The Foreclosed House Next Door

Factual Questions
1

OK, not really next door, but two doors down, about a quarter-mile down our rural road. But you get the idea.

The house was built by one of Mr. S’s brothers, who later sold it and moved out of state. It was a nice (although small) house when the brother lived there. It has had a few owners since then, none of whom seemed particularly interested in taking care of the place. I may have referred to the most recent owners, our now-former neighbors, as “The Bumpuses,” which, if you’ve seen A Christmas Story and/or its sequel, should give you an idea of their lifestyle. A few weeks ago they packed up and left. The school bus doesn’t stop at the house anymore to pick up/drop off the passel of kids, and Mr. S’s other brother, who lives in the house between us, said that last weekend a couple of trailers were filled with household goods and taken away.

We had both admitted a fantasy of picking up the property, both as a spare building, possibly as a rental/income property, and to prevent more riffraff such as the property seems to attract from moving in.

Today we found out that the foreclosure sale is next Tuesday at the courthouse. Mr. S is going to go just to see what happens. I doubt that we’d actually be able to pick up the house on such short notice as we don’t have much for liquid assets. I’ve done a little research on how foreclosures work, and the timeline and amount needed looks beyond our means.

Here’s the kicker: Apparently the debt on the place is about $110,000. I can tell you that the property is NOT worth anything close to that. Our property was recently appraised for slightly less than that amount, and we have about 4 times the land and a much larger and better-maintained house (at least judging from the outside of the Bumpus house; I can’t imagine that as trashy as it looks from the outside, that the inside is pristine).

My questions are these:

(1) How the hell did they get that much debt on the place? Why would a bank finance such a bad idea? I don’t get the sense that the family had a lot of income.

(2) Is anyone going to be stupid enough to bid $110,000 on this dump, sight unseen? (If I’m understanding the foreclosure process correctly, a successful bidder must pay the outstanding debt, plus liens, unpaid taxes, etc.)

(3) What if no one bids on this pig in a poke?

(4) I thought foreclosure sales were supposed to be such a good deal. What am I missing in this case?

2

Can you not speak to the seller privately? Is the seller your own mortgage-holder? Surely you won’t be buying the debt? The seller will be looking to make the most that they can, but the remainder of the debt should remain with the Bumpuses.

3

  1. The debt is probably a combination of secondary mortgages and unpaid taxes. Since many property taxes are figured in with mortgage payments, if the latter is behind, so too are the taxes.

  2. Yes. Many will buy it just for the land. Then, to make it worth it, they’ll tear down the old house and build a monstrosity. This will then make your property values go up, also forcing up your property taxes.

This happened to some unfortunate retirees in Loudoun County, VA. They retired to a little house in the woods, off the beaten path, with plenty in their pensions to pay property taxes until they died. Nearby were some delapidated homes that were vacant for decades. Some developer bought the huge lots that these old houses were on, tore down the eyesores, and build family homes “from the low 500’s”. The next assessment on the retirees’ homes went from under $50,000 to well over $300,000, because of the proximity, and because water/sewer services had been brought to the neighborhood (even though the retirees didn’t get connected). They suddenly couldn’t afford to stay in their homes, and had to sell their property just to get enough money to live on. And then the buyer of their land did the same thing, further jacking up property values for the others in the neighborhood.

  1. If nobody bids, the state may take possession, then sell it to a developler (without the tax burden) who will do what happened in #2.

  2. Often they are good deals, but just as often there’s a tax lien or other debt that makes it not so good a deal.

There’s a house in Crystal City, VA (area of Arlington just south of the Pentagon) across the street from a friend’s house. It has been deserted for decades (a tree with a 2 foot trunk has grown in the middle of the driveway in front of the garage). I suspect it has a huge tax lien on it; it’s a relatively small house, but property values this close to the Pentagon and DC make little 1 BR houses worth $300-500K.

4

Hm. I’m willing to be corrected, but this seems unlikely. We’re talking about a very rural area, very small plot that’s part ravine, surrounded by large swaths of land that are owned by families that will NEVER sell. (True; they have a history of donating land to the DNR for wetlands, or even buying up more land just so they have more to till.) The real estate market is in the toilet around here. Everyone laughed at a would-be developer that wanted to rig up a subdivision with parcels selling for half a mil each. Nobody around here has that kind of cash, nor are there any properties that swank around here. It’s pretty hick. Really.

Quartz: We’re not really expecting to be able to buy the property. The only way I see it happening is if we could get it REALLY cheap, and with the time we’d need to get a regular loan. The bank isn’t local. I agree that it seems screwy that the buyer should pick up the tab for the Bumpuses’ bad financial decisions. That’s why I thought I must not be understanding something. At some point it would seem that this is one of those cases where the bank’s risk-taking in issuing financing bites them in the ass instead of paying off. You win some, you lose some.

5

That doesn’t sound right to me. I’ll be interested in what more knowledgeable people have to say but it seems to me the bank now owns the property and they’re responsible for what’s owed on it. They can try to get you to pay it all, and I’m sure they’d like if you would, but you don’t have to. The longer the bank keeps the property, the more it’s costing them and it would be in their best interests to accept a fair price for it and take the rest in the shorts.

I think the only time you’re liable for liens, unpaid taxes etc; is if the previous owners died and willed the property to you. This happened to someone I know who inherited a pretty nice house from a friend but who ended up having to refinance and basically buy the damn thing all over again to get away from all his debts.

6

The debt might also include attorney fees. Foreclosure actions typically enlist attorneys to handle the paperwork.

7

It should be public record what the Bumpuses paid for the property. I suppose they could just have been taken by the previous owners.

$110,000 for a property doesn’t sound that outrageous to me, but then, I live in the northeast where you couldn’t even buy an outhouse for that kind of money.

8

Does your county have a nice Web site where there’s a section that shows property information? ie… the auditor’s area of the site My county has this - you can go plug in an address or even a last name and find out tons of info on a property including purchase price, worth and tax information - including unpaid tax debts.

Not all counties have such sites but they are goldmines of info if they exist. It won’t tell you EVERYTHING you are asking about this property but it will give you some insight as to where the debt might be coming from if it’s taxes.

9

Well, to give you an idea of housing costs around here, our property taxes are usually around $1,100 a year. It’s a very rural area, lots of “rustic” houses (“rustic” being code for “unfinished,” of which our house is one). Cut the tax bill in half for the January and June payment dates, and I usually just write a check. Looking at what other people pay just about gives me a stroke.

ZipperJJ: I went to the regular county site and found nada when I was originally looking for info; I found the page on the foreclosure sale (on the same county site!) only by Googling. It’s just a copy of the circuit court notice of foreclosure sale and named the total judgment amount. I’ll see if I can poke around a little more, but I’m not hopeful. The government isn’t terribly high-tech around here; we still vote with paper and pencil!

10

There is a good chance that the bank which holds the note will be the successful bidder at the sale. If so, it likely will be a very motivated seller afterwards. I would contact that bank with a lowball offer.

11

It seems that lax lending standards are one of the reasons for the US housing run-up. It appears to be coming to an end as we speak.

12

:confused:
If the bank foreclosed on the property, they already own it. Why would they try to buy it from themselves? They are trying to unload it.
It is entirely possible that the property will sell for way less than what is owned on it. The bank will either then write off the difference between what is owed and the sale amount, or they will go after the former owners for the balance.

13

From Wiki:

Basically, the bank doesn’t own your house, only the amount of money you owe them. they are forcing you to sell the house to pay you back.

14

Mofugga… that should be:

Basically, the bank doesn’t own your house, only the amount of money you owe them. They are forcing you to sell the house to pay themselves back.