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When it comes to foreclosures, the bank wins

There is a what I can only describe as a fixer-upper house on my street that sat empty for about five years that now appears to be on the market.  Although there are no "For Sale" signs on the lawn, there is a steady stream of people stopping to take a look at the house. I looked at the county online property records page and it appears the bank that owns the property paid $304,000 at the sheriff's auction for a property that previously sold for $225,0000. That seems way too much, considering the well-maintained house next door sold for $289,000 four months ago. Can you shed some light on this apparent oddity?

— Larry B., Medford 

There's no perfect solution for this quandary, but it appears you're watching a tax write-off in action. Like some other "zombie foreclosure" properties described in past Mail Tribune stories, lenders were able to collect mortgage insurance payouts for several years while houses sat empty and deteriorated in one way or another from neglect. We're told by real estate industry insiders that lenders protect their interests by paying property taxes and home owners insurance premiums.

Lenders set the price, hoping to either attract bids higher than what was owed or putting themselves in the position to create a tax loss. If no one bids the prescribed amount, the lender pays documentary fees, and the bank is given right over the property with a certificate of sale. However, the bank didn't "win" anything, even though it appeared to pay only $100 for the certificate. The property may be worth closer to $100,000 compared to the unpaid mortgage debt of $300,000. As a result, the bank can write off the $200,000 difference. 

In the end, the bank can collect on mortgage insurance, write off the uncollected debt, and then sell the house to offset its taxes and property insurance.

From Sept. 1-10, there were 11 scheduled sheriff's sales in Jackson County. Only one of the properties was sold to a third party. The creditor/bank obtained the property in eight cases, while two sales were cancelled. Of the 15 originally scheduled in the second half of September, two have been postponed, one cancelled and a fourth was sold outright.

Send questions to “Since You Asked,” Mail Tribune Newsroom, P.O. Box 1108, Medford, OR 97501; by fax to 541-776-4376; or by email to youasked@mailtribune.com. To see a collection of columns, go to mailtribune.com/youasked. We’re sorry, but the volume of questions received prevents us from answering all of them.