7 Foreclosure Considerations

By Gary Kelley

We recently helped a long-term friend now client buy a foreclosure property and it reminds me how “special” foreclosures can be. Let’s dig deeper.

1. Zillow lists pre-foreclosures.  Can those be bought? Yes, eventually, just like any other home.  A pre-foreclosure happens when the current mortgage holder on the property starts the process to sell a home to pay off debt on that home due to the current owners no-payment.  Some sellers are looking for a way clear, while others are humiliated at their situation and outwardly angry.
2. Are they a good deal? They can be and like anything else you need to know your numbers.  The thing to remember is the owner hasn’t been paying the mortgage, and often as they fall behind on the mortgage they fall behind on the maintenance.  The house deteriorates at a faster rate than one where the owner is lovingly caring for the property.  A small leak grows into a major issue with rot, mold, etc.  And since a foreclosure takes many months, sometimes pipes & furnaces freeze.  If the home is unoccupied, vandals can descend doing damage (like punching holes in plaster or stealing copper piping.  And those angry owners?  Some will begin selling off cabinets and appliances to have cashflow.
3. Is the paperwork the same? It’s still a Massachusetts offer, and often the seller or their agent will have some system the data needs to go into.  My view is finish the MA offer first, then put the data into the system.  The system helps them analyze offers fairly.
4. Financing – when buying a foreclosure property, it is likely you will need to perform some repairs and/or cosmetic upgrades.  You can take out a renovation loan to help bake those costs into a mortgage. You’ll need to get estimates from licensed contractors who will ultimately get paid by the mortgage holder.  While somewhat time consuming, it really does help the process and provides third party oversite to the contractor payment stream.
5. The importance of your team. Unless you are paying cash, you need a responsive mortgage lender.  One who can walk you calmly through the process, including the appraisal process.  I can’t stress enough having top notch legal representation — you are acquiring a property someone else defaulted on.  You need to make sure you get a clean marketable title and all prior liens are released.  You don’t want a prior owner asserting ownership claims, including a claim resulting from an improperly executed or incomplete foreclosure process.  You are not dealing with a homeowner…you are dealing with a nameless faceless bank committee.
6. Tenants – If the current owner is renting the property out it may be difficult, expensive and time consuming (often requiring legal representation in housing court  to move those tenants out.  Landlords in default may pocket rent payments and not pay the mortgage.  Massachusetts tenant law favors the tenant.
7. Watch your timing. If you are in a time crunch, a foreclosure may not be the way to go.  The mortgage holder is selling an asset and wants to maximize profit.  The bank doesn’t care about little Johnny and Sally starting the school year…they will march to their own beat.  That said, as the buyer you need to manage your dates, so you don’t default.  Your attorney can help with this.

Foreclosures are not for everyone and can represent value to patient buyers with the right trade resources.  That’s why they are popular with house flippers who can be patient.

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Gary is heard on WCRN AM 830 and/or seen on WMCT-TV and Westborough Community Television discussing “All Things Real Estate.”

If you need advice on selling your home or buying a new one, give us a call 508-733-6005.