SBA Loan vs Tax Deed in Washinton State

3 Replies

Hello!  I am thinking of investing in some Tax Deed Sale properties in King County, WA.  One of the properties has a 2006 SBA Mortgage on it.  Does anyone know if the SBA Mortage will survive the sale? 

From the title report:

A deed of trust to secure an indebtedness in the amount shown below,
Amount: $193,900.00
Dated: October 21, 2006
Trustor/Grantor: XXX
Trustee: U.S. Small Business Administration
Beneficiary: The Administrator of the U.S. Small Business Administration
Loan No.: DHL XXX
Recording Date: November 27, 2006
Recording No.: XXX

Any thoughts would be greatly appreciated.

Highly unlikely that a SBA mortgage would survive property tax foreclosure.  But, WA has a six year Statute of Limitations.  So the SBA mortgage will be unenforceable against the current owner or the winning bidder at the tax foreclosure sale -unless a payment has been made within the last six years (after 2013).

My thought is to contact the borrower. He/she should be able to tell you (and provide an affidavit) when the last payment was made.  

I do not know how to find out from the SBA when the last payment was made. Would tell you if I did.  There is always a way, there is always another way, and there is always a better way.   

You've mentioned very little about the property, but if the SBA has the first mortgage, then I would consider at least offering them 10 cents on the dollar for an assignment of their interest. My assumption is that the SBA loan will be wiped out at the tax sale. Seems to me that for the SBA, 10% now is better than nothing after the sale in a few months. Government doesn't usually think that way though.

If you get an assignment of the mortgage, then controlling the SBA loan would be better for you too.  You'd be a lien holder and you'd be entitled to protect your lien by paying the back taxes so as to remove the property from the property tax sale. Then you could foreclose your new mortgage.  You could also get a judicial lien for the taxes you paid and you could add the amount paid on the property taxes to the amount due on the mortgage.  Then you'd bid the full amount you're owed for the SBA mortgage plus taxes paid plus cost, at your own foreclosure sale (with fewer bidders than the prop tax sale).  You'd either get the property for much less than it would cost at the highly competitive tax foreclosure sale, or if you were outbid, you'd get paid the full amount due on the SBA mortgage (900% return).   Getting an assignment of the SBA mortgage and foreclosing it yourself takes a little longer, but can be considerably cheaper.

Just be careful the property is not a foreclosure exempt homestead residence -a large portion of which is exempt from foreclosure.   Good luck.  Let me know if anything works out.