Government Foreclosures

Banks and mortgage lenders aren't the only people who can repossess your house if you don't pay your debts. Many government agencies are also entitled to use foreclosure to recover outstanding debts. This is generally used as a last resort when homeowners persistently fail to pay taxes or fees for government services, or default on government-insured loans or mortgages.

The most common victims of government foreclosures are homeowners who fail to make repayments on a loan insured by the Federal Housing Administration (FHA), a subdivision of the Department of Housing and Urban Development (HUD; www.hud.gov). The FHA acts as a guarantor for loans issued by private banks and mortgage institutions, allowing buyers to obtain home loans with a low down-payment.

However, if a homeowner defaults on their loan repayments for three months, the lender can begin official foreclosure proceedings. In HUD foreclosures, the lender is reimbursed for their losses from the FHA insurance fund and ownership of the property passes to the government. Homes are then sold on through designated real estate agents. The private mortgage insurers Fannie Mae (www.fanniemae.com) and Freddie Mac (www.freddiemac.com) have similar programs for foreclosure properties.

One of the benefits of FHA-insured loans is that homeowners may qualify for special assistance with foreclosure, in the form of a one-time, interest-free loan from the FHA insurance fund to bring their loan account up to date. See Relief Options with FHA Foreclosures for more information.

Buyers interested in purchasing HUD foreclosures should visit the HUD website (www.hud.gov) for state by state listings of real estate brokers who are licensed to sell HUD foreclosure properties. Although prices tend to be higher than at auction or pre-foreclosure sales, HUD offers attractive financing terms for the purchase of foreclosed properties.

Another common cause of government foreclosures is non-payment of property taxes. However, foreclosure proceedings will only begin if a homeowner defaults on their property tax payments for three years. Property taxes are collected at a county level so the County Treasurer is usually responsible for this kind of foreclosure.

The Internal Revenue Service (www.irs.gov) is also entitled to start foreclosure proceedings in certain circumstances for non-payment of income tax. Some properties seized by US Customs and other crime investigation departments are also sold on to the public as if they were REO properties. Details of government foreclosure auctions are normally advertised in local newspapers or one government department websites.