Lender Confirmation Auction

A lender confirmation auction is a type of foreclosure auction where the highest bid must be approved and accepted by the lender holding the mortgage. Lender confirmation auctions are different than an absolute auction, in which the winning bid takes ownership of the property.

The lender confirmation auction is advertised as being subject to lender confirmation. The auction proceeds as normal, allowing interested parties to place bids on the property; however the property doesn’t necessarily get transferred to the highest bidder.  

A short sale is another type of real estate transaction where the purchase bid must be subjected to lender approval. However, with a short sale the process is more like a traditional purchase transaction as there is no auction. The property is listed by a license realtor and show to prospective buyers. Once a buyer puts in an offer to purchase the property, the lender must review and approve the transaction since they will be accepting a lower payoff amount than what is owed on the mortgage.

In a lender confirmation auction, the homeowner has been removed from the process. The foreclosure process has already been begun and in most cases the property has already been vacated prior to auction. The lender also has an acceptable bid price that they will accept to move forward with the transaction.  

In the event of REO sales, the bank has already processed the foreclosure and taken ownership of the property. In most cases, these properties are maintained by management companies working on behalf of the bank. Since these processes take longer to conclude, it is not unusual for an REO property to be in less than fair condition. Often these properties have sat vacant for some time or have been damaged by storms, homeowners or neighborhood kids.

As with short sales, these properties are listed for sale and prospective buyers tour them and decided whether they would like to put an offer in. Generally, the bank has already determined the amount that they will accept and that is their asking price. The terms of the purchase are as is and the bank retains the right to refuse to make any repairs that the buyers lender may require for closing. It is not unusual for investors to purchase these damaged properties and fix them or update them in a way to sell them for a profit, a practice that is commonly referred to as flipping.