There was a house in my brothers neighborhood where the owner died and left no will, heirs, or next of kin. What he did leave was a mortgage with 40K remaining. It also turned out that after an internal inspection the house was deemed uninhabitable and it was razed. This was shocking to the neighborhood as the outside of the dwelling was immaculate.
The remaining land had a fair market value of only $8K. The land went to sheriffs auction. Per auction rules the mortgage company got the first bid. They bid $15K for the land and were the only bidders so they won.
Now the land is for sale to the public, by the finance company, priced at $8K. A search of the parcel reveals there are no liens, including the unpaid mortgage, on the land.
Questions:
*If the mortgage company held the mortgage note, why would the land go to Sheriffs auction? Wouldn’t it go to them via probate or other action? Why would they have to pay the county for land they held the deed to?
*After paying $15K for their own land, why are they selling it for less than they paid?
The answer to your first question is that’s how it’s done. The mortgage company doesn’t own it or “hold the deed”. They have a lien on the property. If someone else had bought it for $50K (I assume it might have been worth much more that had the house not been razed), they could pay off the mortgage and own the property free and clear.
I don’t know the answer to the other question. I think somebody goofed.
If I understand the transaction, the net loss for the mortgage company will ultimately be the $40k debt minus the $8k (assuming they eventually sell at that price to a third party). The $15k is a wash - they are buying from the estate, but the $15k flows straight back to them to partially settle the mortgage debt. Perhaps there are tax/accounting reasons why it’s advantageous to them for that $15k price to be set as high as possible, since it may affect how the loss is recognized on their books. If that’s the case, they may be on shaky ground if they immediately offer it for sale at $8k, since you can’t usually book such a transaction at an off-market price to gain a tax advantage.
There is a possibility that the house/land had accumulated unpaid property taxes. In that case I’d expect to find the tax agency in first position and the estate going to the mortgage holder in second.
Perhaps there were $7K in unpaid taxes. Let’s assume so & see what happens next.
So the mortgage company offered $15K to clear the taxes and flow the other $8K (matching the appraised FMV) back to itself. Then it hopes to sell the land, freed of the written off mortgage, to a third party for $8K, thereby reimbursing itself for the money it paid itself at the auction.
When the dust settles, the bank is out the 40K for the unpaid mortgage, plus 7K that it had to pay to get the land free and clear from the government. Meanwhile the taxing authority is now even, the estate got nothing, and the new owner has a freshly cleared plot of land with no liens for $8K cash.
Again IANA expert but this sounds pretty plausible.
A similar possibility is connected to the fact the house itself was razed. Somebody was paid to do that work. Who paid for it? If the government paid under a condemnation process perhaps that’s where the extra $7K is going. Or if the razing contractor did the work on credit so to speak but placed a lien on the property to ensure he got paid when it sold. Such lien would be gone now that the bank paid it off. Now the bank has clear title to sell it.
Good theory, but no.
My brother and I have actually made a fair amount of money on the side with real estate. He is actually certified in doing title searches and found no liens during the chattels exhaustion search and such.
Which is why he finds this odd. The property wasn’t actually in foreclosure…yet, when the guy died. And he had paid his taxes for the year prior to death. But when we’ve bought properties that were in foreclosure there were usually other court related transactions that occurred before anything went to a sheriffs sale.
Also, there is a court mandated probate on the property that doesn’t close until January of 2018. If that is the case, why was the mortgage company able to buy the property prior to that and then try to sell it? What if an heir does come along? We’ve never run into a case like this.
I’m still out of the country right now on vaca. I have no way of helping check court records on this other than what is on line. The cheap piece of land might be a good investment but something strikes us both as odd on this.
I presume one of the jobs of the executor in probate is to settle the estate. As long as he’s not playing games, presumably if the executor feels that the best course is to sell the property, that’s what he does. It’s his right and duty. Why would they hold off selling? All that does is accumulate more costs and liabilities, starting with another year’s taxes. Once the house is demolished (presumably, estimated repair costs exceeded market value) and contents appropriately disposed of, it’s not like some long-lost heir would have a deep need to hold on to the property. If they did, they would have shown up by the auction time. Plus, if the resulting property is “under water” then really the simplest way to let it go - it would be irresponsible to refuse the mortgage holder’s request to settle up ASAP if it starts to eat into anything else the estate owns. Presumably any savings or other assets the estate actually had would have to go to continue paying mortgage interest and to pay down the resulting $32,000 shortfall. So the fiduciary duty is to dispose of that boat anchor ASAP. In many places, absent a will or active executor, the job falls to a public trustee - there’s a limit to how much effort he wants to put into managing an estate that is in the red; settling up everything ASAP is probably in the interest of everyone. I’m not seeing a downside to anyone except the possible long-lost heir who still hasn’t shown up.
The mortgage holder also probably bid high enough to ensure they got the property, or if outbid, they would get at least market value. They certainly don’t want someone else walking away with a fully serviced lot for say, $100. “Book Value” issues may have had something to do with it, too.
The real question is “Why was the house condemned?” It sounds to me like either these folks had serious problems they were very good at hiding (not as unusual as we’d like) or someone wants this land for a use other than residential. In my county, condemnation requires public health inspection and a court hearing. There are public records of such decisions. I’d say go to that first, and much may become clear.
Honestly though, it sounds like someone with connections wants that land, and is going to get it, cheap. My second act would be to check the planning commission for any petitions to re-categorize it for retail or other uses.
A check of online court records shows the probate close date was moved up to earlier this month. Previously a petition to move up the date had been denied, so I find this odd as well.
Nah. The property is for sale to the public and even has real estate signs on it. And the location it’s in No way would they reclassify that lot for retail or any other business.
Still don’t see why they would pay $15K for their own land and then resell it for half that when they were the only bidders to begin with. If the winning bid went back to them in the end why would they care if someone came along and bid the price up? If they bid it past the amount they wanted wouldn’t that be a good thing?