auction, auctioneer, auctioneers, auctions, bank, borrower, bought it back, buy it back, disclosure, forced sale, foreclosure, legal entities, lender, lien state, ownership, reserved, title, title state, with reserve, without reserve
I think I’ve possibly heard this phrase more in the last five years than any time prior. With the wrath of foreclosures, repossessions, and other changes in title due to financial difficulties of borrowers, this phrase keeps being used.
A television station just today reported that banks were, “buying homes back” at foreclosure auctions taking place in their county. Late today, someone at a real estate career night (at the college where I teach) told me that his house was “bought back” by the bank when he was unable to make his payments.
First, let’s look at the actual phrase. If someone is “buying something back,” then that suggests they owned the item to begin with. In other words, if I consign a boat and trailer to an auction, and then bid on it, and buy it, then I have “bought it back” as I am both the original owner and the new owner. One could argue that title didn’t transfer, but remained constant.
Housing is where you hear this phrase most often, and where the phrase is most misused. In the United States, states are basically either title states or lien states in financing structure. In a title state, the borrower gives title (ownership) to the lender for security purposes only. Otherwise, title (ownership) rests with the borrower. In a lien state, title is with the borrower, who then permits the lender to place a lien on the property for security purposes.
In either case, if a borrower fails to make the agreed-to payments to the lender, the lender may foreclose on the loan, forcing a sale or transfer of the property. In either case, if the property sells at auction, and the lender bids, the lender isn’t “buying the property back” as the lender didn’t have title (at all, in a lien state, or not completely, in a title state) so they aren’t the seller, nor current owner.
In the case of the real estate career night person telling me the bank bought his home back — what likely happened is the bank purchased his home at the foreclosure auction from him.
Are there cases where real or personal property gets “bought back?” Absolutely. At any auction where the seller buys his own property, he is “buying it back” as he is both the seller and buyer. At a with reserve auction this is permissible so long as the right of the seller to bid is reserved. At a without reserve auction, this is not permitted at all. However, these rules do not apply to forced sales.
Lastly, there is often confusion when something is selling with multiple owners. In the case of a divorce, if both the husband and wife bid on items they owned at the auction, they would not be buying anything back as the seller is the married couple (Mr. & Mrs. Garrett) and the buyers, if either Mr. Garrett or Mrs. Garrett, are distinct legal entities.
Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. His Facebook page is: www.facebook.com/mbauctioneer. He is Executive Director of The Ohio Auction School.