Government ForeclosuresGovernment ForeclosuresGovernment REOs, Tax Foreclosures and

Bankruptcy Homes

Government Foreclosures

Most Government Foreclosures are homes that went into foreclosure after the homeowner defaulted on a government-backed loan. Government agencies usually buy these loans and sell the homes themselves as Real Estate Owned (REO) properties. We'll be looking at five government entities that sell foreclosures:

• The U.S. Department of Housing and Urban Development (HUD)• The U.S. Department of Veterans Affairs (VA)• The U.S. Department of Agriculture (USDA)• The Internal Revenue Service (IRS)• Bankruptcy Courts

Fannie Mae and Freddie Mac

Though neither the Federal National Mortgage Association (Fannie Mae) nor the Federal Home Loan Mortgage Corporation (Freddie Mac) sell foreclosed homes, these Government-Sponsored Enterprises (GSEs) play an important role in the real estate market. Both Fannie and Freddie exist to make sure there's an indefinite amount of money to fund home loans by buying existing loans and selling them to other lenders.

FHA

The Federal Housing Administration (FHA) exists to help more Americans achieve homeownership. As such, many lower income Americans can qualify for FHA-backed home loans. However, as with any other type of loan, the homeowner must pay this back over time. If the homeowner falls behind on their loan payments, the home goes into foreclosure and is usually taken over by HUD as an FHA Foreclosure.

HUDThe U.S. Department of Housing and Urban Development usually sells homes purchased with defaulted FHA-backed loans as REOs. These HUD homes may be ideal for individuals who want to purchase a home directly from the lender but find banks intimidating.

VAIf a home purchased with a VA-backed loan, such as the VA Vendee Financing Program, goes into default, it becomes property of the U.S. Department of Veterans Affairs (VA). Many VA foreclosures are well maintained and include many great benefits for potential homebuyers and investors, such as:

• No re-payment penalty• Low interest payments• Fewer purchasing costs

VAPLEASE NOTE: VA loans are not just for veterans. If you are purchasing a VA foreclosure, you can qualify for a VA-backed loan, such as those offered through the VA Vendee Financing Program, even if you are not a veteran.

USDAThe main purpose of the U.S. Department of Agriculture is to regulate farming and food safety. However, the USDA also provides Rural Development home loans, and homes backed with these loans are usually repossessed by the USDA when they go into default. USDA foreclosures may be ideal for you if you're seeking farmland or large family homes in a rural area.

Tax Liens and BankruptciesNot all homes sold as government foreclosures go into foreclosure because the homeowner defaulted on their home loan. The next few slides will discuss homes that came to be government REOs through two different methods:

• Tax Foreclosures• Bankruptcy Foreclosures

Tax ForeclosuresIf a homeowner fails to pay their taxes, their home can be repossessed by the Internal Revenue Service (IRS) and sold as a tax lien foreclosure or tax deed foreclosure to pay off their debt to the government. Unpaid taxes that may result in a tax foreclosure include:

• Federal taxes• Income taxes• Property taxes• State taxes

Tax ForeclosuresPLEASE NOTE: Your state may practice tax lien foreclosures over tax deed foreclosures or vice versa, and auctions can occur anywhere from once per quarter to once per month. Consult your local IRS office for more details.

Tax Lien ForeclosureIn a Tax Lien Foreclosure, the buyer initially purchases a certificate equal to the amount the homeowner owes on their back taxes. The homeowner is given a specified amount of time to pay back their liens. If the homeowner fails to do so, the tax lien certificate holder can request a tax deed from the county. This gives the buyer ownership of the property, and all remaining debts and liens from the previous homeowner are cleared.

Tax Deed ForeclosureIn a Tax Deed Foreclosure, buyers are bidding on the deed to the house starting at the amount owed on the homeowner's back taxes rather than buying a tax lien certificate. Like in a tax lien foreclosure, the homebuyer will receive the home cleared of all debts and liens.

Bankruptcy ForeclosuresWhen a homeowner files for bankruptcy, their property may be among their liquidated assets. If this is the case, homebuyers can purchase these homes as bankruptcy foreclosures.

Bankruptcy ForeclosuresPLEASE NOTE: Bankruptcy foreclosures are different from most foreclosure sales in that the sale of the home will be strictly governed by a bankruptcy court and court-appointed trustees. Be prepared to have to go through several court proceedings if necessary.

In Summary...• Most government foreclosures are homes purchased with government-backed loans that

went into default, and are often repossessed by associated government agencies.

• Fannie Mae and Freddie Mac are GSEs that exist to make sure lenders don’t run out of money to finance loans by buying and selling existing home loans.

• The FHA is a government agency where lower income Americans can obtain government-backed home loans.

• Homes financed with FHA loans that go into default often go into the possession of HUD.

In Summary...• The VA provides home loans to veterans that are repossessed if they go into default. If

you are buying a VA foreclosure you may be eligible for a VA loan even if you are not a veteran.

• The USDA provides Rural Development home loans. USDA foreclosures can be ideal for large families that want to live in a rural farming area.

• Tax lien foreclosures allow potential homebuyers to purchase a tax lien certificate representing the homeowner’s unpaid taxes, while tax deed foreclosures allow the homebuyer to purchase the tax deed directly.

• Bankruptcy foreclosures are overseen by local bankruptcy courts and court-appointed bankruptcy trustees.

Want to learn more?• ForeclosureDatabank.com provides many articles on Government Foreclosures and other

REO Properties.

• Want to know if your home loan still belongs to the same lender? Research more about Fannie Mae and Freddie Mac first.

• Whether you’re looking for an FHA foreclosure, HUD home, or VA repo home, ForeclosureDatabank.com can help.

• Interested in a tax foreclosure? Articles about tax lien foreclosures and tax deed foreclosures are at your disposal.

• Need to know more about bankruptcy foreclosure proceedings? ForeclosureDatabank.com members have access to 24/7 customer service via e-mail.

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