Bank-owned homes at the tax auction

Most of the homes on the county tax auction list don’t have an underlying mortgage. That’s because banks usually take care of the taxes when a home is in its real estate owned (REO) portfolio. That’s just part of the cost of upkeep that is the bank’s burden after they foreclose.

There are a lot of homes on the list that are just transitory. These are good targets for getting the short-term penalty profit, but not good targets for actual acquisition of the title. For example, homes that are listed for sale often “fall between the cracks” and suffer from late payments on taxes, as the owners put off paying the taxes until the sale closes. Banks however, tend to be very good at making money, and very good at keeping the money that they have. All those foreclosed-upon homes in the lender’s portfolio is the same as money, and the bank naturally does not want to let those homes fall through their fingers, and so they attend to matters like paying the property tax. The bank knows that if they do not pay the property tax on their foreclosed homes, they risk losing those homes to the tax auction bidder.

But still, when you look through the auction list, you will see a handful of properties that list a bank or a lender as the owner of record. So what’s up with that? There’s one of two things happening. If you haven’t noticed, there have been a lot of banks closing up shop, being put into receivership, or at least being acquired by another bank. There are cases, especially when the bank is put into receivership, that assets simply get shuffled around so much that they get lost, at least temporarily, and there is a possibility that while everything is being sorted out, the asset gets put on the auction block, gets purchased, and the redemption period comes and goes, and the bank just loses out. Once the redemption period ends, the bank has no more rights than an individual, and yes, they can lose title as well. It doesn’t happen often, but it does happen.

The second phenomenon you’ll notice is that there are so many foreclosures out there, that banks simply have too many. And many of the properties a bank has may be in marginal neighborhoods, the homes may be in disrepair, and the outstanding foreclosed mortgage may be much more than the property is worth. Some lenders may make an active decision to simply abandon the property to cut their losses, rather than paying to maintain an unsalable property year after year.

I’ve seen it happen. I’ve seen properties on the tax auction list, owned by banks, get auctioned off, the bank never reclaims, and the investor gets title to a house that is perfect for a renovation project, for just a few thousand dollars. In general though, when you’re reviewing the tax auction list, be very cautious about bidding on bank-owned properties, because in almost all cases, the bank will still redeem them.