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Homes for Sale - The Details behind Government Foreclosures

A home that is foreclosed on by the government automatically becomes property of seven different operations, both on a state and national level, but it's heavily dominated by the HUD and VA departments. Others include the IRS, the FDIC, the United States Custom and Border Protection (which operates through the US Department of Homeland Security), local tax agencies, and local sheriff offices.

Your home may be subject to foreclosure if you are significantly late on any of the following payments:

  • Mortgage
  • Federal, state or local taxes
  • Assessments
  • Homeowner's association fees
  • Utility bills

Once a property has been foreclosed on, it can either be sold through a government program or it can go up for auction. At a foreclosure auction, generally run by one of the aforementioned organizations or departments, the public bids on the price of the home.

The last few years have seen an avalanche of foreclosures, the likes of which hasn't been seen since the Great Depression.  The growing numbers undoubtedly mean pain for a lot of homeowners, but there are also opportunities there for investors and first-time homebuyers.  Since so many mortgages were backed by HUD, FHA or the VA, many of those properties are now on the rolls of government foreclosures.  No institution is eager to keep a huge inventory of foreclosed properties (which drags down property values by watering down the market), so this is a good time to move!

There are a couple of ways to work around this:

  • Pre-foreclosure properties. In this troubled real estate market, lenders will give homeowners more of a chance to head off a foreclosure by modifying their loan or through other means. In the pre-foreclosure phase, you can scan government foreclosure listings and find prospective properties. It will mean approaching the homeowner personally to strike a deal, but you may be able to get a home for 30-60% below market value. This also helps the homeowner out of a dire situation, and keeps a black mark off his credit rating by avoiding a government foreclosure. Scan free government foreclosure listings for pre-foreclosures in your area.
  • Foreclosure auction. If the homeowner's remedies fail, the property is seized by the lender and shows up in free government foreclosure listings for auction. The down side is that you may not be able to do the type of research on the property that you might wish to do beforehand. On the other hand, it means not having to deal with the homeowner personally, and will probably bring you the best price possible on government foreclosure homes, as they generally sell at liquidation prices.
  • Tax lien. In the event that a homeowner can't pay his property taxes, the tax lien certificate is then auctioned off by the government agency that backed the loan. You can then buy the tax lien certificate itself at auction. If things go even worse for the homeowner, his property can be auctioned off, with the proceeds going to pay off lien holders. This type of government-foreclosed home is attractive because seldom do homes sell for less than what's listed on the tax lien itself. It's also a safe investment, because it's backed up with real property.

Anyone who's been keeping track of the news knows the areas hit hardest by foreclosures; Florida, California, Nevada, Arizona, Illinois, Texas and Michigan.  You can then narrow it down by city; Chicago, Indianapolis, Phoenix, Los Angeles, Miami, etc.  Start looking at free government foreclosure listings, and take it from there.

Vacant, foreclosed houses are bad for neighborhoods, bad for the foreclosed homeowners, bad for the lending institutions.  Free government foreclosure listings, though, are great for investors or prospective homebuyers who are credit-worthy and looking for a good bargain in real estate.  Every day that a home is on the rolls of HUD, FHA or VA, it costs them more money, so the various government agencies may be the ultimate "motivated seller."