Land Foreclosure and Auctions
Fred Noble, a California based investor, visiting our offices
last week asked "With the economic down turn in Thailand three
years ago and all the bank foreclosures that one reads about in the
newspapers, are there any interesting properties coming up at auction
The short answer to the question is "very rarely" and then even when they do, the effort to acquire them is often more trouble than it is worth. There are however a few exceptions that I will cover below.
First it should be pointed out that once there is default on a property loan, the process for a bank to foreclose and get the property to auction is very long winded and can typically take anything from 3 to as many as 15 years. This very long procedure usually gives ample time for the owners of a property, which is any way attractive or marketable, to continue to search for a buyer or new partner and then reach a settlement with their creditors long before the property ever gets to an auction. As such it is generally only secondary quality properties of marginal market interest that make it as far as the auction process.
Even after a property has made it as far as the auction process, there is still huge scope for the owners and their creditors to object to a price offered at the auction and have the process postponed for re-auction at a later date. It's not unusually for a property to come up on the block four or five times at roughly 6 weekly intervals, before it can finally change hands - and all the while the bank and the existing owner have the opportunity to make a private settlement. Buying at auction is thus a process that requires great patience and tolerance for failure to acquire at the end of the day.
One of the other significant obstacles to buying land or property at auction is that the property comes with no warranty from the auction house. What is auctioned is the title "sight unseen". Very often properties in default, have also been neglected by their owners, and may well have squatters in residence or be subject to land encroachment by neigbours.
The enforcement proceeding office (auction house) makes no attempt
to identify and will give no assistance in qualifying any query of a
prospective bidder in this respect. Each bidder is thus responsible
to conduct his own due diligence on any property - a process that can
be complex without the co-operation of the property owner.
Not all property coming up for auction is however part of a mortgage foreclosure process. There are instances of land that was never mortgaged being seized as part of a general bankruptcy (either personal or corporate) case where all the bankrupts assets are seized. The process of getting these properties to auction is just as slow as in the mortgage loan default properties, but once they do reach auction, the possibilities of auction postponement or a deals outside the auction house are far less likely. For this reason, rare as the events are, there is a greater likelihood of interesting property reaching auction under bankruptcy than foreclosure.
For an example of the auction process / composition, at an auction I attended during the first week of April this year, of some 20 properties on auction that day, 17 were postponed due to non attendance of some of the parties, two saw low bids by a single bidder, and were held over for a further auction and the last, a prime waterfront property on Phuket's west coast, on the block for the first (and last) time saw 9 active bidders and reached a price of 6 times the reserve value.
If you have the patience and local skills to manage buying property at auction yourself, there may be a few gems mixed in the auction chaff, but in general, unless you have a very special interest in a specific property, you are probably best off leaving the auction process well alone.