Judicial Foreclosures on Raw Land

Why are judicial foreclosures on raw land so rare? 

Lots of people ask me to let them know when raw land comes up on foreclosure auction.  For the most part it doesn't.  Raw land is almost all you will find at the tax auctions, but rarely comes up at judicial foreclosure auctions.  The reason for this is the difficulty in obtaining land loans.  

Very few lenders do land loans because they are riskier.  The theory goes that when finances get tight, the last thing people will quit paying is their home, but if someone gets into financial trouble, likely the first bill they will cut out is their raw land mortgage.  So the few credit unions and farm loan services who do raw land loans typically require great credit, a lot of money down (around 35%), high interest rates, and short term loans.  This system steers most people into construction loans which allows them to purchase the raw land as long as a contractor is lined up to begin construction on a residence.  The loan is quickly converted to a regular mortgage as soon as the home is built.  

This means that most people who manage to purchase raw land have either used all cash or a lot of cash and so these loans rarely make it to judicial foreclosure.  However, a couple of weeks ago I posted one:  http://www.bigislandforeclosures.com/2021/10/road-9-koloa-maoli-in-hawaiian-acres.html.  This raw land was obtained through owner financing.  The owner (in this case a company - Tahan’aineo Seedtime&Harvest LLC) who sold the property to the buyer/borrower also financed it.  So in this case, the foreclosing party is not a bank or traditional lender.  Anyone who holds a mortgage note can foreclose.