Credit Bidding Dishonestly Boosts Publically Available Medallion Values

Exchange from Seeking Alpha:
What about the individual medallion that went for $350k, non-foreclosure?Looking at the $ value of foreclosures is tricky. I don’t have experience with medallion foreclosures, but in real estate… when the lender takes a property to a foreclosure auction, they can bid up to the amount owing to them without having to put up any money (called a “credit bid”). So let’s say the loan was $1 million. They get to the auction and the only other buyers there are willing to pay $500k and $600k… the lender might settle for that, or they might submit a credit bid and take ownership of the property. In my experience, if the lender simply wanted to take title, the actual price recorded at auction in this scenario would be $600,001; however, taxi medallion lenders might have other (more sinister) intentions.These lenders most definitely do not want to own the medallion, they would prefer to get repaid at foreclosure auction and walk away. I would suspect some lenders are opting to bid the full credit bid to artificially boost recorded prices at the auction, which in turn helps them justify artificially high loan valuations… all a scheme to avoid taking a write-down/impairment on their medallion loans.I could also imagine there are no buyers for medallions showing up to these auctions. Has anyone here actually attended a medallion foreclosure auction? Do they have them online as well?
01 Sep 2016, 10:39 PM
abienyc

My best guess is the lender is financing the buyer. The lender is probably settling for the amount that is owed and the buyer is taking over the payments and running the medallions.
That would be a great deal for both sides.
02 Sep 2016, 08:33 AM 
Not a great deal for the investor who bought shares in the bank thinking that the bank had solid asset backing for its outstanding loans! Isn’t that the point of the detailed analysis of MFIN? Instead, the bank has collateral that appears to be freely trading at less than half the stated value ($350k vs.$750k.) Maybe the new borrower keeps paying until the lease fees he/she gets from the driver or management company no longer cover the payments on the sweetheart deal he got from the bank. Then, guess what, the bank owns the medallion again, only this time, when real traded valuations will likely be even lower due to the lower lease fees. It’s called ‘kicking the can down the road” banking!
02 Sep 2016, 10:43 PM 
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