It's yet another muddle for the already overwhelmed foreclosure courts to sort out as former Stern cases went to auction with no bank representation, bids or proper public notice.
The result on Wednesday was 56 percent of winning offers were from investors or individual buyers who in some cases spent no more than a month's mortgage payment to get homes that sold for upward of $240,000 during the real estate boom.
During a typical foreclosure auction, investors or individual buyers purchase between 3 percent and 13 percent of the homes, with the majority bought back by the banks.
But it is nowhere near certain the rock bottom prices will stick. Some of the sales were done without the required public advertisement. The Palm Beach County Clerk of Court will not issue a certificate of sale without proof that the auction was advertised once a week for two consecutive weeks before the sale.
Still, it takes a judge's order to vacate or verify a questionable sale.
"All these sales that have taken place will have to go back into the system," said real estate investor Don Cameron, who realized there was a problem last week after purchasing three properties at auction only to find out they were not properly advertised. "It's going to be a complete bottleneck again."
In a standard auction, the bank tells its attorney how much to bid on a property and a maximum bid is offered. Investors and individual buyers, called third-party bidders, know they may have to beat that maximum bid to win and if they aren't willing to go that high, the bank typically gets the property for a minimal price.
It takes a judge's order to cancel a sale, so although thousands of cases are in limbo as they transfer from Stern's firm to others, they are still moving forward to auction.
Stern's Plantation-based law firm, dubbed a "foreclosure mill" because of the volume of cases it handled, lost a majority of its business this fall after allegations that it was mishandling its cases. Federal mortgage-backers Fannie Mae and Freddie Mac cut ties with the firm last month, physically removing files to dole out to other firms.
Broward County is not having the same auction problems as Palm Beach because it requires proof of public advertisement before a home goes to auction, said Barbara Brown, manager of Broward's circuit civil division. A representative from Miami-Dade County courts could not be reached.
While Palm Beach County requires proof of publication before the sale, the lack of proof is not enough to cancel a sale.
Cameron said experienced investors stopped bidding last week when the problem first surfaced and that people making recent purchases are probably new to foreclosure auctions.
"The seasoned investors have gone dormant," said Cameron, who owns a South Florida franchise of We Buy Ugly Houses.
Cameron plans to ask a judge to verify his sales because he paid "reasonable prices," between $50,000 and $90,000.
But banks could successfully challenge extremely low winning bids.
CitiMortgage had no one bidding for it Wednesday when it lost a home valued at $45,000 by the property appraiser's office to a winning bid of $1,600.
"We are currently looking into the matter," said CitiMortgage spokesman Mark Rodgers.
Real estate attorney Michael Gelfand of West Palm Beach-based Gelfand & Arpe, P.A., said the auction issue is an inconvenience, but not a "game stopper."
"One of the wonderful things about the common law justice system is that it can adjust to unanticipated and changing circumstances," he said.