Friday, December 10, 2010

tax foreclosure auction 2010 and sticky subjects

(Skip to the last paragraph of this entry for the sticky subject: what do you do with the person who used to own the house and who still lives there now.  )

For the last few years I've been going to the Snohomish county tax foreclosure auction, held each year in January.  I've written about it in the past, in 2008 and in 2009.  These auctions are held in accordance with  
RCW 84.64

I go to these auctions because it's a chance to pick up land at a pretty much rock-bottom price.  There's some complications, and you can get burned, and the land is offered without any guarantee, and the land itself may have no or very limited use,so if you do go to one of these auctions and buy land, be aware.  Talk to a good attorney about the risks, and make sure that attorney knows what they're talking about. 

The rules of the auction are pretty simple:   As-is, as each parcel is auctioned you've got to pay cash or cashiers check, there are some ways that the previous owner can get the property back (consult an attorney if you're curious, but they're all unlikely) and Kirk Sievers kinda sucks as an auctioneer, but you get used to him*. 

I purchased the property that I'm currently grazing my cows on for $2k/acre in the 2008 auction; in fact, usually I'll purchase bare land because it's what I know best.  This year I bought a building lot and a townhouse, which is a departure for me.

I think that we're at a point where most folks think that owning real estate is like having a rabid dog, and that sort of pessimism really interests me.  Western Washington is still growing fast -- we issue 16,000 new  drivers licenses each month, and those folks have got to live somewhere. 
There were quite a few people who attended this years auction; so many, in fact, that they weren't sure that they'd have enough property lists to go around.   I purchased two properties at this auction:  A .25 acre building lot and a townhouse a few miles north of my farm.   The bidding this year was more lively and intense than in the previous two years.  I think that we're getting our confidence back. 

The townhouse is 3br, 2.5 baths, 2,000 square feet.  Constructed in 2005, it's relatively new.  It sold for 165k in 2005, and then sold for $243k in 2007.  What's a fair price for it now?  whatever the market will bear.  I purchased it for 101k, roughly 43% of the market price 3 years ago.  About $50 a square foot.  Other properties in the area are selling for an average of $133/sq foot, so I figure i got a good deal.   If you think you're positive on your own home mortgage, you might want to look at these numbers.  This house sold for 40% of what it was worth 3 years ago. 

Now this is the kinda touchy part.  Prior to the sale you don't have any right to see or inspect the property in question.  For the most part, you're buying blind, and the pricing reflects that risk.  In this case the inside looks pretty good.   Heres some pictures from the townhouse i purchased earlier today, taken today.
2 car garage converted into home office. 
nice sunny dining area. 
small but serviceable kitchen
master bedroom with attached private bath
2nd upstairs bath
spare bedroom

3rd bedroom with attached bath. 

Sticky subjects
You can tell from the pictures that the previous owner, a mortgage broker, really hasn't made any attempt to pack or move.  He's living in this townhouse with his wife and 86 year old mother.  Since this property was lost to foreclosure, I'm sure that he's not paid his mortgage in a very long while.  If you don't have rent or a mortgage to pay, you can get used to having that extra money.  Mortgage is usually the single largest budget item.  So I'm not sure what I'll do with this fellow.  I'll talk to him on Monday and see if we can work out a plan; but as I said to him today "hey, your credit isn't very good with me; you haven't paid your mortgage, and as a landlord, that's pretty much the worst sort of debt to not pay.  Lets talk on Monday. "

* Kirk needs to wait longer after a bid to see if there are other bids.  He's often too quick to call "Sold" and people debating bidding more are cut off.  I've learned to bid loudly and quickly; I've been trained. 


Anonymous said...

Trying to evict tenants who have kids or elderlies can take months if not years. They think they have a case(in front of a judge)to stay there. And if the guy hasn't paid the mortgage then he won't paying the rent.
The first thing to do is to get the paperwork going for eviction then talking to him. It sucks being a landlord.

Ruth said...

Unlike most repo'd properties, this one looks pretty much continually lived in, including the groceries on the counter and the Christmas tree in the living room. oml.oml.oml....yeah, it does make one wonder...(hm. good luck with this one, will be curious to see how this story ends...)

Bruce King said...

Dave asked who's on the hook for the 247k mortgage:

First, I'm not a lawyer. This is my opinion ,but it's not a legal opinion. I'm not offering you legal advice, I'm offering my opinion only. You should consult an attorney before you make any decisions.

Tax/government liens are senior to mortgage liens and senior to any other sort of liens (construction, collection agencies, whatever). So by buying this property at the tax auction, the mortgage holders lose their collateral and all other non-tax liens are wiped out. The mortgage holders still have a debt due to them, and they can try to collect against the guy who signed this mortgage as an unsecured debt, but they have no rights to the real property. I get it free and clear. Similar situation to first and second mortgages. if the first mortgage forecloses, the 2nd loses its claim. Tax liens are senior to 1st mortgages.

That's different than in a traditional foreclosure, where there are two outcomes that are common: Either the bank gets the property back and the debt is extinguished, or the bank buys the property at auction for some price, and then pursues the borrower for any shortfall; eg the bank lends the guy $200k, guy defaults, bank buys the property at auction for $150k and then pursues the guy for the 50k shortfall. Judicial or non-judicial foreclosures, basically.

There's all sorts of seminars that purport to teach people how to buy these properties and promise millions of dollars of profits. Don't bother. Hire a good attorney and ask your questions there. It's worth the investment.

Bruce King said...

oh yea; the mortgage was held by citibank. I don't know why they didn't redeem the property for the back taxes due -- about $10k -- it would have prevented a loss of $150k or so. Guess it slipped through the cracks.

Bruce King said...

Anon: On monday I'll be presenting him with a three day pay-or-vacate notice to start the eviction clock ticking. If I don't reach an agreement with him about his tenancy, I'll serve him with eviction papers later in the week. My preference would be to rent it to him, but you're right. People get used to a mortgage-and-rent-free lifestyle, and then think they're entitled to it. Heck, I'd love to have no mortgage myself, wouldn't you?

Gabriel said...

Do you know the reason/s why they stopped making their payments? Until you know, you should tread lightly on judgment. There are valid reasons sometimes and judging them by their simply wrong. Karma dude. Be the better person. Find out the circumstances first!!

Across The Creek Farm said...

I'd love to have a mortgage free lifestyle - that's why we're paying off our land and house as fast as we can.

Anonymous said...

It's mind-bending to think they were sayin' "hey, let's put up the Christmas tree" :-D when they were days away from a foreclosure sale. You wonder if they are just completely in denial, or heavily banking on the new owner just saying "aw heck, I'll rent it to you, you are so settled in,after all". Maybe the guy has a stragety, figuring he'd get by w/ no payments as long as possible, then buckle down and buck up rent again when necessary, reassured that he had all those months of savings in the meantime. Not a bad strategy, if you have no conscience! :-P

Bruce King said...

Gabriel -- that's a good point. I don't have any idea why they stopped paying their mortgage. As a landlord, I have to look at their willingness and ability to pay rent, and so far, I'm not seeing any evidence of either, based on the house being foreclosed on. Maybe there are some circumstances that made that the best decision for them -- but that's none of my business. I'd prefer a tenant who makes it a priority to pay the rent.

Bruce King said...

Collie: I'm not sure what they're up to either. I think maybe they thought that the bank would redeem it and they'd get another 6 months or whatever. Nope. I bought the property and was on their doorstep 20 minutes later.

damae said...

I guess I may be wrong, but I think I'd take a different perspective. Wow, the house is not trashed and it's in good condition. There are many who have trashed a house in these circumstances. He may have bad credit, due to unknown circumstances, but I would think he would be willing to pay reasonable rent in lieu of moving. Of course, that doesn't change your game plan. Hope it all works out the best for them and you.

Robert said...

Can you write a post about the steps you went thru with the auction? how did you find out about the auction? how did you research the properties? I have no idea how to start...


Nancy - Olympia WA said...

Any updates on meeting with the former owners? Is this new place in danger of flooding?