Buying a Foreclosure Home
Are you considering buying a Massachusetts foreclosure property? Investors with a long-term perspective of the Real Estate market understand that purchasing a bank foreclosure can be an excellent financial proposition.
There are plenty of them around in the Metrowest Massachusetts area, and they can typically be bought at a discount to the present market value.
However, buying a Massachusetts foreclosed home is not for the timid at heart, and there are many things that buyers need to consider.
If you have ever watched a late-night infomercial, you would think that buying a foreclosed home for 50 cents on the dollar and immediately re-selling it for a boatload of money is automatic. Don’t plan on it!
Foreclosed homes generally can be purchased anywhere from 5%-20% below the current market value. Along with the chance for immediate equity comes a lot more risk. As a buyer of a foreclosed home, you should be preparing yourself for a significant amount of due diligence.
Having been in the Real Estate industry for the past thirty-four years, the best advice I could provide is to make sure you have an attorney represent your best interests.
One of the 1st things an attorney will do is a title search to see any liens or other liabilities on the property. Things like unpaid taxes, mechanics liens, or court judgments are all possible land mines.
The sooner you determine the legal status of the property you are interested in, the better, as this will help determine if it is even worth it to put in an offer.
The last thing you want to have happened is to think you just bought a home for $500,000 but then find out there is $100,000 worth of liens on the property.
Having your financing already lined up is a crucial consideration because these kinds of transactions tend to move very swiftly.
Unlike a traditional Real Estate transaction, everything is “buyer beware.” When purchasing a non foreclosed home, the seller will have had some kind of history with the property and should be disclosing any known issues. In a foreclosure, the lender has never lived in the property; therefore, they would have no idea what problems the home has.
Most of the time, you will be buying in “as is” condition. In many cases, a person who has lost their home because of financial difficulties probably has not had the funds to keep up with the maintenance.
There could be any number of problems that are not readily apparent. Issues with some of the more expensive home components, such as heating, plumbing, and electrical systems, are all possible. There could also be vandalism by the previous homeowner or other vandals as well.
I have been to plenty of foreclosed homes where the owner has taken out their anger on the property. I have been in homes where the entire kitchen was removed! One of the other more common issues today is the copper plumbing being taken out of a home. I know that may sound crazy, but it happens!
Still interested in buying a foreclosed home? Here are the three scenarios when buying one:
- A pre-foreclosure where you buy directly from the homeowner before the bank takes over.
- At an auction where you may compete with other buyers.
- From a Real Estate company or the bank itself. This is known as an REO, aka Real Estate owned.
In a pre-foreclosure, you get to do all your various due diligence, including any home inspections and a title search, to ensure there are no liens. With a pre-foreclosure, the owner signs over the deed to you, and you take title to the property.
In this scenario, you acquire the mortgage and bring it current, giving the bank any missed payments.
Buying at an auction typically carries the most risk but also can come with the greatest reward.
Auctions are handled differently from state to state. Some are held right at the property, and others at the local courthouse.
Many times with an auction, you are not allowed to inspect the property before the scheduled auction date. These types of sales tend to bring out more “investor” types as these properties can be bought on many occasions for a price that could warrant a “flip” where the buyer turns around and re-sells the property.
A buyer going to an auction will need to come up with a fairly large deposit and will be expected to show the lender that they have the ability to complete the purchase. The other consideration in the auction scenario is that you may have to remove the previous owner’s time and money. A task that most buyers don’t have the stomach for.
The REO scenario is usually the least risky as the bank has acquired the property and has wiped out the liens through purchase.
Once a home is Real Estate owned, many banks will list these homes with a Realtor. The buyer gets a clear title, is most often allowed to inspect the home, and is allowed to have a mortgage contingency. This is typically the best route for the non-savvy Real Estate investor.
A few other essential considerations in the foreclosure process in the “pre-foreclosure period” and the “redemption period.” The pre-foreclosure period is the time between a previous owner’s notification of default and the point when the lender can sell the property.
This time period is also when the existing owner can make good on the note and keep their home or sell it themselves. So the shorter the pre-foreclosure period, the more advantageous it is for the new buyer.
The redemption period is the time when the previous owner is allowed to buy back the home after the lender has sold it. Again, the shorter this time period, the better it is for the buyer.
Some states have no redemption period, making it an optimal situation for someone to purchase. These time periods vary depending on the state the property is located in. Knowing the exact redemption period is critical because you could end up losing time and money if the previous owner ends up buying back the home.
Most of your efficiency as a buyer depends on whether the state in which the property is purchased uses mortgages or deeds of trust for real estate transactions.
When a state uses mortgages, it means they also conduct their foreclosure proceedings through the courts. These transactions tend to take longer and have a range of potential problems. When a state uses deeds of trust, the foreclosures are non-judicial and tend to resolve quickly and with far fewer headaches.
In Massachusetts, the primary means of foreclosure is non-judicial (no court action). If the deed of trust, however, does not contain a power of sale language (language in the mortgage that allows the mortgagee to sell the property), the lender may seek judicial foreclosure.
As few as 75 days may pass from the time a property owner receives a notice of default until the property is sold at a public foreclosure auction sale.
As you can see, there is quite a bit to know when buying a Massachusetts foreclosed home. In addition to having a good attorney, a knowledgeable local Realtor can be an important piece of the puzzle in helping to determine the market value of the property you wish to purchase.
Related Real Estate articles:
- Buying a Massachusetts Bank-Owned Home – see additional information on what to know when purchasing a bank-owned property.
- Short sale Realtor Massachusetts – if you need to conduct a short sale on your home, you’ll want to have a pro in your corner. You should never hire a real estate agent that does not have experience closing short sales.
About the author: The above Real Estate information on buying a Massachusetts foreclosure property was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at firstname.lastname@example.org or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 34+ Years.
Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!
I service the following towns in Metrowest MA: Hopkinton, Milford, Southboro, Westboro, Ashland, Holliston, Upton, Mendon, Millbury, Millville, Hopedale, Medway, Franklin, Framingham, Grafton, Northbridge, Shrewsbury, Northboro, Bellingham, Wayland, Uxbridge, and Douglas.
Great article! I am here just checking out your WP blog 😉
Great article Bill. Spot on!! I have run into scenarios where banks are not disclosing issues on the deed like easements and such… It is very important to have an attorney look at that so you understand all the issues that come with the property.
Thanks Renee & Kevin! I appreciate the compliments on the article. Doing your due diligence on a foreclosure property is very important. Having good representation from both a Realtor and attorney are vital.
Bill, well written piece of information on buying foreclosure properties. I like your advice that REO properties are probably the safer route to consider.
Thanks Pam! Buying a foreclosed property that the bank already has in the possession is far safer than buying at auction. You certainly better know what you are doing if you get involved with buying a home at a foreclosure sale.
Nice blog…I like all your advice on buying a foreclosure property.It is very important to have an attorney look at that so you understand all the issues that come with the property
Thankful for the article. I’m considering doing so, however I’ve worked in bankruptcy law for years and know risks, will probably open an account with reg of deeds so I’m able to look up everything. You rock for writing this. Thanks again