I'm interested in a few properties in Plymouth County, Massachusetts that are being sold at trustee/foreclosure auctions. I know in Mass, that they are auctioned off on the front steps of the property, and that often times these sales are postponed for various reasons. I also know that I need to come prepared and have already done my research on the property title, and do a drive-by to possibly estimate repair costs, etc.
Let's say I do my research and decide it's a "go" and I want to attend the auction and bid on it... What should I expect at an auction like this in Massachusetts? Do you often get to tour the inside of the property if it's not occupied? Is it guaranteed that I'd have to be a cash buyer, or could I get a loan to purchase the property? What kind of legal costs should I expect to evict if the people are still living there? What kind of expenses will I incur during the closing/foreclosure process?
It's pretty easy to understand how to find these auctions, and that I need to physically be at one, but other than that, I have no experience of what happens AFTER you're the high bidder, and I'm sure it's different with every property... I know these questions are rather open-ended, but whatever information you can offer would be greatly appreciated.
you don't get access to any of the homes. What should you expect? Expect to bring your certified funds equal to the amount needed to cover your bid if you are the winning bidder. Can you get a loan? No, you have to be a cash buyer. You incurr no expenses beyond the purchase of the property and possible post eviction costs if its occupied.
Best to attend a couple first as an observer so you get the lay of the land but, it's the SAME with every property, not different.
@Ron S. I've been emailing with the auctioneers, and they've been very responsive and one of them just told me most homes are financed after the bidding, and that very few are actually cash sales. Has that not been your experience in MA?
Steve, you can get a loan, but not from a conventional residential lender.
Hard money lenders will sometimes finance. The issues will be:
1. Title - This is easy, the closing attorney will run title and the lender won't close unless they are satisfied. The challenge is more difficult for you, because you have to have already had your own attorney run title, and it can change between the moment you check title and the moment that you close on the property. If you don't close, you lose your deposit.
2. Condition - more difficult. You will almost never get to see the condition at the auction. If you have gained access to the home beforehand, such as taking photos when the property was still listed as a short sale or whatever, you may convince the lender. However understand that the condition may have changed, and the lender will want you to have the cash reserves to deal with surprises
3. Occupancy - if it is tenant or previous owner occupied, they may decline because of the long timeline to gain possession.
4. You can't get a loan for 100% from a hard money company, you have to have the deposit and it is seriously at risk if you don't close.
Buying foreclosure auction properties is not a good place for a beginner, because of the risks and variables. Don't try to start here, you will seldom convince a hard money lender to finance a beginner buying at foreclosure auction. You don't know what you don't know until you've done a few transactions. That especially holds true at foreclosure auctions.
@Steven Tierney Might be more useful if you get off the keyboard and actually go to an Auction or two...
Different Buyers in our REIA have had mixed results.
One, a Title/Closing Attorney took months to clear a Title in his recent purchase (most come with fairly clear (maybe one still active lien) title).
Another was successful in the winning bid on a 2 family that was actually a SF in the Building and Assessors office. Worse than that it was Owner Occupied and they had a case against the original lender in Mass Supreme Court. The Bidder had been to almost EVERY Auction on the North Shore for the past 3 months (unsuccessfully) prior to getting (and walking on) that "gem".
Did I mention to GET OUT THERE? ;-)
Hi @Mike Hurney - you bring up a good point - I absolutely do need to get out there and witness an auction for my own knowledge gathering and to get a lay of the land at a RE auction. I'm on BiggerPockets to learn from people that have already taken part in these types of transactions (and whatever hiccups were involved), and will supplement that information with my own experiences as I move forward. So far, it seems like just about every Real Estate scenario is here on BP, it's just that some people are more willing to share than others! My goal is always to educate myself at much as possible before jumping in to anything "in real life".
I know those were just 2 examples of people in your REIA, but I've already confirmed the building classifications with the assessor's office, and I'm working with a local foreclosure attorney/title company to do title searches to assess lien priorities and liabilities. As @Ann Bellamy said though, I do understand that the title status could change between the time the initial search is done and the time of closing, which I understand is a huge risk. For my own education, what kinds of liens, etc. might show up "at the last minute"?
The properties are vacant, so unless somebody moves back into these properties, should occupancy concern me? Dumpsters in the driveways of the properties kind of tell the story I think, don't they?
One of the properties has a MassHealth lien on it - anything you can tell me about those?
You made a statement that is an example of not knowing what you don't know:
"I've already confirmed the building classifications with the assessor's office,"
You don't find the legal classification of a property at the tax assessor's office, you find it at the building department.
Example: You find a two unit property, you check with the tax assessor, they assess as a 2 unit. You buy it. It is a legal 1 unit (SFR) with the building department. You start to rent it. The neighbors complain. You find out the hard way that they can force you to evict the two sets of tenants, and rip out the 2nd unit, plus charge all kinds of fines, and then throw the book at you for bring the entire building up to current code.
Yes, the tax assessor will happily charge you taxes as a two unit when it is only a legal single family with zoning and building. They don't cross reference, and don't care. Sad but true.
"For my own education, what kinds of liens, etc. might show up "at the last minute"?"
Mechanics liens, irs liens, masshealth, property tax liens, etc
"The properties are vacant, so unless somebody moves back into these properties, should occupancy concern me? Dumpsters in the driveways of the properties kind of tell the story I think, don't they?"
Occupancy should always concern you in MA. - Squatters have been know to hold up a project for months, even years, by asserting that they are tenants.
I can't emphasize enough, don't start with a foreclosure auction property.
@Ann Bellamy thanks for the tip re: building department vs. assessor! I hope that in my case though, it doesn't exactly apply because I'm only looking at SFR's.
I see that you mentioned the MassHealth lien - out of all the types of liens, this is the one that I don't understand in terms of seniority. I know that RE Estate and IRS taxes take precedence over any other types of liens, and would be my responsibility theoretically, but any idea what happens with the MassHealth lien when the property is sold at auction?
Not sure, ask your title attorney.
Don't forget HOA liens
Originally posted by @Steven Tierney :
@Ron Scribner I've been emailing with the auctioneers, and they've been very responsive and one of them just told me most homes are financed after the bidding, and that very few are actually cash sales. Has that not been your experience in MA?
you have 30 days to complete your financing in MA so, while yes, you can finance the purchase, your earnest money is gone if you can't complete it in time. A traditional lender will have a difficult time lending on a property that can't be reviewed and if you have an occupant (Former owner, tenant, etc.), getting access would be tricky at best.
The potential surviving liens that you really want to worry about are the ones that automatically get a higher priority; those are typically municipal liens (water, sewer, trash, code violations), property tax liens, state and local income tax liens, and any other state liens (I don't know about masshealth but assume it is some kind if state lien, and the state legislatures have a way of enacting law that gives the state higher priority to collect at foreclosure). In some areas, HOA liens will also survive, although some places limit the HOA; this really is quite local, so as I do not know MA I can't say for certain. IRS liens just get their 120 day right of redemption; lots of existing posts on that.
Wow, @Steve Babiak you are a wealth of information! Thank you very much for linking me to your other post of links. Lots to read and learn!
You people in big cities have a tough go of it with all the zoning and building laws you have to deal with, Im glad im in Po Dunk ville where we can pretty much get away with anything, heck most townships only require a permit for new construction, and a few dont, just a sanitary and well permit from the state. fun for me to read about though.
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