual.

Bidder 1 bids $600k.
Auctioneer increases the bid on behalf of the lender to $620k.
Bidder 2 bids $625k
Auctioneer increases the bid on behalf of the lender to $640k.
Bidder 2 bids $645k
Auctioneer increases the bid on behalf of the lender to $660k.

Bidder 1 walked away.
Bidder 2 kept going up to 700k, auctioneer increases to 720k.

Bidder 2 walks away.

Property goes back to the bank for 720k.


The public record will say that this property sold for 720k. Clearly it is worth more.

Why does the bank drive up the bid? I think the bank had a certain instruction, to bid up in 20k increments, maybe up to 1.5mm
Maybe the magic number was 900k. Maybe higher.

Why did they do that?

This way the bank pays transfer tax and fees on 720k instead of on 1.8mm. Recording and transfer tax combined is something like 0.5%.
With a simple trick the lender saved 0.5% of $1mm = $5000. And possibly a lower property tax as well. [I'm a bit disappointed. I thought the savings were in the 5 figure range.] The general public is hurt as less money is collected.

So, the price for what it went back to the bank, is pretty much disconnected from the market value.

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