Sunday, May 22, 2011

Phoenix-area housing auctions fast and furious

Anthony Thomas held his iPad to his chest, clutched his cellphone in one hand and used his free hand to vault over the 3-foot fence around the food court in front of the Maricopa County Courthouse.

It was noon, but he wasn't in a rush to get something to eat. He had seconds to bid on a Mesa foreclosure home that one of his firm's clients wanted to buy.

The house was one of more than 100 that lenders intended to sell at auction that day. It was one of dozens that Thomas and his team were trying to buy.

Despite hopping the fence to get into position, and then upping the bid more than a dozen times, he didn't win the auction. His client didn't want to go higher than $90,000, and the Mesa house sold for $98,000.

On this day, a Thursday in late April, Thomas didn't have time to linger. Another client wanted to bid on a house going up for auction at the next table. He weaved through the crowd and queued up with several other bidders to wait for the auctioneer to call out the address of the next house to go on the block.

Five different auctions can go on at the same time in front of the courthouse.

A record number of foreclosure houses were sold at these daily events, officially known as trustee-sale auctions, in metro Phoenix in April. The number of sales has been growing for months and the record pace is expected to continue through next year.

The outdoor food court in downtown Phoenix has effectively become the trading floor for the region's hottest commodity: foreclosed houses.

Most days, more than 30 people surround the tables. At least five auctioneers set up their laptops and sell to the highest bidder.

Like the exchanges for stocks, bonds and pork bellies in New York and Chicago, the scene outside the courthouse is fast-paced and appears chaotic to casual observers.

But the method for auctioning foreclosure homes through trustee sales has evolved. A decade ago, foreclosures were so rare that only a handful of bidders regularly showed up at the trustee-sale auctions.

Then after the housing crash, foreclosures and trustee-sale auctions soared, but the public auctions remained dominated by a few insiders. They huddled around auctioneers speaking in whispers. Outsiders found it hard to break into the process.

Then the growing number of foreclosures drew more bargain hunters. The increased number of bidders, and firms like AZ Bidder, the one Thomas works for, has added competitiveness and more transparency to the auction system.

Several firms bid for multiple prospective buyers, so a bidder outside the courthouse may be an agent using a cellular phone and a laptop to communicate with clients from around the world.

Newcomers aren't shunned. Instead, they are looked at as potential clients for the more than half-dozen bidding services that have representatives like Thomas at the auctions every day.

The increased competition for foreclosure homes is pushing up prices, which may bode well for the housing market at large. Foreclosure homes at rock-bottom prices have kept the region's median home price suppressed for several years.

The increasing interest in the auctions also has more lenders moving to sell homes quickly, rather than let them sit empty after they seize them through foreclosure. Bidders see the flood of homes as a get-them-before-they're-gone opportunity.

"The auction frenzy for Phoenix foreclosure homes won't last forever," said Tom Ruff, a Phoenix real-estate analyst with Information Market and partner with AZ Bidder. "Foreclosures appear to be peaking, but lenders still have big backlogs to get through."

Trading floor

Though he may handle tens of thousands of dollars in transactions a day, Thomas doesn't have a business-suit job. He shows up for work in shorts, T-shirt, baseball hat and sport shoes, toting a backpack with a water bottle.

The first foreclosure auction in Phoenix actually starts at 9 a.m. on weekdays in the offices of one of the law firms hired to be trustees for lenders. Several larger trustees hold these in-house auctions. But most foreclosed houses that are put on the block are sold in front of the courthouse, starting at noon every weekday.

Thomas' employers maintain a database of every auction being run by every trustee in the county. Clients review the information on AZ Bidder's website and watch the auction data update in real time, an eBay of sorts for foreclosure homes. The system feeds clients' requests to Thomas via smartphone, and he sends back updates on the auctions as they happen.

At the food court, bidders crowd around the auctioneers. Thomas easily weaves through the crowd from auction to auction. The main table, where three auctioneers sit, is next to a fence, so it's typical for bidders to stand outside of it while they listen to the bids. Most bidders are ready to jump a fence or run to another table when another auction starts.

The regulars are like co-workers, with nicknames for one another - here, Anthony Thomas is Tony. They even make occasional efforts to help each other by calling out when an auction has started or relaying bids for those who can't get close enough to hear.

Under Arizona law, when a homeowner falls behind on a mortgage, a lender must try to sell the home through a trustee sale. The trustee, usually an attorney, alerts the borrower and sets a date for the auction. According to AZ Bidder's website, it provides the only live, online auctions of trustee sales in Maricopa County. Some states, including Florida, have judicial foreclosures carried out in courts so the live auctions aren't an option for investors there.

Trustees are self-regulated in Arizona. If an auction is conducted incorrectly or illegally, the trustee involved must fix it.

After allegations in 2009 of some trustee sales being "done under the table" illegally without a public auction, one trustee's auctioneer set up a video camera beside her and records every auction she runs.

"Phoenix trustee-sale auctions used to be an experience straight out of the wild, wild West," said Frank Gerola of, another group that bids at Phoenix foreclosure auctions for clients. "But the process is definitely much more open and competitive now. Now, I call the front of the Maricopa courthouse Phoenix's Wall Street. Money from Canada to Australia is there bidding on those houses."

To bid at an Arizona trustee sale, potential buyers must bring a certified check for $10,000 and have a photo ID. The money is used as a deposit on the house if a bidder is successful. The full amount of the bid must be paid in cash the next day.

Customers of bidding services pay the companies, which handle the cashiers' checks. Clients can transfer the money to AZ Bidder and other bidding services and let them handle closing the deals.

When Thomas bids, he's acting on behalf of people like Goodyear mortgage broker Steve Westerberg.

Westerberg wanted to invest in foreclosure homes sold at auction because they are often less expensive than homes taken back by lenders and resold through real-estate agents. Last winter, he went to check out the auctions at the courthouse.

"I was totally confused by what was going on. There are lists of foreclosure homes that could or could not sell that day. Those lists are like books," he said. "Anthony (Thomas) actually helped me understand what was going on down there, but then I realized I didn't want to be there bidding. I'd rather rely on him for that."

Westerberg signed up for AZ Bidder and started bidding online. After losing out to other bidders for six weeks, he successfully bought his first foreclosure home through the company's online auction three weeks ago. Bidding started at $55,000, and the west Phoenix house drew several bidders. But Westerberg got it for $68,000, plus a $2,500 commission to AZ Bidder. The house was in pretty good shape, and Westerberg knew that from checking it out in person. He painted the inside and then planned to "flip" it, reselling for a profit. He received a cash offer last week to sell it for $94,000.

"I almost hate to share my story because now the auctions are going to be even more competitive," he said.

His experience isn't the norm for flipping foreclosure homes. Still, most investors make $10,000 to $20,000 on a flip, say auction experts.

The trade

Thomas checked his iPad to see if there were any new bids from clients. At the same time, he was plugging in the bids for a home then being auctioned.

The data he supplies shows up on his firm's website with less than five seconds of lag time.

None of his clients was bidding on the home, but many would want to see how the bidding went and what it sold for. As he was multitasking, he heard that a home two clients were interested in was going on the block.

Without looking up, he moved closer to the table where the new auction had started. He called out a bid for $100 over the last bid and continued to enter the bids for the auction a table away. The auctioneer repeated "$100 from Tony," every time he upped his bid. Two other bidders from different groups saw that the auction had started. They jumped over and started bidding while also making bids on a home being auctioned off at another table.

The bids climbed to $80,000 for the house that Thomas was bidding on. He checked his phone to see if the clients had upped their maximum offers. He saw that one client was open to paying more, so he kept bidding.

Then another new bidder joined the fray and upped the price by $1,000. Thomas' client was out.

Thomas doesn't know who he is bidding for at the auctions. He logs into first thing in the morning to see what auctions he and his team need to be at. They figure out who will bid and monitor each one. Thomas bids on more than 50 houses a day.

Typically, all he knows about the investor is what they are willing to pay, and he bids to their price. He doesn't know anything about the houses.

"It's not my job to know if a house is a good deal. I am not the real-estate expert," he said. "I am here to bid for people who do their research. When I reach their max bid, I stop and move onto the next auction."

Last month, $137 million was spent on a record 1,369 metro Phoenix homes purchased at trustee-sale auctions. Those sales accounted for 30 percent of all foreclosures last month. In April 2008, foreclosures were near 4,000, but then only 5 percent of all foreclosure homes sold at auction.

The call

Thomas' cellphone rang while he was trying to track bids for an auction. He wasn't bidding but was listening for bids and for the start of another auction that he had a client signed up for. The caller was Matt Thomas, his cousin, who works in the AZ Bidder corporate office. Anthony tried to get off the phone so he could hear the auctions, but his cousin had important news: Another auction was about to start, and the seller had just lowered the opening bid.

Anthony entered the last bid on the auction he was watching and dashed to another table, where only one other person was bidding. He almost didn't make it, and the lone bidder almost got the house for $40,000.

Anthony started bidding aggressively, matching the other bidder. The price topped $80,000 before he dropped out. The other bidder was on his phone during the auction, talking to a client. At the end of the auction, he told the client, "If the auction would have started 20 minutes earlier, we would have gotten the home for $40,000."

The opening bid on the house that morning had been $75,000, but the lender dropped it to $40,000 a half-hour before the auction started. Matt saw the drop bid on the trustee's website and called Anthony. "We didn't win that bid, but we drove up the price to $80,000," Anthony said.

When an opening bid on a trustee sale is lowered hours or less before an auction, it's known as a drop bid. The practice is considered illegal by some trustees who say Arizona statutes require all opening bids to be finalized and posted 24 hours before the auction. Some trustees from other states, where drop bids are part of the process for foreclosure auctions, continue the practice in Phoenix. Most Arizona trustees and bidders are against drop bids because they give buyers who know about the change an unfair advantage.

Technology is leveling the playing field some. AZ Bidder's system constantly tracks updates on prices and found the drop bid in time for Thomas to react.

An $80,000 price, instead of $40,000, means more money for the lender and a better comparable sale for the neighborhoods where the house is located.

"When I first went to a Phoenix courthouse auction, I thought there's no way I want to get involved with this murky process," said Dan Mayes, president of AZ Bidder. "By showing auctions online in real time, I feel like we open up the process and make it much less mysterious."

Close of market

By 5 p.m., Anthony Thomas was exhausted. The temperature soared to 100 that Thursday in late April. He and his team were so successful at auctions that day, Matt Thomas had to run over with another cashier's check. Anthony looked at how many houses AZ Bidder bought for clients that day - six, an average day. He was hungry. He didn't have a lot of time to stop for food even though he was at a food court. He packed up and headed for his car, knowing he would go through the same routine the next day.

"This is great training to work with clients and real estate. I know I have to put in the hours out here now, but it's teaching me a lot," he said. "Plus, the auctions won't last at this pace forever. We need to be here while the market is hot."

And the market is hot. Lenders are now trying to sell so many homes at auction that the traditional start time may move to 10 a.m. Trustee sales at the Maricopa County courthouse have started at noon for decades, but lately the auctioneers can't get through all of the scheduled sales for a day by 5 p.m.

But the pace isn't likely to last.

Foreclosures have been falling this year. Notices of trustee sales, or pre-foreclosures, are half of what they were a year ago. The number of pending foreclosures in Maricopa County is down to 19,000, half of what it was two years ago.

"Part of the reason there are fewer foreclosures in the pipeline is because of the increase in sales at foreclosure auctions," said Ruff. "Foreclosures aren't good for the housing market, so the faster we get through them, the faster the market recovers."

by Catherine Reagor The Arizona Republic May. 22, 2011 12:00 AM

Phoenix-area housing auctions fast and furious

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