The Foreclosure Market

It was a Thursday morning in Brooklyn and a large group had gathered on the back steps of the Kings County Court House at 360 Adams St. A man in a skull cap and yellow polo shirt casually puffed his cigar. Three other men in dark vests and payess huddled together making calculations on a pocket computer. The foreclosure auctions were about to begin. n There are two main sources of information about foreclosure auctions in New York. The city's tax-liens are serviced by J.E. Robert Companies, and the company lists upcoming tax lien auctions on its website at www.jer.com. There are also newsletters like Foreclosure Update ([www.newyorkforeclosures.com](http://www.newyorkforeclosures.com)), which publish information about both tax-lien and mortgage-lien foreclosures. Many of the men outside the courthouse carried copies of Foreclosure Update.

Newsletter publisher Nancy Henigson explains that most foreclosure auctions are run by a court-appointed lawyer. There is usually a minimum bid price, roughly equal to the outstanding debt, below which the property will not be sold, and winning bidders must pay 10 percent down on the spot. They have 30 days to make up the remainder. I ask Henigson how much one could expect to save by buying at auction.

"It really depends. I've heard lately that sometimes the prices are as high as buying on the open market. It depends on how many people show up at the auction and who's bidding against you. I heard one of my clients saved $200,000 on a house she recently bought. Some people will save a lot of money, and other people may pay up to the market value. I would say that people are saving 10 to 20 percent on the average."

If there are bargains to be found at auction, there are also risks, and Henigson makes no attempt to play these down. She recommends that buyers inspect each property carefully before placing a bid. It's important to know whether a property is tenanted (since tenants might require evictions) and to assess whatever damage there might be.

"People have to do their homework. They have to actually go to the property and look around. Some people are brazen enough to actually knock on the door and introduce themselves, but it depends on how nervy you are. Most people just look around the outside, try to look in the windows."

Henigson says Foreclosure Update's readership is a mixed bag of real estate investors and first-time homebuyers. I imagine that the scene at foreclosure auctions varies from county to county, but in Brooklyn, at least, the market is dominated by professionals.

Standing beside me outside the courthouse was a tall man, with a slight Nordic accent, who had come to bid on a parking space attached to his condo building. He had never been to an auction before, and he was depressed by the strength of the competition. "I see all these people with all these lists. I don't think I have a shot."

A friendly young financier offering to lend me money confirmed the tall man's opinion. The financier said that an amateur's chances were dismal. "It's impossible. Impossible." He did not wish to say for whom he worked, but he was happy to talk. He gestured toward the courthouse steps. "All these people that you see here, they're all flippers. All of them. A flipper is a guy who invests money. Most of the houses sell at 20 to 30 percent down from the original price. These flippers are buying the house and they flip it. After one month, two months. Maybe they paint the house a little bit and then sell it, sometimes on the same day they buy it. These people are very experienced."

One of the experienced flippers was a man named Yanni. Yanni was gracious and handsome and looked like a Persian prince. He said he had been investing in foreclosures for eight years and that his focus was Brooklyn.

"Only in Brooklyn. You've got to concentrate. You've got to know the ins and outs, because every block is a different story. You've gotta do a lot of work. You sniff around, you try to find out. You try to get into the property. Sometimes people are nice and sometimes they get angry, but you try to find out as much as you can. The rest is a guessing game. Basically, you're buying a cat in a sack. Sometimes you fall, sometimes you make good money. That's the game."

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At this juncture two lawyers came out to start the auction for a vacant lot in Crown Heights. The procedure was remarkably informal. One lawyer wrote down the names of interested bidders on the back of a manila folder, while his partner read out the conditions of sale. She spoke at the top of her voice, but the hubbub was such that she was inaudible from five yards away.

The bidding on the Crown Heights property quickly resolved into a competition between just two men: a fresh-faced redhead and an older man in a black t-shirt. Neither of them spoke much above a whisper. When the price reached $108,000 there was a long pause. "Going once, going twice?" The black t-shirt man jumped in again at $109,000, and there followed a rapid back-and-forth before he won the lot at $118,000. The lawyers pulled him aside to collect his down payment.

Meanwhile, a second auction was already under way. This auction was for the parking space in which the Nordic man was interested, and it proved a vivid demonstration of the danger of unpreparedness.

The lawyer refereeing the auction announced the address of the property and said that it was a condominium unit. Bidding opened at $100. With the high bid standing at $3000, a middle-aged black woman rushed forward from the bottom of the stairs. She had heard there was a condo for sale. She offered $55,000.

The lawyer asked the woman if she had the cash necessary to pay her deposit and she said she did. No further bids were entered, and she won the auction. Then, just as she was busy counting out her money orders, Yanni approached and started talking to her. Suddenly the woman was running away at top speed. The lawyer returned to say that the property would be auctioned off again.

After the second round of bidding, I asked Yanni what had happened.

"It's confusing. This property was called a condominium unit, but technically it's a parking space. A condominium can be an apartment or a parking space, and this lady thought it was an apartment. They don't have to announce anything?you've gotta do due diligence. This same property came up a few months ago and somebody who didn't know paid $127,000. Then they found out it's a parking. People make mistakes. In this case, I came over and told the lady. I didn't want her to get hurt. You know, leave a deposit and then find out. What's the point? So I ran over and told her it's a parking and she withdrew her bid. There's stories like that every day."