Foreclosure Feast – How the Rich Get Richer

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Thousands of taxpayer-owned foreclosed properties are about to be auctioned off, but very few taxpayers will be rich enough to bid.

When retailers need to dump inventory, they might announce a big sale to the public. Or they might tackle the problem by quietly arranging a bulk sale to a deep-pocketed private buyer.

It’s the latter technique housing giant Fannie Mae will be using in an upcoming pilot program. The Federal National Mortgage Association (aka Fannie Mae) will be selling thousands of homes – but not to the public. Instead, they’re going to package the properties in giant pools and auction them off to institutional buyers. Those without property management expertise and millions in cash won’t be allowed to bid.

Bypassing the public to sell to a bulk buyer wouldn’t raise eyebrows for the typical retailer.  But Fannie Mae isn’t Sears. It’s backed by the American taxpayer, and the American taxpayer has lost billions on the inventory being sold: repossessed homes and rental properties with Fannie Mae-backed mortgages.

Some are questioning a sales tactic that allows thousands of taxpayer-owned homes to be sold – presumably at bargain prices – in lots with price tags prohibiting all but the wealthiest from participating.

Money Talks News founder Stacy Johnson breaks it down in the following video. Check it out, then read on for more…

The number of foreclosures is indeed staggering…

In 2011, there were nearly 2.7 million foreclosure filings in this country, according to RealtyTrac, a company that compiles home ownership data. Back in 2005, before the bottom fell out of the housing market, RealtyTrac says there were just under 847,000 properties in some stage of foreclosure.

As Stacy mentioned, there are two problems with selling thousands of foreclosed properties in wholesale auctions. First, despite the fact that you, me, and all taxpayers own these homes, we can’t get in on the action.

To qualify as a bidder, you must agree to buy all the properties in one of the sale areas. Or as CNN succinctly described it, “Bidders must purchase all of the homes that are for sale in a given metro area. In Atlanta, that’s as many as 572, while in Chicago it’s 99.”  Other areas include Las Vegas, Los Angeles, Phoenix, and parts of Florida.

The Bidder Qualification Application requires you put down a deposit of 25 percent for the portfolio of properties you’re thinking about buying. If you’re buying 500 properties at $100,000 each, that means you’d have to cough up $12,500,000 just to bid.

And that leads to the second big problem, outlined here by The Street

These investors will instantaneously become the largest improved real estate owners and landlords in the world. The U.S. taxpayer will get pennies on the dollar for these homes and then be allowed to rent them back at market rates.

So while only the richest of us can buy these houses in bulk, all of us are selling them at a loss and taking the hit.

This is a pilot program: The Wall Street Journal reports Fannie Mae may hold additional, and larger, sealed-bid auctions in more states.

Fannie Mae has nearly 140,000 foreclosed properties to unload, and many are available to the public at HomePath.com. But if this bulk sale goes off, many more houses, condos and rental properties will be sold in packages so large, only the rich will be in the position to get richer.

So what do you think? Should taxpayer-owned homes be sold in bulk? Sound off on our Facebook page!

And if you’re looking to make a more modest investment, check out How to Steal a House – 4 Steps to Buying an REO or 15 Tips to Find, Buy, and Rent Real Estate.

Stacy Johnson

It's not the usual blah, blah, blah

I know... every site you visit wants you to subscribe to their newsletter. But our news and advice is actually worth reading! For 25 years, I've been making people richer without making their eyes glaze over. You'll be glad you did. I guarantee it!

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Read Next: Ask Stacy: What’s the Best Way to Borrow?

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