Riddle me this: why foreclose if you paid cash?

Question

Riddle me this:

I recently saw this happen but I can’t figure out what the loophole is....

A trust fund baby purchases home #1 in cash for 50k. Lives in it for a few years. Buys home #2 in cash. Moves into it. A year later, Buys home number #3 (a mansion), and then the bank forecloses on home #1 and lists it for sale.

What is the loophole? Why would a wealthy person, who paid cash for a home, foreclose...? instead of just selling it?

I’m interested to know your wild ideas on what the loophole could be. Personally, I don’t know the answer. But I have my own guesses haha

Don Konipol · Answer

@Shalom Benton

If the buyer paid cash for the home, their would be no mortgage and hence no foreclosure by a lender.  There may be unpaid property taxes, or a judgement which could be the basis for a foreclosure action.  Or the owner may have taken a loan secured by the property after the cash purchase.

My best guess would be that you’re not in possession of all the facts.  The reasons for financial problems are numerous and varied.  Rarely is a sophisticated strategy involved.  Normally the result of poor financial management or a life out of control.

Shalom Benton · Answer

@Don Konipol In this situation I don’t think it is a poor financial situation. It could be. But the owner moved to a different state and bought a mansion... it’s interesting to speculate what could have happened. I think you’re on to something when you say a loan might have been taken out against the first property, but why wouldn’t it be repaid if you have the funds?

Shalom Benton · Answer

@Kenneth Garrett

Your conclusion is the one I came to as well. There is definitely something missing in this story. I’m thinking a loan was taking out against the foreclosed property, but still... if you have funds to pay the loan, why would you let it foreclose?

Kenneth Garrett · Answer

@Shalom Benton

If there paying cash for these properties there is no foreclosure possibility.  As the others have said, tax sale could be a possibility.  If I’m a trust baby I should have the resources to pay the taxes.  One possibility after trust baby paid cash then he/she borrowed money on property #1 to buy #2 or #3.  Sounds like something is missing in this story.

Pat L. · Answer

We've bailed out several who faced a Tax Lien foreclosure on properties they have spent years paying off. But got into financial difficulty & were about to lose the home for peanuts in arrears. We have seen where owners who walked away from a home, then neglected to pay tax/water arrears, didn't get their mail forwarded about the notice of a tax lien foreclosure & then lost it. In fact we have also seen a couple of properties with a mtg. held by out of state banks, lost the same way.

Shalom Benton · Answer

Third home was purchased in a different state.

Riddle me this: why foreclose if you paid cash?

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