Woman owes 15k in taxes. County forecloses and sells for 40k profit, and keeps the money. Court says "cool".

[UT_OB1 2,225]

2 hours ago, TwiceHorn said:

In Texas at least, the taxing unit is required to conduct a foreclosure sale in the form of a public auction.  The minimum bid in such an auction should be the amount of indebtedness, so yeah, theoretically you can acquire a $200k property for pennies on the dollar.

As a practical matter though, such sales tend to attract a lot of bidders and the ultimate sale price may be pretty close to FMV, and certainly not pennies on the dollar (closer to 80-90 pennies on the dollar, at least).  At least that is true in the populous counties.  In more rural places, foreclosures may go more unnoticed.

However, there is a right of redemption in Texas on a tax foreclosure, but not on most private party foreclosures.  So that makes a tax sale somewhat risky for the purchaser, and may mean that it doesn't attract bids the way a private party deed of trust foreclosure would.

 

Pre-pandemic, at least in Harris and Galveston most of what I saw was 65-80%. I don’t know what anything went for once pandemic hit, because even though I was watching the sales, property values were changing weekly it seemed. 
 

Right of redemption is 2 years on a homestead, 6 months otherwise. And there is a 25% fee to purchaser owed during first year, 50% in year 2.  If you’ve got the money to throw down on the higher bid properties, you’re either going to keep the property or make a nice return. 

[Guest]

59 minutes ago, TwiceHorn said:

Yep, and that probably means that no bid in excess of the debt was received at foreclosure.  The or a secured creditor made a credit bid equal to the amount of indebtedness and won the auction.

So Porterhouse isn't talking about the proceeds of a "foreclosure sale," but rather what happens subsequently.

And, bankruptcy sales, whether trustee-directed or 363 are not a very good analogy for foreclosure sales under a mortgage or deed of trust, because generally the debtor in a bankruptcy doesn't get to keep any excess value.  Probably also true in a multi-creditor foreclosure sale.

 

2 hours ago, Dahobbs said:

You. 

 

 

 

None of these are correct. There are no special rules on this for commercial properties. It is the same rule: the debtor keeps excess proceeds from a foreclosure sale. You are confused because (1) you're talking about bankruptcy where the debt will almost always exceed the value of the sale at auction and (2) you're talking about the a subsequent sale after the property has already been transferred in the foreclosure auction. 

When a foreclosure happens (or a 363 sale), there is an auction. At that auction, anyone, including the creditor(s) can bid on the asset. If the asset are sold at the auction for an amount in excess of the debt, the debtor gets the excess proceeds. What happens after the auction has nothing to do with the debtor or the debt. The new owner, whether it is a creditor or not, is free to sale the asset for more than it paid for it and keep the increase in value. 

Semantics. If you think you’ve got me because I skipped a step or melded a few steps together, be my guest. 

[TwiceHorn 31,585]

3 minutes ago, Porterhouse said:

 

Semantics. If you think you’ve got me because I skipped a step or melded a few steps together, be my guest. 

Well, law is pretty much all semantics.  At a normal foreclosure sale, the debtor gets back whatever is in excess of the indebtedness and costs of sale, assuming there aren't junior lien creditors.  And, in any event, the foreclosing party doesn't get any more of the proceeds than the indebtedness and cost of sale.

What the purchaser at the foreclosure sale does with the property and how they profit by it has nothing to do with foreclosure proceeds, even if the purchaser is the foreclosing entity by "credit bid."

[TwiceHorn 31,585]

9 minutes ago, UT_OB1 said:

Right of redemption is 2 years on a homestead, 6 months otherwise. And there is a 25% fee to purchaser owed during first year, 50% in year 2.  If you’ve got the money to throw down on the higher bid properties, you’re either going to keep the property or make a nice return. 

That's for tax sales and HOA foreclosures, no?  Or has the law changed on deed of trust foreclosures?

[Guest]

14 minutes ago, TwiceHorn said:

Well, law is pretty much all semantics.  At a normal foreclosure sale, the debtor gets back whatever is in excess of the indebtedness and costs of sale, assuming there aren't junior lien creditors.  And, in any event, the foreclosing party doesn't get any more of the proceeds than the indebtedness and cost of sale.

What the purchaser at the foreclosure sale does with the property and how they profit by it has nothing to do with foreclosure proceeds, even if the purchaser is the foreclosing entity by "credit bid."

Understood but I’m getting my ass jumped about skipping steps. Mofos ready to pounce. 

[Dahobbs 17,702]

27 minutes ago, Porterhouse said:

 

Semantics. If you think you’ve got me because I skipped a step or melded a few steps together, be my guest. 

That isn't semantics. We aren't talking about different meanings for the same term. And it isn't just you skipping a step. We are talking about two entirely different transactions.

You: the debtor shouldn't get any excess from the sale.

Reality: the debtor gets excess from the sale. 

It's ok, it can be complicated and confusing. And I have no doubt you know a ton about real estate transactions. You just don't know this particular issue very well. I don't know why that is so hard to admit.

Here, a creditor can't force a sale of a debtor's property and keep the excess from that sale. That was the issue with the OP, which is why it was so fucking odd. What happens in any subsequent transaction doesn't involve the debtor at all. 

 

Edited February 28, 2022 by Dahobbs

[Guest]

1 minute ago, Dahobbs said:

That isn't semantics. We aren't talking about different meanings for the same term. And it isn't just you skipping a step. We are talking about two entirely different transactions

You: the debtor shouldn't get any excess from the sale.

Reality: the debtor gets excess from the sale. 

It's ok, it can be complicated and confusing. And I have no doubt you know a ton about real estate transactions. You just don't know this particular issue very well. I don't know why that is so hard to admit.

Here, a creditor can't force a sale of a debtor's property and keep the excess from that sale. That was the issue with the OP, which is why it was so fucking odd. What happens in any subsequent transaction doesn't involve the debtor at all. 

 

Last paragraph- fair enough (you smarmy motherfucker). 

[UT_OB1 2,225]

26 minutes ago, TwiceHorn said:

That's for tax sales and HOA foreclosures, no?  Or has the law changed on deed of trust foreclosures?

Sorry, should have pointed out for taz

[TwiceHorn 31,585]

12 minutes ago, UT_OB1 said:

Sorry, should have pointed out for taz

No, I was just checking myself.  My knowledge of state law things is starting to get seriously outdated.  I should probably stfu.

[TwiceHorn 31,585]

For a state that has the reputation of being extremely liberal, Minnesota sure seems to have a lot of fairly draconian statutes.

However, this one is not as draconian as it seems. 

First, the taxes have to go delinquent, which happens one year after they are payable.  Then the county/taxing entity files suit.  If the debtor fails to answer or loses as to tax liability, the county/taxing entity takes "defeasible" title to the property.  The debtor then has 3 years to redeem the property, only at the cost of "taxes, penalties, costs, and interest," no extra dick fees or anything.  And it can be paid in installments over 5-10 years.

So, it appears that she stopped paying taxes in 2010, they were delinquent in 2011, the county filed suit sometime in 2011 or 2012.  She admitted receiving notice of the suit.  She didn't answer.  And she failed to redeem for the next three years and six months.  At that point, the county got "absolute," "indefeasible" title to the property and sold it for an amount in excess of the indebtedness (40k on 15k), which they kept.

So this one doesn't really involve a traditional foreclosure auction, at all.  The state just takes the property. But the very generous redemption period and terms mitigate that quite a bit.

And, all the due process along the way is probably going to keep this from being an unconstitutional taking.

 

Edited February 28, 2022 by TwiceHorn

[Bookman 4,642]

On 2/26/2022 at 8:58 PM, Bookman said:

If the house increases in value after the foreclosure sale and is later sold, then the debtor doesn't get any of that gain.

Said this way back in post #12.

[Bookman 4,642]

On 2/26/2022 at 8:58 PM, Bookman said:

If the house increases in value after the foreclosure sale and is later sold, then the debtor doesn't get any of that gain.

Said this way back in post #12.

[Dahobbs 17,702]

1 hour ago, TwiceHorn said:

For a state that has the reputation of being extremely liberal, Minnesota sure seems to have a lot of fairly draconian statutes.

However, this one is not as draconian as it seems. 

First, the taxes have to go delinquent, which happens one year after they are payable.  Then the county/taxing entity files suit.  If the debtor fails to answer or loses as to tax liability, the county/taxing entity takes "defeasible" title to the property.  The debtor then has 3 years to redeem the property, only at the cost of "taxes, penalties, costs, and interest," no extra dick fees or anything.  And it can be paid in installments over 5-10 years.

So, it appears that she stopped paying taxes in 2010, they were delinquent in 2011, the county filed suit sometime in 2011 or 2012.  She admitted receiving notice of the suit.  She didn't answer.  And she failed to redeem for the next three years and six months.  At that point, the county got "absolute," "indefeasible" title to the property and sold it for an amount in excess of the indebtedness (40k on 15k), which they kept.

So this one doesn't really involve a traditional foreclosure auction, at all.  The state just takes the property. But the very generous redemption period and terms mitigate that quite a bit.

And, all the due process along the way is probably going to keep this from being an unconstitutional taking.

 

It helps I suppose. I'm still not sure it should get around the takings clause though. Sure you had a due process, but ultimately the government is taking property without just compensation. If it were a true default judgment for the property, I'd get it. But that isn't what happened. The 8th Circuit's analysis turned on its view that the Minnesota law abrogated any right of a debtor to surplus-equity. 

But, I think that misidentifies the taking. In doing so, the 8th Circuit appeared to make the assumption that because the government had the legal right to take title to property, that the unconstitutional takings would have to be for something other than the property itself. But that gets takings' law backwards. The entire point of the Takings Clause is to require government make just compensation when it otherwise legally takes property. Here, the debtor had fee simple interest in the property. That is what was taken. Not the surplus-equity. 

As stated by the Supreme Court:

Quote

As its text makes plain, the Takings Clause “does not prohibit the taking of private property, but instead places a condition on the exercise of that power.” First English Evangelical Lutheran Church of Glendale v. County of Los Angeles, 482 U. S. 304, 314 (1987). In other words, it “is designed not to limit the governmental interference with property rights per se, but rather to secure compensation in the event of otherwise proper interference amounting to a taking.”

Lingle v. Chevron U. S. A. Inc., 544 U.S. 528 (2005). 

That said, it may be the Plaintiff herself chose to pursue the legal theory that the thing taken was the interest in the surplus equity rather than in fee simple title to the property. I don't know. I think that was a mistake if she did. 

 

Edited February 28, 2022 by Dahobbs

[Gil Bang 26,052]

4 hours ago, TwiceHorn said:

Well, law is pretty much all semantics.  At a normal foreclosure sale, the debtor gets back whatever is in excess of the indebtedness and costs of sale, assuming there aren't junior lien creditors.  And, in any event, the foreclosing party doesn't get any more of the proceeds than the indebtedness and cost of sale.

What the purchaser at the foreclosure sale does with the property and how they profit by it has nothing to do with foreclosure proceeds, even if the purchaser is the foreclosing entity by "credit bid."

So back in my asset manager days, there were several occasions when I would file a foreclosure action (the first step in CA is a "Notice of Default") and within days a junior lienholder would inquire about either bring my loan current or arranging some forbearance, so they could foreclose themselves.  Because when the 1st forecloses, the junior lienholders end up with their dicks in their hands. 

[TwiceHorn 31,585]

2 hours ago, Dahobbs said:

It helps I suppose. I'm still not sure it should get around the takings clause though. Sure you had a due process, but ultimately the government is taking property without just compensation. If it were a true default judgment for the property, I'd get it. But that isn't what happened. The 8th Circuit's analysis turned on its view that the Minnesota law abrogated any right of a debtor to surplus-equity. 

But, I think that misidentifies the taking. In doing so, the 8th Circuit appeared to make the assumption that because the government had the legal right to take title to property, that the unconstitutional takings would have to be for something other than the property itself. But that gets takings' law backwards. The entire point of the Takings Clause is to require government make just compensation when it otherwise legally takes property. Here, the debtor had fee simple interest in the property. That is what was taken. Not the surplus-equity. 

As stated by the Supreme Court:

Lingle v. Chevron U. S. A. Inc., 544 U.S. 528 (2005). 

That said, it may be the Plaintiff herself chose to pursue the legal theory that the thing taken was the interest in the surplus equity rather than in fee simple title to the property. I don't know. I think that was a mistake if she did. 

 

Actually yeah, I agree with your analysis.  But figured that was beyond the scope.  The "property interest" seemed to be too entangled with the statute, which "denies" the interest.  But that's exactly what was complained of.

Still, I think the long time and generous terms on which she could pay the tax and recover the property are going to mitigate it one way or the other.

Edited February 28, 2022 by TwiceHorn

[SquishMitten 10,447]

The creditor should get all excess proceeds after attorney fees. However, your hypothetical isn’t typical. Oftentimes, a creditor needs to take over a property via foreclosure, appoint some third party to manage it / clean it up, and wait for sunnier days. In that circumstance, the creditor should absolutely reap any excess profits. 

Then there wasn’t a buyer at the foreclosure, and the creditor essentially got the property for what they were owed. In your scenario, there were no excess proceeds from the sale. When the creditor (new owner in this scenario) later sells the property, they would keep THOSE proceeds. You’re describing an entirely different scenario

[SquishMitten 10,447]

See above. You’ve got a hard on for me, like your wife. My fault for extending the conversation beyond single family homes. But really I have little issue with what happened here, or I suppose the 10% of the US. 

Not sure what state you live in or where you’ve dealt with all these foreclosures, but you’re either doing a really bad job at describing this, or you don’t understand the process

[Guest]

6 minutes ago, SquishMitten said:

Then there wasn’t a buyer at the foreclosure, and the creditor essentially got the property for what they were owed. In your scenario, there were no excess proceeds from the sale. When the creditor (new owner in this scenario) later sells the property, they would keep THOSE proceeds. You’re describing an entirely different scenario

I already acknowledged I was describing an entirely different scenario

[Dahobbs 17,702]

2 hours ago, TwiceHorn said:

Actually yeah, I agree with your analysis.  But figured that was beyond the scope.  The "property interest" seemed to be too entangled with the statute, which "denies" the interest.  But that's exactly what was complained of.

Still, I think the long time and generous terms on which she could pay the tax and recover the property are going to mitigate it one way or the other.

My take is that the statute is likely unconstitutional, but the procedural posture of this particular case makes it a poor vehicle to challenge it. I'm assuming the Plaintiff argued the takings was of the excess proceeds because she essentially defaulted on the suit for the property itself. Personally, I think that was a poor choice. I'd have argued that even had the Plaintiff not defaulted, she'd be in the same position and still facing an unconstitutional takings. All the due process in the world can't override the Takings Clause. As is though, the Plaintiff may have waived that argument. 

[SquishMitten 10,447]

I already acknowledged I was describing an entirely different scenario

I see that now. Shoulda skipped to the end before posting. You just seemed so dug in and, with this being surly and all, I didn’t expect an about face so quickly. Good on ya, old chap!

[horn4life 3,784]

The thing about property taxes is that those taxes take precedent over everything else.

In fact taking a loan out to specifically to cover a tax bill, can be VERY RISKY.

In Texas at least, if I loaned the lady $15K, specifically for the tax bill. Then she failed to make a payment I could foreclose on the property, and take it myself.  Usually a lender comes in and pays off the note to secure their investment.  But not always.  Sometimes properties slip though the cracks.  There is a shady business model that loan the elderly tax money... then forecloses. 

[Dahobbs 17,702]

4 minutes ago, horn4life said:

The thing about property taxes is that those taxes take precedent over everything else.

In fact taking a loan out to specifically to cover a tax bill, can be VERY RISKY.

In Texas at least, if I loaned the lady $15K, specifically for the tax bill. Then she failed to make a payment I could foreclose on the property, and take it myself.  Usually a lender comes in and pays off the note to secure their investment.  But not always.  Sometimes properties slip though the cracks.  There is a shady business model that loan the elderly tax money... then forecloses. 

To be accurate, you can bid on it at the foreclosure auction. You can't just take it. 

[horn4life 3,784]

1 minute ago, Dahobbs said:

To be accurate, you can bid on it at the foreclosure auction. You can't just take it. 

yep, but for a any other lender it takes months and months and tons of paperwork..  tax lending is like next month.

 

Edited March 1, 2022 by horn4life

[markstanco 12,631]

Nobody in America really owns land. They just rent it. Don’t believe me then try not paying your taxes.

[SquishMitten 10,447]

I represent some folks in this industry, so I'll clear a little of this up.

23 hours ago, horn4life said:

The thing about property taxes is that those taxes take precedent over everything else. - Basically true

In fact taking a loan out to specifically to cover a tax bill, can be VERY RISKY. - Not really. If you can't pay the tax loan, you probably weren't going to be able to pay the taxes. The penalties the taxing entities tack on are actually quite a bit higher than the interest rates you get from tax lenders.

In Texas at least, if I loaned the lady $15K, specifically for the tax bill. Then she failed to make a payment I could foreclose on the property, and take it myself. Already pointed out above, but you can't just take it. You could get it after a foreclosure sale, but as I'll discuss below, it's not all that easy. Usually a lender comes in and pays off the note to secure their investment.  But not always.  Sometimes properties slip though the cracks. Won't disagree with that, but they get so many notices these days, it requires substantial negligence by the lender for it to fall through the cracks. There is a shady business model that loan the elderly tax money... then forecloses. 

Also, I'm not sure what shady business model you're referring to, but tax lenders can't get tax transfers for elderly folks' (over 65) homes. And in any case, the property owner still has to default on the loan before a lender could foreclose. There are 2 companies in the industry who I consider "shady" but it's not because they're out to get people's property...they just push the limits everywhere they can to get as many fees as possible. But those two are significant outliers. The rest charge far less than permissible because competition in the industry has driven rates way down. I'm not aware of a single company in that industry that wants to own the properties. They wan't to get paid back, but they go to great lengths to avoid becoming the owner.

23 hours ago, horn4life said:

yep, but for any other lender it takes months and months and tons of paperwork..  tax lending is like next month.

 

No. It's really not. It takes a hell of a lot longer to foreclose on a transferred tax lien than it does to foreclose a deed of trust. You still have the same amount of paperwork and have to send the same notices (default/intent to accelerate and acceleration), BUT then you have to file a lawsuit and go through that whole process, then you have to wait at least a month after you get a judgment, then you have to request an order of sale, then you have to coordinate with a sheriff and deal with all the same posting you do with a deed of trust. THEN you get to sale. If every step occurred on the first day it possibly could (all the notices on a perfect timeline, service on everybody occurred on the same day it was requested, trial was set immediately, all the orders were executed upon the same day, and you were able to post it for the following month's sale date), the absolute fastest that could occur is about 8 months, but in reality it takes well over a year from the default until you get to the sale, often quite a bit longer. With a mortgage, you could be foreclosing a few months after the default. Before 2012, the process was a bit faster, but even then, it still took longer to foreclose a tax lien than a mortgage.

[horn4life 3,784]

45 minutes ago, SquishMitten said:

I represent some folks in this industry, so I'll clear a little of this up.

Also, I'm not sure what shady business model you're referring to, but tax lenders can't get tax transfers for elderly folks' (over 65) homes. And in any case, the property owner still has to default on the loan before a lender could foreclose. There are 2 companies in the industry who I consider "shady" but it's not because they're out to get people's property...they just push the limits everywhere they can to get as many fees as possible. But those two are significant outliers. The rest charge far less than permissible because competition in the industry has driven rates way down. I'm not aware of a single company in that industry that wants to own the properties. They wan't to get paid back, but they go to great lengths to avoid becoming the owner.

No. It's really not. It takes a hell of a lot longer to foreclose on a transferred tax lien than it does to foreclose a deed of trust. You still have the same amount of paperwork and have to send the same notices (default/intent to accelerate and acceleration), BUT then you have to file a lawsuit and go through that whole process, then you have to wait at least a month after you get a judgment, then you have to request an order of sale, then you have to coordinate with a sheriff and deal with all the same posting you do with a deed of trust. THEN you get to sale. If every step occurred on the first day it possibly could (all the notices on a perfect timeline, service on everybody occurred on the same day it was requested, trial was set immediately, all the orders were executed upon the same day, and you were able to post it for the following month's sale date), the absolute fastest that could occur is about 8 months, but in reality it takes well over a year from the default until you get to the sale, often quite a bit longer. With a mortgage, you could be foreclosing a few months after the default. Before 2012, the process was a bit faster, but even then, it still took longer to foreclose a tax lien than a mortgage.

Then I stand corrected.

It's not that hard for me to admit when I am incorrect.  Thanks for the info.

[tbone_ 14,192]

Nobody in America really owns land. They just rent it. Don’t believe me then try not paying your taxes.

Truth

[Bookman 4,642]

It's not constitutional:

https://www.supremecourt.gov/opinions/22pdf/22-166_8n59.pdf

 

 

[Pato del Muerto 52,625]

Wow, what a particularly disgusting argument that not paying taxes equals property abandonment.  While state law at the same time says that not paying a mortgage is not abandonment and the owner is due the surplus. 

[Dahobbs 17,702]

On 2/28/2022 at 1:18 PM, Dahobbs said:

It helps I suppose. I'm still not sure it should get around the takings clause though. Sure you had a due process, but ultimately the government is taking property without just compensation. If it were a true default judgment for the property, I'd get it. But that isn't what happened. The 8th Circuit's analysis turned on its view that the Minnesota law abrogated any right of a debtor to surplus-equity. 

But, I think that misidentifies the taking. In doing so, the 8th Circuit appeared to make the assumption that because the government had the legal right to take title to property, that the unconstitutional takings would have to be for something other than the property itself. But that gets takings' law backwards. The entire point of the Takings Clause is to require government make just compensation when it otherwise legally takes property. Here, the debtor had fee simple interest in the property. That is what was taken. Not the surplus-equity. 

As stated by the Supreme Court:

Lingle v. Chevron U. S. A. Inc., 544 U.S. 528 (2005). 

That said, it may be the Plaintiff herself chose to pursue the legal theory that the thing taken was the interest in the surplus equity rather than in fee simple title to the property. I don't know. I think that was a mistake if she did. 

 

Turns out, I nailed this. 

[tx 3 putt 77,569]

4 minutes ago, Dahobbs said:

Turns out, I nailed this. 

[Dbeasy 15,116]

Very entertaining to see Porterhouse get completely de-pantsed, and of course with his ass hanging out he still doesn’t admit he was wrong. So typical of so many people. 

[BabaYaga 15,331]

On 2/26/2022 at 8:55 PM, Porterhouse said:

Another solution would’ve been to get a $15K mortgage at a really cheap rate, assuming she’d qualify.

This is probably the issue.  If she was/is unemployed she can neither qualify for current financing nor qualify for another place to live is she sells the home