Hello, Let me start out by introducing myself. This is my first post here, I'm glad this site exists and hopefully you can answer a few questions I have without me haveing to slam my head against the desk while talking to the IRS or worse, the local State authority!

Anyway I have concerns about when a property is foreclosed on. When the property goes to auction the opening bid price or "upset price" Is the outstanding balance on the loan, plus legal fees correct? If the property is not auctioned it becomes the banks property, REO, or ORE, or however that bank wants to say it.
When the bank sells the property they must by law try to sell it at market value as to avoid "dumping" issues. However I'm not clear on what happens to the overages; the ammount of capital, or equity left after the upset price is cleared.
I talked to a banker here in SLC, UT who stated that all overages are returned to the borrower regardless, he also said this is a federal law. Is this truely the case? I know the man well, have done countless hours of business with him, so I trust that at the least it is what that bank does.

Please any information would be very helpful, I am facing what you could refer to as a "Dead"line!

Thanks in advance for the help.

wow no one knows this? Hmm, tried contacting the division of real estate here, couldn't get through today. I would think any banker would know this rule, or lack there of... thanks again updated 02/02/06

In General:

Q: The opening bid price is the outstanding balance on the loan, plus legal fees correct?

A: Often, but not always. The institution may start below its investment, or break-even price, in order to get the bidding process started.

Other: If the property is not auctioned it becomes the banks property, REO, or ORE, or however that bank wants to say it. (Incorrect assumption. Except for deed-in-lieu, the property must be auctioned for it to become OREO. The difference is the property is purchased by a third-party or the lender).

Q: What happens to the overages; the ammount of capital, or equity left after the upset price is cleared.

A: There are two transactions here. When the property sells at foreclosure, the former owner receives any funds greater than the "upset price."

If the property is purchased by the lender (usually at their upset price), it becomes the property of the bank. As with any other purchaser, any profit or loss after that point belongs to the bank, not the former owner.

Thank you for the reply. It is amazing how many mixed answer I have recieved on the phone, in person, from accountants, bank managers. I must be incorrectly asking the question, but looks like you got it. Thanks you've helped me more then you know

I am sorry to say that you are completely wrong. Any time a property sells for more than what is owed to the bank from a foreclosure, it is illegal for the bank to capitalize.

They are not allowed any more than what is owed to them including there attorney's fees and anything else they have added that is deemed reasonable in a foreclosure.

All additional monies called Surplus Funds or Excess Proceeds are the property of the original homeowner. Most of the time they do not know it.

Example: If your home was foreclosed on and the bank was owed $150,000 and the home sold for $175,000, then the $25,000 difference ($175,000-$150,000=$25,000) could be yours.

This is a law that is handled differently by each state, yet, they all agree that the money belongs to the original homeowner.