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Chapter Twelve: Purchasing Alternatives

Obtaining a mortgage is probably the most common method of purchasing a property, but it is not your only option. This section discusses the pros and cons of various purchasing alternatives, such as foreclosures, public and private auctions, tax sales and purchasing from lenders, nonprofit programs and federal and local government agencies. These options are for those who are adventuresome, or for those who must make their dollars stretch.

Be prepared to do a little more leg work in educating yourself about these purchasing options, or in locating professionals who can. Seek a lawyer's advice to navigate these tricky waters.

Information presented here is not intended to be a detailed study or how-to-guide, but is a basic introduction to "alternative" methods of locating and purchasing real estate. These options usually involve more risk and time than conventional methods. Points to consider:

  • The title of the property may have other liens against it, such as property taxes or second mortgages. The title is the legal document that denotes ownership of the property; liens are claims against the property, which may hinder or delay ownership or possession.
  • The property might require extensive rehab and repairs.
  • You might end up responsible for taking possession of the property (i.e. evicting current tenants.)

Auctions

Attending a real estate auction can be an exhilarating experience, and might land you a piece of property at a cheaper cost. There are several types of auctions available for real estate:

  • Public Auctions : Properties sold through a public auction. These properties are obtained by King County for failure to pay property taxes for an extended period of time. The Auctions are handled by the King County Treasury Operations. There is detailed information about the auction process as well as detailed information about responsibilities of the bidder. Additionally, King County Treasury Operations publishes a list of available properties by address and lists value. It is the absolute responsibility of the buyer to research and inspect properties thoroughly, once a property is bid upon the sale is final. The web address of the King County Treasury Operations : http://www.kingcounty.gov/operations/Finance/Treasury/Foreclosure.aspx
  • Real Property Auctions or Sheriff Sales : Sheriff's Sales are 'judicial foreclosures' (or executions) on real property to satisfy a money judgment. The order to sell comes from the Superior Court Clerk. The Sheriff Sale is selling only the judgment debtor's interest in the real estate. It is subject to all existing liens and encumbrances. There is limited information about the sale property since they do not need to know any information other than the address and legal description to conduct a Sheriff sale. It is not possible for potential purchasers to view the interior of the structure prior to the sale. The property sold may have a Redemption period from eight months to one year. Redemption means that the owner may pay back the amount bid at the sale plus interest, taxes, etc. in order to 'redeem' the property and become the owner again. If you have legal questions about this procedure, you should contact your attorney for direction, or read the Revised Code of the state of Washington pertaining to Redemption. Sheriff sale notices and notices regarding postponements of sales are posted in the King County Courthouse lobby, as well as in the first and fourth floor entrances of the King County Administration Building. The sales of real property conducted by the Sheriff are published in the Seattle Daily Journal of Commerce newspaper once per week for four consecutive weeks prior to the sale. If you are the winning bidder at a sale, you must provide the Sheriff with cash or cashier's check made payable to the court clerk's office issuing the Writ of Execution or Order of Sale by 12:00 p.m. or the property will go to the next highest bidder. For more information visit the Sheriff Sale website at: http://www.kingcounty.gov/safety/sheriff/Services/SheriffSales.asp
  • Private Auctions : Real estate sold at private auction are properties that may be sod my a home owner, may be a foreclosed home that did not sell at a Sheriff's sale, or may be at auction for some other reason. Purchasing property at an auction may be at a better price than through traditional purchasing methods. There are inherit risks to the buyer because of the frenzied environment of the auction process as well as there are no safe guard to the buyer after a bid has been made. It is the absolute responsibility of the buyer to research and inspect the property to ensure that the buyer is fully aware of the aspects of the property before making a bid. Additionally due to the frenzied nature of auctions the buyer must be educated on the value of the property so that they do not end up paying more than the property is valued. There are many online listing of upcoming private auctions such as Auction Zip or National Relocation.

When purchasing through an auction (public or private), you are usually required to present an initial payment of around 10% of the bid at the time of the auction. These down payments can be made in cash, certified check, money order or other certified funds. The remaining balance is usually due within a set period of days (usually 30) of the auction. This window gives you time to secure financing for the space.

Failure to pay the remaining balance in the allotted time puts your bid at risk of defaulting, which usually results in you forfeiting your initial down payment. In addition, the property can be put up for auction again. As the requirements for each auction house are different it is vital that you take the time and review the policies and procedures before participating in an auction.

Be forewarned that property bought through this method may not have clear title (especially a private auction property) and you may have other legal red tape to clear up before you can take possession. You will need to check with the auction house to find out if can check the financial and legal strings tied to a property prior to bidding. Properties sold through an auction are often sold as-is. Meaning, the owner will not make any repairs to the property before you take ownership. For this reason, it is a good idea to have the space inspected beforehand.

In most cases, you will not be reimbursed nor allowed to renegotiate your offer. However, an inspection can help you to assess how much investment you will need to make in the property to make it habitable, and will inform your biding process. You can also explore making your purchase offer contingent on the results of the inspection, so that if repair requirements are not acceptable or exceed your budget, you do not have to purchase the property. For more information on building inspections, see Chapter 17: Inspections. To find when an auction will occur, contact the above-mentioned government agencies, as well as local auction houses listed in the telephone directory.

Foreclosure

Foreclosure is a complex legal process whereby the owner of a property forfeits their claims to the property due to:

  1. Failure to make mortgage payments (the most common reason);
  2. Failure to pay property taxes;
  3. Personal bankruptcy; or
  4. Seizure of the property by the government due to illegal activities by the owner.

Failure to make mortgage payments triggers a series of legal actions that ends with the termination of the present owner's rights to the property and sale, typically at public auction.

Washington State has two types of foreclosure:

  • Judicial Foreclosure: The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage or deed of trust. Generally, after the court declares a foreclosure, the property will be auctioned off to the highest bidder.
  • Non-Judicial Foreclosure: The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A "power of sale" clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee. Regulations for this type of foreclosure process are outlined below in the "Power of Sale Foreclosure Guidelines".

In addition to the above methods, you can approach a property owner on the verge of foreclosure to craft a purchase agreement with them and their lender. In this situation, everyone wins. Not only are you able to purchase property below market value -- the owner doesn't have to face a foreclosure, and the lender gets a return on their investment.

For a listing of foreclosed homes visit: http://your.kingcounty.gov/finance/treasury/foreclosure/Disclaimer.asp.

Please be aware that an owner has the right to save his or her property from foreclosure by paying all past taxes owed up to the night before the foreclosure sale. Therefore this list may change frequently, and interested parties should check with the Treasurer to assure status of properties they are tracking.

Any questions regarding tax foreclosures must be directed to the King County Treasurer at (206) 296-4184. Foreclosure Sales that occur due to DEFAULTING MORTAGAGES ARE NOT handled by the county. You should contact the lending institution holding the defaulting note.

For additional information on how the foreclosure process works, see Defaulting on your Mortgage in Chapter 8: Buying Real Estate.

Government Sales

National government agencies often obtain possession of properties and then sell the properties. This section discusses programs offered by the U.S. Federal government.

Federal

Several federal agencies sell real estate, land and other properties such as lighthouses. These properties fall into the government's possession for many reasons -- most commonly, because the previous owner failed to pay a government-backed mortgage loan. Other causes include the property has been seized from individuals or businesses for tax evasion or other illegal activities, or because the government has surplus property, including land, that it needs to sell.

Typically, property sold through an auction comes as-is. To purchase, you must follow the individual agency's auction procedures. Although the selling agency will normally not repair problems uncovered by an inspection, and might not allow you to renegotiate your offer, an inspection will give you an idea of the additional cash you will have to invest to make it habitable and inform your bidding process. If you are allowed to renegotiate your offer, the inspection report will give you leverage.

A major advantage of buying properties from the federal government is that the title is often clear of any liens.

For more information on building inspections, see Chapter 17: Inspections.

Fannie Mae

Fannie Mae is a government-backed mortgage provider, the largest purchaser of secondary market mortgages in the nation, and the largest mortgage holder (see Chapter 8: Buying Real Estate). Fannie Mae sells both single-family and multifamily buildings acquired through foreclosure.

Search for single- family Fannie Mae properties for sale at: http://www.homepath.com/

Click to search multi-family Fannie Mae property for sale: www.efanniemae.com/multifamily

Housing and Urban Development

The Department of Housing and Urban Development (HUD) acquires properties as a result of foreclosures on HUD-backed mortgage loans. HUD sells single-family properties, with priority given to individuals purchasing the space as their primary residence.

Search HUB property for sale:http://portal.hud.gov/portal/page/portal/HUD/states/washington

Learn more about purchasing a HUD property: http://www.hud.gov/offices/hsg/sfh/reo/reobuyfaq.cfm

Internal Revenue Service

Property sold by the Internal Revenue Service has been seized for non-payment of federal taxes. Property can include residential and commercial real estate as well as other items such as art, vehicles, businesses, etc.

Search IRS property for sale: http://www.treas.gov/auctions/irs/index.html

For more information on IRS auctions and property for sale: http://www.treas.gov/auctions/irs/faq.shtml

Small Business Administration

The U.S. Small Business Administration sells property obtained while administering its loan programs. The property ranges from real estate -- commercial property, single family homes, vacant land and farms -- to business property such as machinery, equipment, furniture, fixtures and inventory.

For SBA properties: www.sba.gov

For more information about Small Business Administration Sales: http://www.pueblo.gsa.gov/cic_text/fed_prog/fedsales/sba.htm

Veterans Administration

The Department of Veterans Administration (VA) acquires properties as a result of foreclosures on VA-guaranteed loans. The VA sells both single-family dwellings and multi-unit properties. All properties are marketed with Ocwen Federal Bank FSB in West Palm Beach, Fla. and are listed by local listing agents through the multi-listing systems (MLS). A list of properties for sale may also be obtained from Ocwen's Website.

Search VA properties: http://www.altisourcehomes.com/

Other

Below is a list of additional federal government agencies that sell a variety of property, including real estate.

  • Department of Agriculture (USDA): Information on government-owned real estate and potential foreclosed properties such as farms, ranches, single-family homes, multi-unit buildings, lots and other real estate. This site provides detailed information about each of property.
  • Department of Customs : offers real estate and other items for sale that has been seized and confiscated for a variety of reasons, including illegal activity.
  • Federal Deposit Insurance Corporation (FDIC): has single and multi-family properties for sale. For more about how to purchase a FDIC property.
  • General Service Administration (GSA): Sells a variety of real estate ranging from commercial and industrial buildings to residential properties and vacant land. GSA also manages the lighthouse program, and sells excess federal lands for public use such as cultural institutions and parks.
  • Information on purchasing property through GSA.
  • Information on purchasing Excess/Surplus Federal Lands.
  • Information on the Lighthouse Program
  • Department of Treasury : offers real estate and other items for sale seized for a variety of reasons, including use of the space to conduct illegal activities.Search Treasury property for sale.
  • U.S. Army Corps of Engineers: Provides assistance to eligible federal employees who were stationed at or near an installation scheduled for closure (i.e. military bases). This site lists real estate properties (primarily residential) being sold by federal employees. Search ACE property for sale.
  • U.S. Marshal's Office: offers residential and commercial property, seized due to illegal activity, through the National Seller's List. Property. Also sells personal property such as motor vehicles, boats, aircraft, jewelry, art, antiques and more. The National Seller's List is a list of contracted service providers and federal agencies throughout the U.S. that are authorized to sell USMS-seized property. More information and to view the USMS's National Seller's List.
Other Organizations

Nonprofit programs, organizations and family can provide alternative financing to assist you in purchasing or locating a space. Your real estate attorney or accountant may also know of additional funding and/or purchase resources, in addition to the resources presented in Chapter 8: Buying Real Estate.

Each program enforces its own requirements for participation, and some might require community service from you in order to participate. ACME Artist Housing, Habitat for Humanity, the Neighborhood Assistance Corporation of America (NACA) and REOs are examples of non-traditional avenues for purchasing real estate.

Artspace

Artspace mission is to create, foster, and preserve affordable space for artists and arts organizations. They pursue this mission through developmental projects, asset management activities, consulting services, and community building activities that serve artists and arts organizations of all disciplines, cultures and economic circumstances.

For more information visit their website at www.artspace.org

Habitat for Humanity

Habitat for Humanity is a nonprofit organization that builds and rehabilitates affordable housing with the help of volunteer labor and donated money and materials.. To participate, you must apply; acceptance is not guaranteed.

Chosen applicants must make a small down payment (around $500) and monthly mortgage payments. Selection is based on the individual's need, ability to pay the mortgage, and willingness to invest hundreds of hours of sweat equity into building their home.

Habitat for Humanity provides no-interest loan financing for participants to purchase the home. Money paid by participants for their mortgage is used to build additional Habitat homes. Contact the main area Habitat office at (206) 292-5240 or visit their website at www.seattle-habitat .org for details.

NACA

The Neighborhood Assistance Corporation of America (NACA) is a nonprofit organization that provides loans to low- and moderate-income people, as well as "sub-prime" borrowers. NACA has commitments from banks and lenders totaling $3.8 billion, allowing it to offer mortgage loans with no down payment to borrowers at below-market interest rates. In addition, participants have the option to lower their interest rate by placing a larger down payment. Specifically, for every $1,000 a participant pays over the required down payment amount of around $3,000, the interest rate is lowered by 0.25%.

Borrowers are required to participate in NACA-sponsored affordable housing political actions. They must also contribute to a self-insurance fund used to pay the mortgage for a set number of months for those NACA homeowners who, for specific reasons (such as loss of job), are unable to pay their mortgage. Through the NACA program, you can finance multifamily residential buildings (up to four units) as well as mixed-use buildings (i.e. store front properties.)

Anyone can participate in NACA's program. Individuals with poor credit will be required to go through a NACA-sponsored debt management and credit repair program before purchasing.

Visit the NACA website at www.naca.com for more information.

REO

REO is an acronym for "Real Estate Owned by Lenders." Lenders come into possession of real estate property for many reasons:

  • When a borrower faces foreclosure, and signs the deed over to the lender to settle the mortgage debt;
  • The lender repossesses the property; or
  • The lender purchases the property at a public auction of foreclosed properties.

Many properties owned by lenders are sold at below-market rates. When the lender acquires a property, they automatically inherit a financial cushion. When a property goes into foreclosure, or is repossessed, the previous owner forfeits both the down payment and the accumulated equity, both of which now belong to the lender. This cushion gives the lender the ability to sell property quickly and below market value, because the remaining balance of the mortgage is often less than the market value.

Properties sold by lenders may require some additional repair work. Because many REO properties are sold as-is, have the space inspected. Although the lender will not repair the problems uncovered by the inspection, and might not renegotiate the offer, an inspection will give you an idea of how much additional cash you will have to invest in the property to make it habitable.

You can make your purchase offer contingent on the results of the inspection. If the inspection report does not meet your requirements, or the costs exceed your budget, you are not required to purchase the property. Depending on the stipulations of the sale, you might also be able to lower your offer if the property requires substantial rehabilitation. For more information on building inspections, see Chapter 17: Inspections.

Contact lenders directly to see if they have properties for sale, and where you can obtain purchase information.

Additional Resources

In addition to the models discussed here, check with local housing organizations for information on other nonprofit-sponsored purchasing plans. Chapter 11: Ownership Models also offers alternative purchasing tips through nonprofits in the section, Community Development.

Tax Sales

Coordinated by the King County Treasurer's Office, the County Tax Sales program is the primary program offered by King County and the State of Washington to purchase land and property. The Tax Sale occurs on an annual basis. The listing of foreclosed properties is available on or around June 10th

and will be published in the Seattle Times in the legal section. For more detailed information go to: http://www.kingcounty.gov/operations/Finance/Treasury/Foreclosure.aspx

To learn more about the Tax Sales program, review Chapter 15: Property Taxes. You can also contact the King County Treasurer's Office to review the guidelines and procedures for participation, and to view properties with delinquent taxes.



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