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fraitfarm
Reader

Buying Land (Sheriff's Deed) from Bank

The adjoining property has been foreclosed and the bank holding the loan purchased the property at the sheriff's auction.  Now the bank and contacted me and wants me to make an offer to buy their sheriff's deed.  They clearly want this loss off of there books.  The land has a 12 month redemption period and 2 years unpaid taxes.  What would be a reasonable offer for land that I can't touch for 1 year and may have other liens besides back taxes?  I was thinking of offering 85% of market value for land with a clear title.  Does anybody have experience with this type of thing?

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11 Replies
Red Steele
Veteran Advisor

Re: Buying Land (Sheriff's Deed) from Bank

One issue that you need to be aware of is the possible "right of first refusal" from the deadbeat borrower that was foreclosed on. You may negotiate the best deal imaginable, and execute a buy/sell agreement only to find that the previous borrower has the right to kill your deal and step into your shoes. Not sure if this applies in every state, but it sure does in Minnesota.

 

This is a legacy of the 1980's when well connected dead beats like John Block, the former secretary of agriculture and also land speculator, found themselves upsides down on their farmland holdings, and rather than just simply accept the losses, they felt they should benefit from the lower land values themselves. Thus, they were able to legislate some really odd things into the law of the land.

 

So much for capitalism , free enterprise, and the American Way.

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bobag
Contributor

Re: Buying Land (Sheriff's Deed) from Bank

I think the option to buy the land one year after foreclosure goes back to the Great Depression. It may be obsolete in today's economy but it is a law that must be respected. If I wanted to buy the land I would not pay the current Fair market Price because of the risk involved. The debtor that lost the land will have a difficult time finding the financing to buy it himself but it is possible he could be the "straw man" for another party that may want to buy it. If you know the debtor it may be worthwhile to have a talk with hm and find out what his intentions may be. In fact, it may be worth a few hundred dollars to get assurance from him that he will not redeem the property.

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kraft-t
Senior Advisor

Re: Buying Land (Sheriff's Deed) from Bank

Question--- If you buy the farm at a discount from the lender and the borrower Has one year to rec;aim the property, will he be forced to pay the loan balance off plus interest and who gets the money? The bank that held the mortgage or you that bought out the mortgage from the bank?

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bobag
Contributor

Re: Buying Land (Sheriff's Deed) from Bank

My understanding of this type of transaction is that the bank received a sheriff's deed by being the highest (and only) bidder at the sale.

Their mortgage on the property is eliminated by them receiving the deed. Now, they are seeking a buyer for the property to try recovering as much of their mortgage as is possible. The bank did not pay the two years of back taxes so that must be considered as a cost by the buyer. The uncontrolled issue is the redemption option. As I stated in a previous message I would make a contact with the debtor to make sure he will not redeem it. If the property adjoined me I would go through the trouble of trying to buy the land. Also a lawyer may check the records for any potential liens or claims the buyer may be liable for.

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Kay/NC
Honored Advisor

Re: Buying Land (Sheriff's Deed) from Bank

Also a concern is any potential liabilties attached to the land for environmental reasons.  An adjoining property to our farm is presently advertised as being up for tax sale, but it has underground fuel storage tanks from an old country store history, plus a lot of junk cars from when it was a used car lot, anbd had an EPA presence due to a tire fire there years ago.    

In the meantime, since the car dealership that covered for a drug ring closed down,  I've watched people try to conduct several businesses there, the last idea being a biker's clubhouse.   It's on about eight acres that I would love to take a dozer to, and we've got one of our own to play with, but I am leery of actually bidding, as I am afraid the cleanup would become a legal nightmare. 

 

Talked yesterday to the local attorney who represented the former owner, whose nephew dealt the drugs and stole cars from his own family's business there.  It is a complicated ball of wax. 

The last purchaser could not ever get a clean title, because his client had a corporate ownership and it went defunct...so even foreclosing was too cumbersome and costly for him to offset the loss on it by simply getting it back.  In other words the place has a small concrete block store that is actually in decent shape for a roadside small business, but has so many issues with the title and leftovers from bad ideas, that it is worse than worthless. 

 I am kind of hoping that someone will want the corner on the highway for a business location, and be willing to sell off the rest of the acreage to me...no real reason for anyone else to want it.  That would require a subdivision, though, and that carries an expense for surveying, legals and applications, too.

The attorney thinks the county will take it for the taxes, and may want to sell off all or part, and he's going to keep an eye on things for me.  Watch out for any environmentals and title complications...all of that can get too expensive for anyone. 

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Jim Meade / Iowa City
Senior Advisor

Re: Buying Land (Sheriff's Deed) from Bank

If the county seizes it for taxes and then sells it, do they have to (and can they) provide a clear title?  Is that the way to get the legal Gordian knot cut?

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Kay/NC
Honored Advisor

Re: Buying Land (Sheriff's Deed) from Bank

This is part of what I asked the attorney on Friday.  I would think that a tax confiscation gives the County title and absolute right to sell it off to the highest bidder.  After that auction, there is a ten-day upset bid period, and that can be triggered as many times as someone wants to up the ante. 

He seems to think that anyone with enough sense to have the money to buy it will be put off by the environmentals.  I sure am.  I will wait and see what he learns this week and reports back to me before the auction.  Ideally for me, the County won't have another buyer, or the buyer will want the highway frontage and store building, and might be willing to divide out that portion for their use, and sell off the rest.  Like I said, that will take a legal subdivision process, since we no longer allow one division by right.  As planning board chairman, I will certainly see that one if it comes up before us. 

I am not too worked up about what might land in the building, since I also know the uses by right in that zoning district.   Also, people are having a hard-enough time keeping businesses in the tiny towns six miles in either direction going, so it's hard to figure what might make a go in the middle of nowhere.  I am not going to lose my mind over what that place might eventually be.  We both concluded that it will very likely be an orphaned piece of land for a long time.  If not, a going business that cleans up the eyesore will only enhance the neighborhood.  Credit is tight enough to limit a lot of possibilities right now, too. 

It's kind of hard to describe to you folks from the logically-divided square states, but this is a tiny triangle of land that has a notch of highway road frontage, some decent frontage on the intersecting secondary road, which faces the main portion of my farm and then is surrounded by it on its side of the road to the rear, since we've got about another forty acres on that side.   

This is one of three adjoining parcels with title and/or ownership complications.  Another is the couple of acres with a house trailer that I got a call about from the same attorney last year.  It was owned jointly by a young woman who had been a caregiver for an elderly lady, who had bought it "with" her.  She was failing to make the promised payments, and no longer took care of the lady, so the older woman wanted to sell her half out. 

 I'd like to eventually own or better, to see my daughter and her husband own that one, since it is right beside their house lot, with a narrow strip of woods between; however, when I told the lawyer that I'd be willing to pay half the assessed value of the property for that half-interest (which was fair), that I would not enrich the woman for creating such  complicated mess for herself, I heard no more back. 

I asked him about that one yesterday, when we were finished with the store lot discussion.  He informed me that the elderly half-owner had died, and that she had decided to take payments from the girl when she could get them, and leave things as they were.  He did say that it was in the hands of her three nieces now, and that he would keep me apprised if they decided to get out of it. 

The third mess is the decent brick ranch house at the extreme opposite end of the place, at the end of my secondary farm path to our house and the hog farm.  That woman died and left everything she had to the Kidney Foundation, cutting her two grown sons off cold.  It was supposed to be auctioned off for funds for that charity, but one of the sons has contested the will, and it is my understanding that the charity has a policy of not pushing the issue when that happens. 

Right now, it is a fairly decent home sitting empty, with the attorney paying someone from her estate to cut the grass every two weeks.  Her good car disappeared from the yard within the past couple of weeks, after sitting for about a year.  Her old car is still sitting.  Mike saw one of the boys and his family up there a couple of weeks or so ago, going through the house and cars as if looking for something, so I am surmising probably the title to the good one, since it disappeared shortly thereafter. 

 I joked with the attorney on Friday that I never realized that people could make such a mess of land titles, but that I guess it was what kept his family fed.  These three directly agjoining us are not the only ones in that condition that we can see from our property...I know of at least two who bought houses on owner-financed deals, where they can lose everything they've put in if they miss a single payment.  A crazy gamble of a way to buy a house, but the only way some people can get one, evidently. 

i would probably be more concerned over these situations, but we do have a good farmland protection statue, and our farm is in the program, so not just anything can back right up to our property lines.  A couple of wealthy Raleigh businessmen.attorneys have family or hunting land surrounding our longest lines, so those are pretty insulated from development for the foreseeable future, too. 

Our land is the longest along the roadways, and has thus got the best and easiest development potential, if we ever decided to sell out and move.  I hope not to have to do that, but you never know, and it's why I have elected to keep the place in its six historic tax tracts, rather than combining it. 

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4wd
Senior Contributor

Re: Buying Land (Sheriff's Deed) from Bank

That is a $64,000 dollar question. A foreclosure sale by a bank will issue the buyer what they call a "Special Warranty Deed"; for the property, which legally is not as good as a "Warranty Deed" which you normally get from a non distressed sale. Your lawyer can tell you how good a Special Warranty Deed is. And, I also believe there is what is called a "Sherrif's Deed" which may take a gun to enforce ownership. Title clouds are a fact of life and ownership issues with some properties can become expensive and time consuming to clean up. I have always been told a "Warranty Deed" is the best
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fraitfarm
Reader

Re: Buying Land (Sheriff's Deed) from Bank

This land had twice as much owed on the mortgage then what the market value is worth, which is not typical for farmland these days.  Therefore,  I doubt the redemption right will exercised.  The land will foreclosed by the county for back taxes in 8 months and sold at tax auction in 12 months unless somebody (bank or myself) pays the back taxes.   Even if I have the bank pay the taxes before buying the Deed, I will end up with another years worth of taxes on the property.

 

I need to low ball an offer to the bank, I just worry I won't go low enough, or I go so low the bank just ignores me.  The other option is to sit back and wait one year and try to get it when it goes on the market with a clean title. 

 

PS  Thanks for all of the feedback.

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