Los Angeles Bankruptcy Blog

How will the mortgage and credit crisis play itself out? Today’s paper offers a clue:

Like many, I’ve wondered how our home mortgage finance system will rebuild itself, and how we will be able to contain problems in the financial system so they don’t infect corporate America, lower profits, and lead to massive layoffs. The answer to these questions became much clearer to me on a recent Sunday when I drove to downtown Los Angeles and joined approximately 2,000 others in the Convention Center. They had come to participate in an open auction of 120 foreclosed homes from Los Angeles, Orange and San Diego counties. What I saw there reinforced to me that the only resolution to the crisis is to let the free market repair itself.

A number of lenders had foreclosed on and taken possession of the houses, with the objective of selling them to people at prices they could afford. They hired a company, National Home Auction, to run the show. Buyers all had to bring certified checks for $5,000 in order to participate. If they were successful in the auction, they had to post another $5,000 immediately, and then go upstairs where they were qualified for a mortgage. Once they were, the buyers moved to another room where the closing process was begun with the title and escrow company. Final closing was scheduled for 21 days later. Seventy-five percent of the homes auctioned that day have closed; would-be buyers and lender-sellers are still negotiating the rest.

It’s not pretty, but every house has a value and a selling point. The sad part is that many people who are hoping for a sale or deed in lieu or quick sale vastly over-estimate what this price point is.