Irvine-based National Home Auction Corp., an upstart foreclosure auction company, helped sell more than $40 million of bank-owned homes in a single day earlier this month.
Not a bad day’s work for a company that’s been in business less than a year, held its first auction in late February and is fending off charges that it stole trade secrets from the country’s best-known home auctioneer, Irvine-based Real Estate Disposition Corp.
National Home’s most recent auction, held March 16 at the Los Angeles Convention Center, brought in more than 2,000 first-time homebuyers, speculators and other bidders, armed with $5,000 cashier’s checks required to take part in the auction and used as partial down payments for any deals made.
At the end of the event, 119 bank-owned, foreclosed homes had been auctioned off, following more than 1,100 bids. One investor reportedly snapped up 11 of the homes.
Not every home put up for auction met the minimum sales price set by the banks, keeping some deals from closing. Securing financing for the deals,often done onsite,also typically causes some deals to collapse and other homes to be put back on the auction block.
Still, it’s expected that about 85% of those homes auctioned off will end up getting the necessary financing and paperwork in place to complete a sale within 21 days, National officials said.
National put the total value of the Los Angeles-area homes auctioned off at $43 million, or about $361,000 per home. The company adds a 5% fee on every winning bid,its cut for running the event,meaning National likely grossed $2 million from the event before expenses.
Even amid a record-low sales pace for Southland homes, the auction business isn’t likely to dry up anytime soon, said National Chief Executive Ryan Knott.
“We think the market has strong legs through the end of 2009 and into 2010,” he said. “But if the mess we’re seeing now is just the tip of the iceberg, this could go for four or five more years, absolutely.”
If that’s the case, it could be a boon for local companies like National and Real Estate Disposition, two companies that have plenty of ties to Orange County’s mortgage industry.
Irvine-based Impac Mortgage Holdings Inc. is Real Estate Disposition’s primary source of foreclosed homes that are sold at auctions. It also acts as a consultant to the auctioneer.
National’s Knott has more than a decade’s experience in the mortgage business, most recently as chief executive for Irvine-based subprime lender FlexPoint Funding Corp.
Knott said he began looking into the auction industry in early 2007, when the housing and mortgage markets began showing signs of slipping.
Investors
He began lining up a number of individual investors late in the year, including some prominent locals. They include James “Watty” Watson, chief executive of Aliso Viejo-based TechSpace Inc., and Robert Campbell, president of Newport Beach-based developer CT Realty Corp.
National has done three auctions so far. Its general business model is similar to that used by Real Estate Disposition and others, such as Dallas-based Hudson & Marshall Inc., and Tulsa, Okla.-based Williams & Williams Auctioneers.
Knott said his company seeks to offer better marketing, a streamlined auction process and better relationships with investment banks and loan servicers such as Citigroup Inc., Merrill Lynch & Co., Countrywide Financial Corp. and Wells Fargo & Co.
The plan is “to build a better mousetrap,” Knott said.
Real Estate Disposition, which has been in the business since 1990, sees National as more of a pest. It’s been working to halt National’s operations, claiming that the fledgling company copied Real Estate Disposition’s business model and auction process, operates a virtually identical Web site and runs commercials similar to its own.
So far, courts have sided with National, most recently denying Real Estate Disposition’s request for a restraining order.
2007 Meeting
A late-2007 meeting between Impac executives and National’s investors is a key source of controversy in the case.
In court filings with the Central District of California, Impac Chief Executive Joseph Tompkinson said that he met with TechSpace’s Watson and CT Realty’s Campbell last November, with the two interested in making a substantial investment in the struggling mortgage investor.
No deal was made. During the meeting, the two learned proprietary details of Real Estate Disposition’s business operations that were then likely used for National, according to Tompkinson.
According to a declaration by Watson, he and Campbell were never interested in investing in Impac directly, but were more interested in buying loan portfolios or real estate from the company. They opted not to go ahead with that investment.
While Tompkinson talked about Real Estate Disposition’s business during the meeting,which helped comfort them that their investment in National was a smart idea,no trade secrets were learned, Watson said.
Competition among auction companies is hardly an issue these days, according to Knott. Foreclosure rates are rising across the country, and more banks are looking to offload homes they’ve taken ownership of.
“There could be 20 companies the size of” Real Estate Disposition without anyone losing business, Knott said.
Handling auctions for asset sellers isn’t National’s only planned source of income. The company also wants to buy pools of homes from banks, with the intention of reselling them within 180 days at one of its own auctions. The company has investor backing to buy up to $100 million in homes, according to Knott.
That line of business hasn’t moved forward. National doesn’t think banks, lenders and other asset holders have dropped their prices low enough to warrant buying them in bulk, according to Knott.
National counts about 50 employees, primarily in Irvine. The company’s been adding at a quick rate, Knott said.
None of the company’s earliest auctions, listed at HomeAuctionDirect.com, have focused on OC homes, although an auction is planned for Anaheim later this summer, Knott said.
Real Estate Disposition, which operates USHomeAuctions.com, has an auction of OC homes planned for April 6 at the Anaheim Convention Center.
Among the more than 200 homes listed for that auction are a handful of million-dollar homes. The most expensive listed is a four-bedroom Corona del Mar home valued at $4.5 million; it has a minimum bid of about $1.7 million.
