Author Topic: Parent's house forclosed on - should I buy it?  (Read 6164 times)

frugalnacho

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Parent's house forclosed on - should I buy it?
« on: December 19, 2014, 06:34:32 PM »
My dad walked away from his last house.  He owed approximately 70k, and had an ARM that adjusted too high, so he simply stopped paying. He lived there for approximately 2-3 years without paying rent.  Then he eventually moved out into another place.  The property was run down and falling apart, and was not properly maintained, and then he moved out and left it unattended for 2 years.  Apparently the mortgage company eventually gave up on it and turned it over to the county, who has scheduled a foreclosure hearing.  It said he could take ownership of the property if he paid the back taxes which are $1800.

The roof is leaking and needs to be replaced, and has leaked in and caused part of the ceiling to collapse.  Numerous other problems with the house too - the flooring would need to be replaced, the bathroom and kitchen would need to be partially replaced, etc.

The house is a 3 bedroom, 1 bath, 880 sq ft with a garage and no basement.  The neighborhood is shitty and comparable houses (except in living condition) seem to be going for around $25-45k.

Zillow gives a zestimate of 41k, but I think they are assuming it's fixed up and in livable condition - even if it was I don't think we could get much more than $30k.

Is it worth it for me to buy it from my dad for the $1800 in back taxes, and have him sign the deed over to me, and fix it up?  My first inclination was to say it's a nearly free house and I should jump on it, even though it will require a ton of work and a new roof, but i'm not sure I would be able to sell it or rent it out.  I'm thinking I could take the summer of 2015 and do the work myself, including the roof - even though I have no experience.   My wife and family say it's not worth it and just let the county deal with the head ache - but they don't know dick about real estate.

kendallf

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Re: Parent's house forclosed on - should I buy it?
« Reply #1 on: December 19, 2014, 06:50:14 PM »
Are you already handy?  Do you have the time to dedicate to fixing it up (months of every evening work, most likely..)?  If the answer to these questions is no, pass and keep your sanity.

If you have a pretty good skill set in carpentry and have the time to work on it, it's hard to come in cheaper than $1800.  I'd be all over that but I am currently working on my second renovation in two years.

MikeBear

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Re: Parent's house forclosed on - should I buy it?
« Reply #2 on: December 19, 2014, 07:00:38 PM »
Buy it for the $1,800 if you can do this. Then, find a buyer and sell it under a land contract. 10% down from say $45k (let them negotiate a bit off if they try, that makes them happy) 8% interest (Michigan allows up to 11% on LC's), 5 year balloon.

You can't lose, just make sure you are listed on the property insurance in case they torch it. If they eventually stop paying, you keep all the money they paid, toss them out, and resell it. If they want to stay there, they do all the repairs and upkeep and pay the taxes. You collect for 5 years, and then they have to pay the rest off in a lump sum, or renegotiate a new contract if you are so inclined. I'm doing this right now on an 865 sq ft 2 bedroom house, and there's only about 1.5 years left on the contract.

It beats the Hell out of being a landlord, except you have to keep duplicating it with yet another house.
« Last Edit: December 19, 2014, 07:05:15 PM by MikeBear »

Another Reader

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Re: Parent's house forclosed on - should I buy it?
« Reply #3 on: December 19, 2014, 07:16:25 PM »
In many cases where the property has minimal value, the bank does nothing and the County forecloses.  If a tax deed wipes out the lender's position, buying might make sense for someone that could fix and flip it.  However, until a foreclosure wipes out the mortgage lien, it makes no sense to pay the taxes and "redeem" the property.  The mortgage lien still exists, and the lender could foreclose at any time.

If the County has a tax auction that wipes out the lender's position, then buying the property might make sense.  However, if it is a profitable fix and flip, it will likely get picked up by someone else at the auction for whatever the market will bear.

kendallf

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Re: Parent's house forclosed on - should I buy it?
« Reply #4 on: December 19, 2014, 08:21:05 PM »
Another Reader has a good point.  I missed the "not gone through foreclosure yet" part of the initial post.  If you bought it at auction for the back taxes, that'd be a good deal.  Paying the taxes and showing the bank that there might be somebody with money interested in it while they still have a lien.. not such a good deal.

frugalnacho

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Re: Parent's house forclosed on - should I buy it?
« Reply #5 on: December 19, 2014, 10:08:19 PM »
It says the property was forfeited to the county treasure.  Does that mean the mortgage company still has a lien?  How is it forfeited if they can still take it back? I am unfamiliar with the foreclosure process.  He is scheduled for a show cause hearing and then a judicial foreclosure hearing. 

What are the possible options here? Ignore it and let it go into foreclosure to get the liability off his hands? Pay the delinquent taxes and then get nailed by the mortgage company?

pminkler

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Re: Parent's house forclosed on - should I buy it?
« Reply #6 on: December 19, 2014, 10:33:30 PM »
Quote
even though I have no experience

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but they don't know dick about real estate.

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I am unfamiliar with the foreclosure process

I'm sorry, but these statements just stand out to me.  It sounds like you have an emotional attachment to this property, feel like you have an inside deal, and don't want to let an opportunity pass (good!) that may actually well cause you MUCH frustration, time and money (bad!).  DIYing a house by yourself is no joke...especially with no experience and (likely) just Youtube to rely on.

Let this baby pass.  Invest in something that makes sense to you. 

MikeBear

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Re: Parent's house forclosed on - should I buy it?
« Reply #7 on: December 19, 2014, 10:34:43 PM »
It says the property was forfeited to the county treasure.  Does that mean the mortgage company still has a lien?  How is it forfeited if they can still take it back? I am unfamiliar with the foreclosure process.  He is scheduled for a show cause hearing and then a judicial foreclosure hearing. 

What are the possible options here? Ignore it and let it go into foreclosure to get the liability off his hands? Pay the delinquent taxes and then get nailed by the mortgage company?

The only way the bank can cover their ass at this point, is for them to be at the auction and be the high bidder. Technically the lein still exists UNTIL the auction happens and it's sold to somebody. Then it's wiped clean, and no cookies for them.

MikeBear

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Re: Parent's house forclosed on - should I buy it?
« Reply #8 on: December 19, 2014, 10:37:23 PM »
Quote
even though I have no experience

Quote
but they don't know dick about real estate.

Quote
I am unfamiliar with the foreclosure process

I'm sorry, but these statements just stand out to me.  It sounds like you have an emotional attachment to this property, feel like you have an inside deal, and don't want to let an opportunity pass (good!) that may actually well cause you MUCH frustration, time and money (bad!).  DIYing a house by yourself is no joke...especially with no experience and (likely) just Youtube to rely on.

Let this baby pass.  Invest in something that makes sense to you.

Nobody knows anything until they try to do it. There's nothing wrong with this being his first rehab. I know people who's first rehab was literally done while they were holding a book in their hands, that told them how to do that particular thing.

Even if he does it and fails (unlikely to completely fail) at least he will have tried, and know his limitations a little better. That way he can plan better for the next one.

shadowmoss

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Re: Parent's house forclosed on - should I buy it?
« Reply #9 on: December 20, 2014, 02:37:01 AM »
Make sure there is no small print anywhere that prohibits a family member from taking the house for taxes and not getting the lein as well.  My grandparent's farm was signed over to the county when my grandmother went into a nursing home because my Dad couldn't pay for that care and Medicaid took the property.  Anyone else could buy the property when it was auctioned, and a neighbor bought it for $500.  But, Dad couldn't get it unless he paid Medicaid back ALL them money they paid for my Grandmother's nursing home stay (several years).

Just sayin'.

KBecks2

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Re: Parent's house forclosed on - should I buy it?
« Reply #10 on: December 20, 2014, 04:27:34 AM »
What's appealing about buying a run down house in a worsening neighborhood? 

Another Reader

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Re: Parent's house forclosed on - should I buy it?
« Reply #11 on: December 20, 2014, 05:54:53 AM »
You need to have a better understanding of the process in your state and county.  Some states have a process that involves an auction and a redemption period.  If there were no bidders at the auction, it's possible the county has title and your father could redeem the property.  That does not explain why the county is now scheduling a foreclosure sale.  They may just be auctioning off tax deeded properties at the end of the redemption period.  In your shoes, I would do nothing until I understood the entire process.

frugalnacho

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Re: Parent's house forclosed on - should I buy it?
« Reply #12 on: December 20, 2014, 10:41:52 AM »
Quote
even though I have no experience

Quote
but they don't know dick about real estate.

Quote
I am unfamiliar with the foreclosure process

I'm sorry, but these statements just stand out to me.  It sounds like you have an emotional attachment to this property, feel like you have an inside deal, and don't want to let an opportunity pass (good!) that may actually well cause you MUCH frustration, time and money (bad!).  DIYing a house by yourself is no joke...especially with no experience and (likely) just Youtube to rely on.

Let this baby pass.  Invest in something that makes sense to you.

I grew up in the house, but I have no emotional attachment to the house.  This is purely a financial move;  I don't want to let a great opportunity pass.  Hence me being here asking questions before I do anything. I know that it will cause a great deal of frustration, and require time and money, but if I could potentially come out the other side with $20k or $30k in equity and a lot of experience then it may be worth it.

frugalnacho

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Re: Parent's house forclosed on - should I buy it?
« Reply #13 on: December 20, 2014, 10:45:08 AM »
What's appealing about buying a run down house in a worsening neighborhood?

Potentially the price and the return on investment.  If I could get it for $1800, put $15k into, and have a $40k house to either rent or sell outright.   That's the appeal I see at least.

frugalnacho

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Re: Parent's house forclosed on - should I buy it?
« Reply #14 on: December 20, 2014, 10:52:57 AM »
You need to have a better understanding of the process in your state and county.  Some states have a process that involves an auction and a redemption period.  If there were no bidders at the auction, it's possible the county has title and your father could redeem the property.  That does not explain why the county is now scheduling a foreclosure sale.  They may just be auctioning off tax deeded properties at the end of the redemption period.  In your shoes, I would do nothing until I understood the entire process.

Everything I have read about the foreclosure process was lenders foreclosing on it.  The county foreclosing on it for back taxes is new to me.  The paper also states nothing about an auction or sale.  The language on the notice suggests that the hearings are for contesting the validity of the taxes for various reasons.   None of the reasons apply - I see no way my dad could claim any of the reasons listed that he should not have to pay the tax, while simultaneously claiming he should retain the property.  It seems pretty clear to me that the tax was levied legally, and if he keeps ownership of the house he should be responsible for them.

So when does it go to auction?  During the foreclosure hearing?  Or is that a separate thing that happens once the judge forecloses on the house?

Another Reader

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Re: Parent's house forclosed on - should I buy it?
« Reply #15 on: December 20, 2014, 11:49:17 AM »
The questions you are asking show you don't understand the process.  Every state is different.  I would go to the county tax collector's office next week and ask them these questions.  Find out who now has title and if the lender lien is still in place or was vacated somewhere in the process.  You may find the information at the county tax collector's website.  Or do a search on property tax rules for your state.

alsoknownasDean

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Parent's house forclosed on - should I buy it?
« Reply #16 on: January 10, 2015, 07:37:12 AM »
Would you be better off buying it, pulling the house down and selling the land?

Yeah I'd be looking real hard at what interest the bank may still have in it.

Davids

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Re: Parent's house forclosed on - should I buy it?
« Reply #17 on: January 10, 2015, 08:58:07 AM »
Aren't there Arm's length rules in place where doing this might be illegal?

ShoulderThingThatGoesUp

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Re: Parent's house forclosed on - should I buy it?
« Reply #18 on: January 12, 2015, 06:07:32 AM »
If the roof has caved in years ago, it doesn't sound like there's anything of value to the structure.

frugalnacho

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Re: Parent's house forclosed on - should I buy it?
« Reply #19 on: January 12, 2015, 07:34:58 AM »
Would you be better off buying it, pulling the house down and selling the land?

Yeah I'd be looking real hard at what interest the bank may still have in it.

With the cost of comparables going for $25-40k I doubt there would be any value in the land.  Why buy that land and build a house when you can just walk down the block and buy a move in ready house for $30k?

babysteps

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Re: Parent's house forclosed on - should I buy it?
« Reply #20 on: January 13, 2015, 12:00:29 PM »
... Apparently the mortgage company eventually gave up on it and turned it over to the county, who has scheduled a foreclosure hearing.  It said he could take ownership of the property if he paid the back taxes which are $1800.
...

*warning* - it sounds like the county has NOT YET foreclosed.  Even if the mortgage company hasn't bothered paying the taxes, they may still have a lien on the house.  In our area, if a property is redeemed (whatever the source of funds, and whether before or after the county forecloses), all prior liens remain - they do NOT get extinguished if the original owner retains the property.

You may want to check with the county (or relevant) records department to see what if any other liens remain on the property.

Off the cuff, this sounds like a similar area to ours valuation-wise.  My guess is that your materials costs could easily wander towards $20,000 if not more, depending on what beyond the roof needs doing.  If you have enough cash to fund repairs, in our area you could find estate (or other motivated sellers) properties in the $15,000-20,000 range that need mostly cosmetic improvements.  If that's the case in your area, I would be tempted to let Dad's house go to the tax auction & start again with a different property - jmo. 

If the costs of needed repairs are more like $6,000 to $8,000, and if there are no substantial existing liens, then redeeming the house starts to make sense to me.

Tax regulations and foreclosure laws differ a *lot* from area to area.  Do you know a local real estate investor who could give some advice?  Or a local lawyer so you understand all the details?