Buying a Foreclosed Home or Potential Foreclosure Property

By
Real Estate Agent with RE/MAX Executive Realty 91362

                                                                                                                                                    Foreclosed homes in Massachusetts

Are you considering buying a foreclosed property? Why not after all there are plenty of them all around the country and they can typically be bought at a discount to the present market value.

Buying a foreclosed home however, 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 buying a foreclosed home can be bought for 50 cents on the dollar and immediately re-sold for a boat load on money. 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 need to prepare yourself for a significant amount of due diligence.

As a twenty three year veteran to the Real Estate industry, I would highly recommend having an attorney represent your interests. One of the 1st things an attorney will do is a title search to see if there are any liens or other liabilities on the property. Things like unpaid taxes, mechanics lines, or court judgments are all possible land mines. The sooner you determine the legal status of the property the better as this will help determine if it is worth it to put in an offer.

The last thing you want to have happen is to think you just bought a home for $400,000 but then find out there is $75,000 worth of liens on the property.

Foreclosed homes in Metrowest MassachusettsHaving your financing already lined up is a very important consideration as well because these kind of transactions tend to move very swiftly.

Unlike a traditional Real Estate transaction everything is "buyer beware". You will be buying a home in many cases 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 components of a home such as heating, plumbing and electrical systems are all possible. Don't be surprised if there has been vandalism by the previous home owner or other vandals either.

I have gone in plenty of foreclosed homes where the owner has taken out their anger on the home. I have been in homes where the entire kitchen was removed. Some 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 home owner before the bank takes over.
  • At an auction where you may be in competition 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 make sure there are no liens. In 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 a must bring it current giving the bank any missed payments.                                                                                                                     Buying a home at auction in Massachusetts

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 court house.

Many times with an auction you are not allowed to inspect the property prior to 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 good size deposit and will be expected to show they have the ability to complete the purchase.

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 clear title, is most often allowed to inspect the home, and is allowed to have a mortgage contingency.

A few other very important considerations in the foreclosure process in the "pre-foreclosure period" and the "redemption period".

Selling a home at auction in MassachusettsThe pre-foreclosure period is the time between a previous owner's notification of default and the point when the property can be sold by the lender.

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 taking 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 quicker and with far less head aches.            Foreclosure help in Massachusetts

In Massachusetts the primary means on 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 foreclosed home. In addition to having a good attorney a knowledgeable local Realtor can be very important as well in helping to determine the market value.

If you are a Massachusetts home owner and have come across this article and may be potentially facing a foreclosure there are options to avoid this potential situation. See this avoiding Massachusetts foreclosure resource.

There are other options to avoid a foreclosure including a short sale which I have been successfully doing in the Metrowest massachusetts area. Here are a few articles worth reading:

Foreclosure avoiding it through a short sale or loan modification

Short sales and deed in lieu of foreclosure

Buying a Massachusetts foreclosure

______________________________________________________________________________________________________

About the Author: The above Real Estate information on Buying a foreclosed homeRE/MAX Executive Realty Hopkinton Massachusetts was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. 

Have a home to sell in Metrowest Mass? I have a passion for Real Estate and love to share my marketing expertise! 

For Metrowest Massachusetts Real Estate and homes see Metrowest MA Real Estate. Want to have MLS access to beat other buyers to your dream home? Sign up with no obligation at my MLS Property Finder Site.

I service the following towns in Metrowest Massachusetts: Hopkinton, Milford, Upton, Southboro, Westboro, Ashland, Holliston, Mendon, Hopedale, Medway, Grafton, Northbridge, Uxbridge, Franklin, Douglas, and Framingham MA.

Click here to view Bill Gassett's Real Estate profile.

 

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Bill Gassett is a thirty-two year veteran to the real estate industry. He enjoys providing helpful information to buyers, sellers and fellow real estate agents to make sound decisions. His work has been featured on RIS Media, National Association of Realtors, Inman News, Placester, RESAAS, Credit Sesame and others.

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Re-Blogged 13 times:

Re-Blogged By Re-Blogged At
  1. Janie Coffey 03/23/2009 12:42 AM
  2. Mara Hawks 03/23/2009 01:21 AM
  3. Dawn Maloney 03/23/2009 01:40 AM
  4. Rebecca Gaujot, Realtor® 03/23/2009 03:03 AM
  5. Kristi DeFazio 03/23/2009 05:09 AM
  6. Mike Sackman 03/23/2009 07:00 AM
  7. Robert Hammerstein 03/23/2009 10:32 AM
  8. Jean Terry 03/23/2009 10:33 AM
  9. Ginger Sala 03/23/2009 10:44 AM
  10. Yvette Gardner 03/24/2009 05:00 AM
  11. Don Rogers 03/24/2009 02:22 PM
  12. Sonja Adams 04/03/2009 02:04 AM
  13. Patty Mortara REALTOR CRS | Hunterdon County (NJ) 04/21/2009 03:10 AM
  14. Charles Stallions 05/26/2009 03:01 PM
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Rainmaker
563,898
Chris Olsen
Olsen Ziegler Realty - Cleveland, OH
Broker Owner Cleveland Ohio Real Estate

Hi Bill -- Wow, what a clear and comprehensive topic.  This is one to definitely bookmark as it has so much all in one place.  You write incredibly well.

Mar 23, 2009 03:43 PM #76
Rainmaker
231,989
Emily Lowe
The Lipman Group | Sotheby's International Realty - Nashville, TN
Nashville TN Realtor

Terrific information - very clear about all the potential risks in foreclosure - caveat emptor for sure!

Mar 23, 2009 04:04 PM #77
Ambassador
1,653,271
Jennifer Fivelsdal
JFIVE Home Realty LLC | 845-758-6842|162 Deer Run Rd Red Hook NY 12571 - Rhinebeck, NY
Mid Hudson Valley real estate connection

Bill - What a comprehensive coverage of things to do and consider when purchasing a distress property.  Some just think of the so call savings but don't think of the potential hidden cost.  Yes an attorney is a must to get the proper searches done. 

Mar 23, 2009 04:56 PM #78
Rainmaker
1,048,784
Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate

Bob, Ginger, Chris, Emily, Jennifer - Thanks for all your comments and compliments about my article on buying foreclosures.

Mar 24, 2009 12:07 AM #79
Ambassador
769,886
The Somers Team
The Somers Team at RE/MAX Access - Philadelphia, PA
Real People. Real Dreams. Real Estate.

Bill - What a great post !  There are sooo many items that buyers need to know when buying these types of properties and you covered most of them.  Financing is typically critical for many properties may not be financial with traditional loans.  Or if it is FHA, the buyer would be responsible for any repairs for the loan to go through as well.  This is where FHA 203K may be applicable.  Also, in Philadelphia, sometimes the buyer has to pay both sides of the transfer tax when buying certain foreclosures.  Buyers need to have expert buyer agents when entering into these types of transactions.

Mar 24, 2009 12:50 PM #80
Rainmaker
334,635
Jeff R. Geoghan
Coldwell Banker Residential Brokerage - Lancaster, PA
REALTOR, Marketing Manager

Whew - lots of comments! 

I get a kick out of negotiating with banks for foreclosures.  My investors usually are pretty set in their goals and have VERY THICK SKINS, which is critical.  Often I surprise myself with what we can get out of the bank.

Mar 24, 2009 02:28 PM #81
Rainmaker
416,376
Mesa, Arizona Real Estate Mesa Arizona Realtor
Homes Arizona Real Estate LLC - Mesa, AZ
AzLadyInRed

Hi Bill, though I didn't read all of the comments, there are huge differences in how we handle foreclosures, etc. That said, your scenario about the "as is," the risks, etc. are right on. We also don't use attorneys, as Realtors handle the transactions typically here in Arizona. There are so many right and wrong ways to purchase a home these days - but the REAL RIGHT way is with a knowledgeable REALTOR!! Great post....;)

Pepper

Mar 24, 2009 03:03 PM #82
Rainmaker
151,716
Carol Lee
Dilbeck Real Estate - Oak Park, CA
Realtor - Agoura, Oak Park, Westlake CA Homes

Definitely not for the faint of heart.  And  a lot of the REO's out here go out over asking- for two reasons.  Firstly they are often priced under market to generate multiple offers, and then some buyers think that because it is bankowned, it must be a good deal.  And the addenda the banks generate are downright scary!!

Mar 24, 2009 04:00 PM #83
Rainmaker
1,048,784
Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate

Chris - You bring up a good point about FHA financing a remembering there may be things a buyer will need to fix prior to closing.

Jeff - There is no question in many situations an investor can find themselves a pretty good deal in a foreclosure property. One of the things most investors don't have to worry about is an emotional attachement. It is all about the numbers.

Teri - I knew you guys did not use attorneys but someone must do a title search?

Carol - You are right about the perception being anything bank owned is a great deal. This is where are Realtors expertise is valuable.

Mar 25, 2009 12:01 AM #84
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Margaret Woda
Long & Foster Real Estate, Inc. - Crofton, MD
Maryland Real Estate & Military Relocation

Great advice, Bill.  I always cringe when a first-time buyer comes into the office and says "I want a foreclosure list... I'll only buy a foreclosure" - then I explain that some highly motivated owners might match the prices on the foreclosure list, and they'll usually agree to consider other options.

Mar 25, 2009 03:19 AM #85
Rainmaker
416,376
Mesa, Arizona Real Estate Mesa Arizona Realtor
Homes Arizona Real Estate LLC - Mesa, AZ
AzLadyInRed

Bill, absolutely....we do have title companies, and they are excellent at their job. A must in this market of course. ;-)

Pepper

 

Mar 25, 2009 03:25 AM #86
Rainmaker
288,942
Pippa Mac
Chevaux Group Realtor, The Woodlands and Spring - The Woodlands, TX
The Woodlands TX Real Estate

bill .. you make it sound easier than it is!!!!

Mar 25, 2009 01:30 PM #87
Rainmaker
1,048,784
Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate

Margaret - I have heard the same thing about foreclosure properties as well. There are some who become narrow minded.

Teri - I figured your state used title companies.

Pippa - I thought I portrayed a pretty accurate picture of what a buyer would be getting themselves into with the purchase of a foreclosed home.

Mar 26, 2009 12:06 AM #88
Rainmaker
225,353
Shannon Lefevre
John R. Wood Properties - Naples, FL
Shannon Lefevre, PA Your Naples Smart Girl

Hey Bill, Not all foreclosures are deals down here in Naples.  In some cases they're actually priced above market value and that's not even including the damage that needs to be repaired.  It's so weird...greedy and unrealistic banks tied to agents who don't know what they're doing!  B E A U T I F U L!

Mar 26, 2009 01:03 AM #89
Rainer
53,243
Susan Jackowski
Lake Norman NC - Mooresville, NC
Lake Norman NC & Hudson Valley NY

This is great information for anyone that is interested in purchasing a foreclosure.  We actuallly had a title company come in to speak to our company and they offered to do a basic title search for any property that we are listing or representing the Buyer on.  At times, the fee for this is nominal and well worth the investment in advance.  At times, title issues can be so overwhelming that your Buyer may not want to get involved.  Again, this information is really helpful.

Mar 26, 2009 07:04 AM #90
Rainmaker
1,048,784
Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate

Shannon - Wow that sure is not typical to the rest of the country. Why do you think this happens in Naples?

Susan - Thanks. Getting a home with clear title has to be one of the most important considerations when potentially purchasing a foreclosure.

Mar 26, 2009 07:45 AM #91
Ambassador
2,008,677
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

Bill - You provided an amazing amount of important information for anyone considering purchasing a foreclosure or pre-foreclosure.

Mar 27, 2009 04:01 PM #92
Rainmaker
1,048,784
Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate

Christine - Thanks as you know the is quite a lot to absorb when purchasing a foreclosure property.

Mar 30, 2009 12:23 AM #93
Rainmaker
246,739
Brien Berard
Remax Professionals Laurel MD - Laurel, MD
Maryland Real Estate Agents - Laurel Real Estate

Hey Bill, thanks for this article, though some parts of it are not relevant to my market, I still gave you some link love.

Apr 17, 2009 02:01 AM #94
Rainmaker
1,048,784
Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate

Brien - Thanks for commenting on buying a foreclosed property. I am not sure what you mean by giving me some link love though?

Apr 17, 2009 02:31 AM #95
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