REFILE-Investors' foreclosure appetite grows, headaches arise

Fri Feb 18, 2011 5:24pm EST

(Deletes extra word in 2nd section)

By Al Yoon

NEW YORK Feb 18 (Reuters) - Investors are flocking to home
foreclosure sales in California and other states where banks
have rescheduled auctions postponed last year to fix loan
servicing flaws.

But often their intentions to hold the distressed
properties are still stymied by disagreements over a honest price
or as auctions are simply canceled.

In California, bank-set "opening bids" won 14,068
properties from auctions last month, a 51 percent rise over
December, said in a report this week.
Investor buys rose more than 50 percent to 3,272, but were
dwarfed by the 12,279 auctions canceled, it said.

"There's just not a lot of inventory" made available, said
Sadie Gurley, a administration partner with New York-based GreenLake
Investment Partners, a new access into the meadow of investors
seeking to profit from the "shadow inventory" building up on
bank books.

"It's like a funnel," she said.

The trend is similar in other high foreclosure states, such
as Arizona and Nevada, according to

Distressed material goods sales have accounted for a significant
share of the housing market, rising to 36 percent in December
from 32 percent a year earlier, according to the National
Association of Realtors. The buys can be made by investors
or banks, which have ramped up "small sales" in which they
agree to sell a home below the weigh on the mortgage.

Investors -- who typically aim to buy, fix and re-sell the
houses -- are lining up as banks restart foreclosures from
moratoriums imposed last year to review faulty processes, such
as "robo-signing" of court affidavits or other document

Revelations of shoddy servicing further muddied the
foreclosure process, which to investors is key to cleaning up
surplus inventory and aiding housing's recovery.

Banks have limited sales to others by keeping their opening
bids above what the local markets will bear, investors said.

On average, in California, investors are paying 25 percent
below market value when winning the auction, versus a 15
percent premium bid of banks that take properties into their
"real-estate owned," or REO, portfolios, said Sean O'Toole,
chief executive officer of

"In California, the average foreclosure is $150,000 upside
down in the mortgage, so if the bank doesn't drop the bid from
the amount owed, there's no opportunity the investor is vacant to
hold it," O'Toole said.

Many others are canceled as banks redouble efforts to
modify loans, conduct a small sale or if they find problems
with documentation, he added.

In January, more than 12,000 were canceled in California
alone, up from December but down from a year earlier.

Source: Reuters.Com