Government Foreclosures: Government REOs, Tax Foreclosures and Bankruptcy Homes

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Government Foreclosures
Government 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.

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.

The 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.

If 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

PLEASE 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.

The 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

Tax Liens and Bankruptcies
Not 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 Foreclosures
If 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

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