Why would a lender(bank) want to outbid a potential buyer at a sheriff sale? ?

Question

Don't they get their money either way? Wouldn't they rather have someone buy the property than to worry about selling it?

Answer 1

Maybe they want to buy it and sell it at a higher price.  

Answer 2

Lenders will usually put in a bid for 100% of what they are owed on the home.

If someone bids less than the total amount owed on the home the money is distributed as follows:

1.  Costs & fees of sheriff's sale/foreclosure are paid.

2.  Any taxes owed are paid.

3.  First lien holder is paid.

4.  Second lien holder is paid, etc. on down the line.

5.  In the unlikely event there is any money left after all costs, fees, taxes and liens have been paid off, it goes to the former owner.

In reality, there is usually not enough value to cover items 1-3.  Anyone unpaid on that list after the money runs out is out of luck and their lien is extinguished.  Lender bids the full amount it is owed to protect its position.

Some lenders have wised up and only bid up to a certain percentage of their interest (amount owed).  That way, if they get, say 80% of what they are owed they feel they come out ahead because they don't have to rehabilitate and then sell the property.  

This probably makes better financial sense for the banks because they do not want to be in the business of restoring/rehabilitating and then selling homes.  It's not what they are good at.

Unfortunately for you, most banks haven't learned this lesson.